Cayman Islands Insolvency & Restructuring
Q&A with KRyS Global’s Tim Le Cornu
Published in Lawyer Monthly, February 2011
Recent economic situations have acted as a lesson for businesses globally, where to invest your money and where not to take risks.
As a result companies that weathered the recession have come through without having to go down the route of insolvency, thus reducing the number of cases that have been presented to the Financial Services Division of the Grand Court of the Cayman Islands.
To find out more about insolvency and restructuring in the Cayman Islands, Lawyer Monthly speaks to Timothy Le Cornu from KRyS Global…
Q: What does the future hold for the insolvency and restructuring industry in 2011, what progressions do you foresee?
The Financial Services Division of the Grand Court of the Cayman Islands, which handles insolvency matters, reported an estimated additional 20 cases per month in the last quarter of 2010. Inquiries for assistance or advice have continued, albeit at a slower rate in the first month of the year, and we anticipate a number of matters will progress in 2011 as the effects of the economic downturn continue to impact the financial services industry.
Q: What would you advise companies who are unable to reconcile their debts, are there any preventive steps they can put into place?
Liquidation is always a last resort for a business, and should only be taken when all other options fail. We have found some of the alternative methods to include fundraising or alleviating liquidity pressures, particularly as it applies to hedge funds, the suspension of redemptions, implementing “gate” provisions, or transferring bad assets to “side pockets” or separate corporate vehicles.
When assessing whether a turnaround is viable, one must pinpoint what is causing the business to be distressed. Where the business is suffering from lack of liquidity or poor management, it may be possible to find means to enhance profitability, improve performance, and minimize the risk of loss. We propose remedies in the form of improved internal controls, budgetary accountability, integrity tests, sale or transfer of redundant or poor assets, and fraud prevention training to assist businesses. We will ensure the company is up-to-date with assessing its risks and areas of exposure, whether regulatory, financial, or environmental, which may affect business continuity.
Q: What approach has the government taken vis-à-vis companies that are unable to pay their debts?
The government in the Cayman Islands has little direct involvement with matters involving companies that are unable to pay their debts. The government is able to and has demonstrated its commitment to maintaining a modern Companies Law and Companies Winding Up Rules, which provide mechanisms to deal with the issues facing distressed companies. The appointment of a provisional liquidator may be made to facilitate the restructure of a distressed company. The Mutual Funds Law (2009 Revision) gives support to the Cayman Islands Monetary Authority (“CIMA”), which is responsible for regulating certain categories of Funds. Under provisions of the Mutual Funds Law, CIMA may take action to appoint a Controller over a Company who is charged with investigating the company to ensure it is acting in the best interests of its investors and creditors.
What are the typical errors committed by companies involved in restructuring?
There is little restructuring / turnaround work performed in offshore jurisdictions as the majority of insolvency work stems from fraud having been committed against the company. In circumstances where restructuring work is conducted, one of the most common errors is insufficient planning performed when assessing the future of the business and devising the restructuring plan. This can lead to insufficient cash flow and financing options to support the restructuring plan.
What if any legislative updates do you see for insolvency and restructuring?
New insolvency legislation was introduced in the Cayman Islands in 2009 to update the law with international standards. In the wake of the financial crisis, some regulators in onshore jurisdictions are seeking to enact legislation that would require hedge funds to provide increased levels of transparency. Regulators in both onshore and offshore jurisdictions are considering the impact this may have on their industry and mandates.