Cayman Islands bankruptcy law

As an offshore financial centre, the Cayman Islands has more resident companies than citizens, and accordingly the courts a large amount of time dealing with corporate insolvency and reorganisation.

[2] An act of bankruptcy means: But it is a requirement that: A company may enter winding up either voluntarily, or pursuant to an order of the court.

[9] After the order for winding up is made, or when a provisional liquidator is appointed, no suit, action or other proceedings may be proceeded with or commenced against the company except with the leave of the court; where such an order has been made, any attachment, distress or execution put in force against the estate or effects of the company after the commencement of the winding up is void.

[14] In liquidation the assets of the insolvent company will be distributed according to the following order of priority: Preferential claims are set out in schedule 2 to the Companies Law, and broadly encompass employee's claims, sums due to governmental or quasi-governmental bodies in the Cayman Islands, and sums due to depositors by a bank.

Under Cayman Islands law there is no formal debtor-in-possession form of rehabilitation for companies in financial distress.

[15] Although the appointment of a provisional liquidator is intended to be a remedy to prevent fraudulent dissipation of the company's assets, the use of such orders to support restructuring through schemes of arrangement has now becomes widespread market practice.

[27] Under Cayman Islands law, there are two principal avoidance regimes in relation to transactions entered into during the onset of insolvency: (a) voidable preferences, and (b) dispositions at an undervalue.

[28] For these purposes the requirement to show an intention to give a preference is to be viewed in line with accepted common law authorities, such as Re MC Bacon Ltd (No 1).

If the preference is a payment in favour of a "related party" (a creditor shall be treated as a "related party" if it has the ability to control the company or exercise significant influence over the company in making financial and operating decisions) then it is deemed to have been made for the purposes of giving a preference.

[30] In addition, every disposition of property made at an undervalue by or on behalf of a company with intent to defraud its creditors shall be voidable at the instance of its official liquidator.

[33] Under Cayman Islands law there is no general power vested in a liquidator to disclaim onerous or unprofitable contracts.

Moreover, an otherwise qualified insolvency practitioner shall not be appointed by the court as official liquidator of any company unless (a) he is resident in the Cayman Islands; and (b) he, or the firm of which he is a partner or employee, holds a trade and business licence which authorises him or his firm to carry on business as professional insolvency practitioners.