New restructuring regime takes effect 31 August
An act that reforms the restructuring regime for insolvent companies will come into force at the end of this month.
The commencement order for the Companies (Amendment) Act, 2021 was published in the Cayman Islands Legislation Gazette at the end of July 2022, setting the date for 31 Aug.
Parliament approved the amendments, designed to attract restructuring and liquidation business to the islands, in December 2021.
The Companies Act will separate the restructuring and winding-up processes and improve access to both regimes, by no longer requiring a shareholder resolution, or an express power in the company’s articles of association, before company directors can apply for a restructuring.
Until now, a company that wanted to restructure first needed to apply to the court to be wound up, or liquidated, which may have given the impression that the company was going out of business rather than restructuring.
The winding-up application also could have triggered wind-up covenants in finance documents.
For companies that were considering using Cayman’s restructuring regime, this may have been a deterrent and undermined its use.
The act addresses this issue by separating the restructuring regime from the winding-up regime.
Access to winding-up
All companies that exist before the changes come into effect will have the ability to add, in their articles of association, a provision that no longer requires a shareholder resolution or express power to allow company directors to apply for a winding-up.
For companies incorporated after the act’s commencement, the law no longer requires a shareholder resolution or an express power in the company’s articles of association for the company directors to apply for a winding-up.
However, a company can still choose to include these provisions in the articles of association.
To support the act, the Insolvency Rules Committee, chaired by Chief Justice Anthony Smellie, has prepared amendments to the Companies Winding Up Rules, 2018.
These amendments, which do not require parliamentary process, are intended to come into force simultaneously with the act.
The Ministry for Financial Services said in a press release that staff of the Companies Register have been briefed on the intent of the law, and trained on the upgraded IT system that will support the new regime.
The amendment originates from proposals made by the Financial Services Legislative Committee (FSLC), which proposes enhancements to the Cayman Islands financial services regime, for government’s consideration and potential action.
Established by government, FSLC members are representatives from the local financial services industry, and persons appointed by the attorney general and the ministry.
Source: Cayman Compass
IMS is one of the longest established company management firms in the Cayman Islands. IMS is licensed by the Cayman Islands Monetary Authority to provide independent directors, company management and incorporation, mutual fund administration, captive insurance and trust services. For more information about our services, please contact us.
Disclaimer: this publication does not constitute legal or professional advice and should not be relied on as such.