A short decision recently released by the Financial Services Division of the Cayman Islands Grand Court serves as a helpful reminder of certain principles concerning creditor petitions presented on the grounds of a company’s inability to pay its debts: In re GBC Oil Company Ltd.
Amongst those principles are the following:
- It is well established that secured creditors, like unsecured creditors, have standing to petition for the winding up of a company. Secured creditors do not have to elect between their security and participating in the winding up until after a winding up order has been made.
- Non-payment of a single undisputed debt can be sufficient to satisfy the Court of an inability to pay debts.
- It is insufficient for the company merely to allege that the debt is disputed. There must be a positive statement of the grounds of dispute, together with details demonstrating to the satisfaction of the Court that the debt is disputed on bona fide substantial grounds such as to justify dismissal or stay of the petition.
- To the extent that a company wishes to rely on a cross-claim against the petitioner, the company has the burden of proving that that cross-claim is larger than the admitted debt of the petitioner or falls short of it by less than the statutory minimum for a petition claim (KY$100), and that the cross-claim is either undisputed or based on substantial grounds. Note, however, that there is no requirement to show that the cross-claim is bound to succeed.
In GBC, the company also sought an adjournment of the hearing on the basis that company officers were indisposed as a result of the COVID pandemic. However, whilst sympathetic to the real difficulties that can be caused by the pandemic, the Court found there was no proper basis for an adjournment, including for the following reasons:
- The company had failed to appoint Cayman attorneys (notwithstanding an express invitation to do so from the Court).
- The Company had filed no evidence to substantiate any of the reasons offered for seeking an adjournment.
- Unsubstantiated and unparticularised claims, in this case made by email, of incapacity to prepare for a hearing are an inadequate basis for an adjournment.
- Adjournment would result in prejudice to the petitioner.