Cayman Court confirms Secured Creditors’ standing to Petition
In a recent decision of the Grand Court of the Cayman Islands in Re G3 Exploration Limited, the Grand Court confirmed that a secured creditor of a Cayman company has standing to petition for the winding-up of the company regardless of whether its debt is fully or partially secured.
The case concerned the ongoing provisional liquidation of China-based G3 Exploration Limited (the Company) and the competing positions between the petitioner, seeking an immediate winding-up order, and the Company (supported by the joint official liquidators) seeking a further adjournment of the petition to allow for a restructuring proposal to be pursued. In the course of argument, the issue arose as to whether the petitioner, as a secured creditor, had to show that there would be a shortfall on the value of its security in order to establish its standing to petition for a winding-up.
Despite having received considerable attention in English and other common law Courts, this appears to be an issue the Cayman Courts had yet to consider. In reaching its decision, the Court relied heavily on a number of English authorities, dating back to the 1800s, and confirmed that the nature of the creditor’s security (ie whether it is full or partial) goes not to the issue of standing, but rather to the issue of the weight to be afforded to the creditor’s views (with the implication being that the views of partially secured creditors are to be given more weight than fully secured creditors).
The Court went on to grant the adjournment, and in doing so, undertook a careful consideration of the impact of allowing the restructuring proposal to continue on the petitioner’s security. The fact that there were other commercially viable options by which the restructuring could be structured which would not impinge upon the petitioner’s security was (in consideration with others) an “extremely cogent” reason to allow further exploration of the restructuring proposal and the adjournment.
The Court’s willingness to grant an adjournment in these circumstances, namely where the petitioner’s interests are protected by security, is in keeping with its favoured approach of rescuing and restructuring distressed companies where doing so is in the interests of the body of stakeholders as a whole.