Lifting the stay on proceedings against Cayman Islands companies in liquidation
In Re The Wimbledon Fund, SPC (In Official Liquidation) (unreported, Justice Parker, FSD 111 of 2019), the Grand Court considered an application for leave pursuant to section 97 of the Cayman Islands Companies Law to commence proceedings in New York against a Cayman Islands company (in liquidation).
Section 97 provides for a moratorium on litigation against a Cayman Islands company in liquidation or provisional liquidation. This section forms part of a broader statutory regime (similar to that in England and other common law jurisdictions) designed to achieve the orderly and efficient winding up of the company’s affairs and a pro rata distribution of its assets among its creditors. Claims of creditors are resolved through an administrative process of submitting claims to the liquidator for consideration (with a right of appeal to the Grand Court). A claimant that considers its claim should be resolved through litigation rather than this administrative process must seek the permission of the Grand Court. In the restructuring context, a company typically seeks to appoint restructuring provisional liquidators to itself so as to benefit from the breathing space against adverse creditor action that section 97 provides while it formulates and progresses a restructuring plan.
The threshold question on an application for leave under section 97 is whether the applicant has a claim worth entertaining. The rationale for this is that the company and its liquidator should not be burdened by having to defend a plainly futile claim. The court then goes on to consider whether it is fair to grant leave. Fairness means fairness in the context of the liquidation of the whole, and necessarily involves a consideration of the interests of the creditors and the capacity of the liquidator to deal with the proposed litigation. If the claim can be conveniently decided through the proof of debt process then leave is usually refused. Generally, the proof of debt process is a cheaper and faster way of resolving claims than litigation. The court’s discretion is broad and unfettered, and it may impose conditions on the granting of its leave.
In Wimbledon, the Court granted leave to the applicant having regard to the fact that the issues arising on its claim were issues of New York law, that the company already had New York counsel instructed and had itself litigated in that jurisdiction previously.