From March 1, 2009 the Cayman Islands insolvency regime will introduce its own tailor made procedural rules to complement amendments to the existing statutory provisions regarding insolvency and liquidations that are contained in the Companies Law, according to report by Maples and Calder law firm.
Although the new provisions will have a more modern, user friendly feel, they will maintain the principles that underpin the existing Cayman Islands insolvency regime and will reflect current best practice.
The new provisions will apply to any liquidations starter on or after March 1, 2009 and to any applications made or steps taken on or after that date in existing liquidations. The Insolvency Rules Committee has published a comprehensive set of procedural rules. These eliminate the complications and uncertainties that could arise from the current practice of applying the English Insolvency Rules 1986.
The insolvency law now focuses on the rights of creditors, all of whom are treated. There are no formal "corporate rescue" provisions similar to chapter 11 of the US Bankruptcy Code or administration in England and Wales.
Secured creditors will continue to be entitled to enforce their security outside of the liquidation process, notes the report. Contractual set-off and netting provisions will remain enforceable against the liquidators of insolvent Cayman Islands companies. The new provisions confirm the enforceability of multi-lateral setoff arrangements.
The enforceability of non-petition covenants by creditors or shareholders is also verified. If a company's directors do not provide the liquidator with a declaration of solvency, the liquidator will have to make an application to bring the liquidation under the supervision of the court. At present the Cayman Islands court appoints as official liquidators only professional insolvency practitioners. The Insolvency Rules Committee published rules on the qualification (and disqualification) of professional insolvency practitioners.
There is already a considerable degree of cross-border co-operation on insolvency matters, depending on judicial discretion. The new provisions will build on this practice and give the court specific powers to make orders recognising and assisting the representatives of foreign companies that are subject to insolvency or bankruptcy proceedings outside the Cayman Islands.