In OVS Capital Management (Cayman) Limited FSD 207 of 2016 (CQJ), the Grand Court of the Cayman Islands ruled on an application for the restoration of a company (the Company), which had been struck off for failure to pay its annual returns; with a further application that the Company be permitted to continue in voluntary liquidation, without Court supervision, in circumstances where a declaration of solvency had inadvertently not been filed.
By reason of the retirement of the Company’s sole shareholder, it was resolved that the Company be placed into voluntary liquidation. Before the process was complete, the Company had been struck off but still held assets which had not been distributed. The result was that the undistributed assets vested in the Crown. Accordingly, the petitioners sought the restoration of the Company so that the assets could distributed to the sole shareholder. Before the Court can exercise its discretion to restore a company, it must be satisfied either that the company was in operation or it was otherwise just for restoration to be ordered; s.159 of the Companies Law. It was held that the fact that the Company was solvent and was seeking to secure the distribution from the liquidation of its subsidiary and distribute assets to its shareholder satisfied the criteria of “in operation”. The Court further held that it was “just” to have the Company restored so that the voluntary liquidation could continue as intended to realise assets for distribution.
So far, so good. Uncontroversial. However, regarding the failure to file a declaration of solvency, Section 124 of the Companies Law imposes a statutory duty upon a voluntary liquidator to make an application for a supervision order when it is determined that a company in voluntary liquidation is, in fact, insolvent. The rationale for Court supervision is to ensure that an insolvent company should not be allowed to continue in voluntary liquidation unsupervised. The absence of a declaration of solvency gave rise to a rebuttable presumption of insolvency, but the Court has discretion to decide whether or not to make a supervision order; see Pan Ji China Fund FSD 31 of 2014. Despite the inadvertent failure to file a declaration of solvency, the Court was satisfied that the evidence showed that the Company was solvent and was able to pay its debts in full within 12 months from the commencement of the winding up. The failure to file was an administrative error by the voluntary liquidator. The declaration of solvency was re-executed and filed later. Accordingly, the learned Judge held that a supervision order was not necessary in this particular case.