Following from the recent Hong Kong decision of CW Advanced Technologies Limited relating to the ongoing cross-border restructuring of CW Group Holdings Limited (the Company) and its subsidiaries (the CW Group), the Cayman Islands Grand Court has released a related decision concerning competing applications to appoint provisional liquidators over the Company.
The Court was confronted with opposing considerations. The Company’s directors, relying on a winding up petition filed by a creditor, applied to appoint “light touch” provisional liquidators which would preserve the Company’s existing management and facilitate the promulgation of a proposed restructuring of the CW Group. Conversely, Bank of China (Hong Kong) Ltd (BOC) and several supporting creditors, who had lost confidence in the Company’s management due to alleged misconduct and mismanagement, sought to appoint separate provisional liquidators to prevent further mismanagement, prevent any further dissipation of assets and to investigate several questionable transactions and the Company’s financial records.
In response to the competing applications, the Company’s counsel submitted that BOC’s application would cause the Company to enter into an official liquidation process, leading to an irreversible destruction of value and lower return to the creditors. Whereas BOC’s counsel submitted that the Company’s application was merely the Company’s plan to benefit from a moratorium without providing any assurance to the creditors on increased transparency, truly independent officeholders and removal of existing management. BOC’s counsel further highlighted that the Company’s application was not supported by any sort of restructuring plan.
After weighing the competing factors, the Court favoured the Company’s application and appointed “light touch” provisional liquidators to pursue a restructuring in the best interests of the creditors instead of BOC’s nominees. In so doing, the Court also:
- affirmed the exception to the Emmadart rule established in Re CHC Group Ltd that following from a creditor’ winding up petition, a company’s directors may apply for “light touch” provisional liquidators without a shareholders’ resolution;
- held that BOC had failed to discharge the heavy burden of providing clear or strong evidence to prove that provisional liquidators are necessary to prevent the dissipation or misuse of assets and misstatement by the directors;
- confirmed that “light touch” provisional liquidators, once appointed, are independent persons operating under the court’s directions; and
- affirmed the principle that it is not necessary for there to be a formulated plan at the stage where a company seeks to appoint “light touch” provisional liquidators.
This decision highlights the Cayman Court’s inclination to support a company’s efforts to rehabilitate itself wherever possible in order to preserve value and maximise return for creditors. The facilitative approach to cross-border restructurings is also consistent with the Cayman Islands’ recent adoption of the JIN Guidelines in cross-border insolvency and restructuring cases.