Insolvency Law Developments in the Cayman Islands

Corporate International–The Cayman Islands insolvency law is based on the UK Insolvency Act
of 1986 with some modification to make it relevant to the local financial services sector. The majority of insolvency practitioners and their staff are Chartered Accountants from Commonwealth countries. As with other Commonwealth jurisdictions, the “big 4” have a presence, but strong independent firms also play an active role in the industry.

The majority of work undertaken comprises court-supervised liquidations and forensic accounting engagements. Due to the nature of the financial services sector, it is rare for the liquidator to find the books and records, assets or operations to be located within the jurisdiction of appointment.

“A large part of the liquidators’ energy and resources following their appointment are directed to collect the records, identify and secure assets, and establish a means of correspondence with creditors, investors and other stakeholders. Offshore liquidators avail themselves of their forensic skills and toolkits to trace assets and are experienced at cross border litigation in seeking recoveries for creditors,” explained Timothy Le Cornu, Director at KRyS Global.

The team at KRyS Global have extensive knowledge in the insolvency arena, and are from diverse jurisdictions with experience in complex legal matters. With offices in the Cayman Islands, BVI, Bahamas and Bermuda, KRyS Global is in a strong position to offer solutions in the key offshore centres of this region. The firm’s growing international presence, together with KRyS Global’s reputation for providing innovative solutions to complex issues, confirms its’ position as a leader in insolvency and restructuring in the Caribbean.

The Cayman Islands legislation does not provide for a formal restructure or reorganisation procedure such as an administration in the UK, or in the US Chapter 11 provisions. However, in some cases a Provisional Liquidation may be used to achieve a reorganisation procedure, which may also incorporate a Scheme of Arrangement.

“In the context of hedge funds, which comprise the majority of distressed situations, some alternative methods of alleviating liquidity problems may include the suspension of redemptions, implementing ‘gate’ provisions or transferring bad assets to ‘side pockets’ or separate corporate vehicles. These strategies may be introduced relatively quickly, although careful review of the governing documents is required,” commented Andrea Harris-Kellow, Senior Analyst at KRyS Global.

Mr Le Cornu and Mrs Harris-Kellow highlighted the critical issues that must be addressed when a distressed business is implementing a turnaround. They said that the most important consideration is whether the underlying business has the ability to become a viable commercial enterprise. Accordingly, a critical review should be undertaken of factors such as the business, products, markets, financial structure and many others. “During the critical early period, creditor and stakeholder support are crucial, as well as identifying sources of funding available. In the crisis stabilisation period, access to funding is essential to ensure operations can continue whilst the restructure plan is implemented.”