Although there were recent indications by the
This recent clarification comes at a time when significant amendments to Part V of the Cayman Islands Companies Act (the “Act”) are due to take effect and revamp the domestic restructuring regime. Amendments to the Act are set to introduce the role of a court-appointed “restructuring officer” and an originating process by way of a new “restructuring petition”. The commencement order for the amendments to the Act has been approved, with an effective date of
The restructuring officer regime will provide a clearer demarcation between distinct winding-up and rescue paths. As opposed to being required to present a winding-up petition with a view to then promoting a restructuring, it will be possible to initiate restructuring efforts using a bespoke method with the benefit of a statutory moratorium effective from the time of filing the restructuring petition.
The recent case of Modern Land, involving cross-border recognition of a
The Recent Example in Modern Land
When faced with liquidity issues, Modern Land sought to adopt a conventional approach to restructuring certain major debt by proposing a scheme of arrangement in its place of incorporation.
The application was made in the
In the course of delivering reasons in relation to the Rare Earth sanction order, some obiter dicta remarks were made in relation to the effect of recognition via Chapter 15 of the
Accordingly, it was said that an “offshore” scheme of arrangement (e.g., in
Subsequently, in the context of the Modern Land decision, the
A Potential Benefit of Appointing Officeholders
It is worth noting that, after receiving supplemental submissions and evidence on the point, the
As noted in the Modern Land opinion, neither Modern Land nor any of its creditors had presented a winding up petition in the
In determining whether COMI was in the
A Modernised Approach
In light of the decision in Modern Land and the current focus on restructuring the debt of
Some of the important features of the new regime are that:
- A company may seek the appointment of restructuring officers on the grounds that (i) the company is or is likely to become unable to pay its debts; and (ii) intends to present a compromise or arrangement to its creditors
- The restructuring petition seeking the appointment of a restructuring officer may be presented by the directors of a company: (i) without a shareholder resolution and/or an express power to present a petition in its articles of association; and (ii) without the need to present a winding up petition
- The moratorium will arise on presenting the petition seeking the appointment of restructuring officers, rather than from the date of the appointment of officeholders
- The default position is that this will be an inter partes process with adequate notice to be given to all stakeholders
- The powers of a restructuring officer will be flexible and will be defined by the terms of the appointment order made by the Cayman The extent to which the directors will continue to manage the affairs of the relevant company will be defined by the order and will depend on the facts of the particular case
- Secured creditors with security over the whole or part of the assets of the company will still be entitled to enforce their security without the leave of the Court and without reference to the restructuring officers
Under the new regime, if there is a feasible proposal to put to stakeholders and a restructuring officer is appointed, an application to sanction a compromise or arrangement with creditors and/or members may be made in the restructuring proceedings without the need to commence separate proceedings to promote a scheme of arrangement under section 86 of the Companies Act. If the restructuring fails and the company is ultimately wound up, the winding up will be deemed to have commenced from the date of presentation of the restructuring petition. Accordingly, whether successful or unsuccessful, there will be an efficient route to a sensible outcome.
Although legislators around the world sought to give directors breathing space during the global pandemic, those are not permanent measures. As the world begins to return to some level of normalcy, directors would be wise to reassess any cavalier tendencies that have developed while management has had the benefit of a “safe harbour” or perceived “free pass.” The key to a successful restructuring, through the restructuring office regime or otherwise, will be timely action with the right advisor team to guide the process.
As highlighted by the decision in Modern Land, a
Click to Download
Co-Authored by
Originally Published by INSOL International's News Update
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
Mr
Conyers
Clarendon House
Hamilton
HM 11
Tel: 2951422
Fax: 2924720
E-mail: philippa.bullmore@conyers.com
URL: www.conyers.com
© Mondaq Ltd, 2022 - Tel. +44 (0)20 8544 8300 - http://www.mondaq.com, source