​Transactions that are automatically void
Transactions that are potentially voidable
Liability to contribute


When a Cayman Islands company (Cayman company) goes into liquidation, various antecedent transactions entered into in the lead-up to that liquidation may be set aside, allowing the recovery of the Cayman company's assets to maximise the return to its stakeholders. This article sets out a summary of the challenges that may be made to antecedent transactions in the Cayman Islands. These may also apply to limited liability companies, partnerships, exempted limited partnerships in the Cayman Islands and, in certain circumstances, to foreign companies, but this article focuses on Cayman companies.

Certain antecedent transactions made by a Cayman company are automatically void and others are voidable on the application of:

  • a liquidator appointed by order, or under the supervision, of the Grand Court of the Cayman Islands (Court and official liquidator);
  • a liquidator appointed without the intervention of the Court (voluntary liquidator); or
  • a creditor prejudiced by the transaction.

Other transactions may give rise to a liability to contribute to the assets of the Cayman company.

Transactions that are automatically void

When a winding-up order has been made, any disposition of the Cayman company's property and any transfer of shares or alteration in the status of the Cayman company's members made after the commencement of the winding-up is, unless the Court directs otherwise, void. The deemed commencment of an official liquidation is either the presentation of the winding-up petition or, if preceded by a form of voluntary liquidation, the passing of that resolution (commencement date). This can give rise to a period of uncertainty for those dealing with a Cayman company that is fending off a winding-up petition, and care should be taken to seek a validation order before entering into any arrangement(s) affecting the property of the Cayman company during this period.

If a Cayman company has commenced liquidation voluntarily (which has not come under the supervision of the Court), then any transfer of shares without the permission of the voluntary liquidator, and any alteration in the status of the company's members, made after the commencement of the voluntary winding-up is void. However, unlike a compulsory liquidation, no transfer of the Cayman company's property is automatically void. There is not normally the same uncertainty with voluntary liquidations as, on the appointment of a voluntary liquidator, all of the powers of the directors cease and are displaced by the voluntary liquidator (except if the Cayman company in a general meeting or the voluntary liquidator authorises their continuance). As such, the transfer of property is not automatically void but care should be taken that any transfer of property made by the Cayman company after the appointment of voluntary liquidators has the requisite authority.

Transactions that are potentially voidable

Voidable preference
Every conveyance or transfer of property or money, or charge that is made by the Cayman company in favour of a creditor at a time when the Cayman company is unable to pay its debts (ie, on the cash-flow basis), made with a view to preferring such a creditor, is void if made within six months immediately before the commencement date. The intention to prefer the creditor has to be the dominant intention of the person making the transaction (ie, the Cayman company), although that intention may be inferred, with the intention being to put the recipient in a better position than it would otherwise have been in with an insolvent liquidation of the Cayman company.

If the preference is made to a "related party" (defined as if it has the ability "to control the company or exercise significant influence over the company in making financial and operation decisions") then the payment is deemed to have been made with a view to preferring such creditor or creditors ahead of other creditors.

Dispositions at an undervalue or fraudulent dispositions
Every disposition of property made for no value or for a value that is significantly less than the value of the property by, or on behalf of, the Cayman company with an intent to defraud its creditors is voidable at the request of an official liquidator.

The official liquidator must establish "intent to defraud" for the purposes of this claim. "Intent to defraud" is defined as "an intention to wilfully defeat an obligation owed to a creditor". The intention to defeat a creditor needs only be a purpose and not the sole or dominant purpose. This is still a difficult burden for the official liquidator to satisfy and the official liquidator may not commence proceedings more than six years after the transaction in question.

Separately, a creditor prejudiced by a disposition of property may seek an order from the Court that the disposition is void if it was for no value or for a value that is significantly less than the value of the property. The creditor must again establish intent to defraud (defined in the previous paragraph and not required to be the dominant purpose) for the purposes of this claim, which can be even more difficult to prove without the powers of an official liquidator to investigate the Cayman company's books and records. The relevant disposition must have occurred not more than six years prior to the application of the creditor.

Even if such a creditor's claim succeeds, the disposition is only set aside to the extent necessary to satisfy the creditors prejudiced by the disposition, although recent authority suggests that for an insolvent company, this may go beyond the value of the claim of the creditor seeking the order, to ensure all creditors are compensated as fully as possible even with a pari passu distribution.

Where a transferee is found not to have acted in bad faith in either case, the Court may provide for the proper fees, costs, pre-existing rights, claims and interests of the transferee.

Liability to contribute

Where any business of the Cayman company has been carried on with intent to defraud creditors of the Cayman company or creditors of any other person, or for any fraudulent purpose, an official or voluntary liquidator may also apply to the Court for a declaration that any persons who were knowingly parties to the potentially fraudulent business are liable to make such contributions to the Cayman company's assets as the Court thinks proper. Usually, each director will be "knowingly" a party to the ways in which the business of the Cayman company is carried on and therefore potentially liable if that business is carried on fraudulently. There is no applicable limitation period for this action.

For further information on this topic please contact Jeremy Snead at Ogier's London office by telephone (+44 1481 752301) or email ([email protected]). Alternatively, contact Paul Goss at Ogier's Grand Cayman office by telephone (+1 345 949 9876) or email ([email protected]). The Ogier website can be accessed at