Special features of insolvency laws in Cayman Islands
Cayman Islands, a well-known tax haven, accounts for a substantial amount of FDI in India. Many Indian promoters incorporate their companies or funds in Cayman Islands and invest in India. While we do not want to get into the ethics and merits of such investments in India, there is a clear case for Indians setting up their companies in the Cayman Islands to know the insolvency laws of the country.
The insolvency law of the Cayman Islands is primarily governed by the Companies Law (Revised) and the Companies Winding Up Rules, which outline the process for the liquidation and dissolution of a company. Here are some special features of insolvency law in the Cayman Islands:
Flexible liquidation options: The Cayman Islands insolvency law provides various liquidation options, including voluntary liquidation, court-supervised liquidation, and provisional liquidation. This provides flexibility for companies to choose the most appropriate route for their circumstances.
Priority of creditor claims: The law provides a clear priority of creditor claims in the liquidation process, with secured creditors having priority over unsecured creditors. This can help to ensure that creditors are treated fairly and that their claims are properly considered.
Protected cell companies: The Cayman Islands is a popular jurisdiction for the formation of protected cell companies (PCCs), which are a type of company structure that allows for the creation of multiple cells within a single legal entity. Each cell can have its own assets and liabilities, which can help to protect the assets of one cell from the liabilities of another.
Cross-border insolvency: The Cayman Islands has enacted legislation that recognizes foreign insolvency proceedings, which can help to facilitate cross-border insolvency and make it easier for creditors to recover assets located in different jurisdictions.
Professional insolvency practitioners: The law requires that liquidators and other insolvency practitioners be licensed and regulated by the Cayman Islands Monetary Authority (CIMA). This helps to ensure that only qualified professionals are appointed to manage the liquidation process, which can help to protect the interests of creditors and stakeholders.
Court supervision: The Cayman Islands insolvency law provides for court supervision of the liquidation process, which can help to ensure that the process is conducted in a fair and transparent manner. The court can also provide guidance and make rulings on various matters related to the liquidation, including the distribution of assets and the treatment of creditor claims.
Statutory moratorium: A statutory moratorium can be imposed by the court in certain circumstances, which can provide a breathing space for the company to restructure and potentially avoid liquidation. During the moratorium, creditors are prevented from taking action against the company, which can help to protect the company’s assets and allow for negotiations with creditors.
Clawback provisions: The Cayman Islands insolvency law includes clawback provisions that allow for the recovery of certain transactions that may have been made by the company prior to the liquidation. This can include the recovery of preferential payments to certain creditors, as well as transactions that may have been made with the intent of defrauding creditors.
Cross-class cramdown: The law allows for cross-class cramdown, which allows a plan of arrangement or compromise to be approved by the court even if it is opposed by some classes of creditors or members. This can help to facilitate the restructuring process and ensure that all stakeholders are treated fairly.
Rehabilitation and reorganization: The Cayman Islands insolvency law also provides for rehabilitation and reorganization procedures, which can help to allow companies to continue operating while restructuring their debts and operations. This can provide a viable alternative to liquidation and can help to preserve jobs and maintain value for stakeholders.
