Krys & Associates brief CIMA and local firms on the recent changes to the Companies (Amendment) Law 2007

Cayman Islands Journal–On 1 March, 2009, The Companies (Amendment) Law 2007 and related Insolvency Practitioners Regulations 2008 and the Companies Winding up Rules 2008 were enacted. In conjunction with these revisions, Krys & Associates, who specialise in corporate recovery, insolvency and forensic accounting took the opportunity to inform local lawyers, fund administrators, trust officers and directors and the Cayman Islands Monetary Authority of the new insolvency regime. This is their report.

The presentation was conducted by members of senior staff from Krys & Associates and attended by over 50 financial professionals. The moderator was Anne-Marie Barley supported by the panel of Matt Clingerman, Tim Le Cornu, Richard Hamilton and David Hoggins all of Krys & Associates.

Barley opened the presentation with a warm welcome to a full audience and explained the new insolvency law and rules and how these were the first procedural rules specifically drafted for the Cayman Islands and detailed the new laws before introducing the first speaker.

Hoggins discussed the process of statutory demands and petitions which lead up to the appointment of a liquidator by the Cayman Courts. He explained that for creditors there is the statutory demand procedure for creditors of a company to demand payment of an overdue date by filing a Statutory Demand with the company who then have 21 days to make the payment or reach agreement. If this does not settle the matter the creditor may then petition the court to have the company wound-up. Other petitions for winding-up can be made by the contributories, being the shareholders of the company, the company itself or the Cayman regulator, if the company is licensed to carry on a regulated business. The first session provided some questions and debate from attendees familiar with the process but interested in understanding the changes and the definitions in the rules.

Hamilton explained the circumstances in which a company might be wound up voluntarily and the required resolutions. He noted that companies that are funds often have fixed period for the duration of its life specified in its Memorandum and Articles and therefore a Voluntary Liquidation is not just for circumstances where a company can not pay its debts. He continued that the liquidator may be a director or officer of the company but commented that with the responsibilities of filing and advertising, reporting and annual meetings all with specific timelines it might be advisable to appoint an independent qualified liquidator to avoid any potential risks and penalties as well as give comfort to the shareholders and, for licensed companies, the regulator.

Le Cornu was given the task of summarising the law and rules relating to Official Liquidations, Provisional Liquidations and Alternative Orders. For Official Liquidations he highlighted the major changes being the requirement for a Statement of Affairs, a determination of solvency and that there must be a Liquidation Committee and also advised on the powers of the Liquidator and where it needed to be sanctioned by the court. He continued with the other changes which included the power for a Liquidator to conduct a criminal prosecution but noted that as there was no financial benefit to this action it is not something which is likely to be used often. On Alternative Orders he explained that contributories (shareholders) could seek relief from the court on ‘’just and equitable grounds’’ such as where a minority shareholder believes he is being oppressed by the other shareholders. The Provisional Liquidator is also a change and he advised that this could be used in a re-structuring or by a creditor or shareholder to prevent mismanagement or misconduct. In order to explain the role of the Liquidator, Tim gave some practical examples of asset recovery, when others were trying to prevent them being seized, involving burying trucks and other machinery in the ground. This entertaining interlude had to be cut short for time reasons but no doubt continued after the seminar or is maybe a topic for a future event?

Clingerman discussed the importance of international protocols and co-operation to liquidators in the Cayman Islands and how the rules serve to codify this practice. He amplified this statement with the example of Cayman hedge funds where the investment managers and the funds assets were likely to be mainly in the US or the UK but also in many other jurisdictions. He added that an international protocol, with the assistance of the Cayman Courts, can help define and allocate responsibilities for the ultimate benefit of the creditors and shareholders. Matt concluded with an explanation of Antecedent Transactions and Fraud Provisions and how these can be considered to be preferential or fraudulent.

Barley concluded with a short session on the rules relating to the qualification requirements for liquidators, including the professional and insurance requirements, and the procedure for agreeing the basis of remuneration with the Liquidation Committee and the Court.