Krys & Associates update Asia on insolvency
Caymanian Compass–During the month of May, members of Krys & Associates’ corporate recovery teams in Cayman and the British Virgin Islands were in Hong Kong and Singapore and provided an update on the changes in the insolvency world in Cayman and BVI, states a recent press release.
The update to Asia’s leading litigation and bankruptcy professionals was timely. The worldwide recession has not just affected Cayman and BVI but Asia as well. Liquidity is a serious issue in China and Asia generally as the larger businesses are heavily reliant on the generation of foreign exports.
Cayman and BVI Companies frequently appear as popular holding companies or joint venture vehicles for investment into China and the Far East, and the involvement of a Caribbean insolvency practitioner in a distressed company early on in the proceedings can assist in formulating a commercially sound approach to these complex cross-border work-outs.
These vehicles are frequently Singapore or Hong Kong listed companies and may contain many intermediate subsidiaries prior to holding the underlying assets. With different stakeholders coming in at various levels, these structures can be complex and require overall coordination from the holding company level.
The Cayman Islands fund industry has also not been immune to the developments in the Asian market. Like other fund vehicles, Cayman and BVI funds who have exposure to the Far East have been active in setting up mechanisms whereby they can delay payment of redemptions, or carve out distressed assets which have either promised enhanced speculative returns or guarantees of principal repayment on meeting of certain milestones. It remains to be seen whether investors in the long term approve of these strategies or whether investors will take matters into their own hands to ensure that their interests are preserved. With the new legislation in place in both BVI and now also in Cayman, is seems that greater comfort can be taken by investors and creditors that robust legislation is now in place to ensure an equitable outcome.
The feedback on the changes to the Cayman Islands insolvency provisions was very positive from insolvency practitioners in the Far East who foresee a greater use of the practical legislation in place in holding company jurisdictions, as they provide valuable tools in conducting restructurings and liquidations of assets in the Far East.
It was apparent that there is a clear difference between the reaction to the first Asian crisis back in 1997 and what is occurring now. In 1997, banks and lenders took an extremely aggressive approach to their portfolios in default, loans were called and borrowers had no alternative but to declare bankruptcy, and this resulted in a long and drawn out recovery.
It was evident that banks and lenders are taking a much more cautious approach to loan defaults than they did back in the currency crisis of 1997. Covenants have been waived, principal payments have been suspended or modified and borrowers have generally been more willing to work with their underperforming portfolios. This stems in part from the inability at the present time to ascertain what the value of the underlying assets are. The general feeling is that the next 6 to 12 months will see the bottom of the market and allow borrowers and lenders to ascertain where true market value lies and will provide a basis for a turnaround or restructuring or in those dire circumstances, enforce liquidation proceedings.
The banks and borrowers see insolvency proceedings as a last resort. As many of the underlying businesses in China, Malaysia and Indonesia are vital to individual communities and local state governments, there is reluctance to create a situation where recovery is hampered by socioeconomic and political issues.
There is also some consensus that the judiciary in Singapore and Hong Kong are reluctant to put companies into liquidation and they are urging parties to agree to commercially prudent compromises in today’s environment.
Kenneth Krys, Managing Director of Krys & Associates, indicated that he was extremely pleased with the feedback he received from the Asian marketplace to the steps taken in the Cayman Islands to strengthen the insolvency regime in the Cayman Islands.
The introduction in the BVI of a dedicated commercial court and the proposed introduction of a similar structure in the Cayman Islands were also welcomed by a number of the practitioners, said Christopher Stride of the BVI office.
“Our jurisdictions are responding to the needs of a changing world, and dedicated judges to handle the increasingly complex scenarios is an indication of how our jurisdictions are adapting to the ever more competitive environment and ensuring that Cayman and BVI remain jurisdictions that stakeholders can have confidence in the outcome of their court proceedings.”