Legislative framework
Relevant Cayman Islands authorities
Comment
In the interests of international cooperation and comity, Part XVII of the Companies Law (2011 Revision) provides a helpful mechanism whereby the Grand Court may make an order to recognise the right of a foreign representative, which is appointed in respect of a debtor for the purposes of a foreign bankruptcy proceeding, to act in the Cayman Islands on behalf of or in the name of the debtor.
There is also extensive provision for the granting of ancillary orders, including enjoining the commencement or staying the continuation of legal proceedings against a debtor. The criteria on which the court shall exercise its discretion are set out in Section 242(1) of the Companies Law:
"In determining whether to make an ancillary order under section 241, the Court shall be guided by matters which will best assure an economic and expeditious administration of the debtor's estate, consistent with –
(a) the just treatment of all holders of claims against or interests in a debtor's estate wherever they may be domiciled;
(b) the protection of claim holders in the Islands against prejudice and inconvenience in the processing of claims in the foreign bankruptcy proceeding;
(c) the prevention of preferential or fraudulent dispositions of the property comprised in the debtor's estate;
(d) the distribution of the debtor's estate amongst creditors substantially in accordance with the order prescribed by Part V;
(e) the recognition and enforcement of security interests created by the debtor;
(f) the non-enforcement of foreign taxes, fines and penalties; and
(g) comity."
In turn, these relevant provisions are supported by the 2008 Foreign Bankruptcy Proceedings (International Cooperation) Rules:
- Rule 2(1) stipulates that an application by a foreign representative for a declaration of recognition shall be made by petition.
- Rule 3(1) stipulates that an application for consequential ancillary relief shall be made by originating summons.
The members of the winding-up board of Landsbanki Islands hf, which is undergoing winding-up proceedings in Iceland, were recently successful in obtaining such recognition, along with ancillary injunctive relief.
The fact that different procedures were required for a declaration of recognition and an application for consequential ancillary relief did not, in practice, prove to be a problem. This is because both the petition and the originating summons were set down for hearing together, and once the declaration of recognition was made by the court, the recognised foreign representatives were immediately eligible to proceed with their application for ancillary relief.
However, it is hoped that a legislative amendment will soon allow the two separate forms of proceeding to be formally combined.
Relevant Cayman Islands authorities
Three relatively recent rulings have demonstrated how the existing law and procedure operate in the Cayman Islands.
In In the matter of Straumur-Burdaras Investment Bank HF(1) the court made an important pronouncement: where no claiming creditor has yet sought to instigate proceedings, ancillary relief which is "anticipatory in nature" may still be permitted under the Companies Law. The court relied for this broad approach on the fact that proceedings may not be merely stayed, but their commencement also enjoined.
In In the matter of Bernard L Madoff Investment Securities(2) Justice Jones referred to Part XVII of the then Companies Law:(3)
"Its purpose is to provide foreign representatives with a convenient and expeditious method of establishing their credentials and right to act on behalf of a debtor in a way which will have universal effect within the jurisdiction, without the need to establish his right separately as against every individual counter party."
In In the Matter of Reserve International Liquidity Fund Ltd (In Liquidation), in a ruling of April 1 2010, it was stated by way of a general proposition that the court:
"would only refuse to grant the declaration sought if it could be demonstrated that the law of the place of incorporation, pursuant to which a foreign representative has been appointed, is inherently inconsistent with Cayman Islands law in some material respect, such that recognition of the foreign representative's authority would be contrary to public policy."
Provided that the formal requirements of both the Companies Law and the Foreign Bankruptcy Proceedings (International Cooperation) Rules have been complied with, the court is likely to give due weight to the general desirability of maintaining international cooperation in arriving at its decision.
Often, it may well be that as a matter of law and as a matter of fact, it would be in the interests of justice to grant the forms of relief sought, where such a course would be consistent with the global protection of legitimately admitted creditors, with the consistent and equitable distribution of the estate and with the general desirability of maintaining international comity and cooperation in insolvency matters. In this regard, the Cayman Islands provides a modern, efficient and responsive forum for the lawful protection and preservation of a foreign debtor's estate.
The legislation may appear inelegant in requiring the issuance of two separate proceedings in a case where a foreign representative requires not only recognition, but also ancillary relief. However, the Financial Services Division of the Grand Court has shown in Landsbanki that it is both willing and able to take a pragmatic course in order to grant final relief to a meritorious applicant, without causing unnecessary delay and expense.
For further information on this topic please contact Robin J McMillan at Appleby by telephone (+1 345 814 2067), fax (+1 345 949 4901) or email ([email protected]).
Endnotes