Finally - Cayman embraces restructuring without the stigma of liquidation…
Until recently the Cayman Islands had no direct comparison to US Chapter 11 - if you wanted to explore a restructuring, that is, your business can’t currently pay it’s debts but there’s hope for the future, you had to put the company into provisional liquidation and cross your fingers you came out of the other side.
This isn’t to say that provisional liquidation was a process that was doomed to fail - quite the contrary, a number of Cayman companies have used the process very successfully - however, just mentioning the word “liquidation” to those not versed in a vagaries of Cayman Islands law was enough to send a shiver down a client’s spine and have them searching frantically for alternative remedies.
However, now those in temporary trouble with a bright future that stands to be derailed by impatient creditors need worry no longer. The Cayman Islands has introduced the Company Restructuring Officer (CRO) regime which allows a company, including a director, to apply to the court to appoint qualified practitioners to oversee a restructuring process.
The CRO regime is different from the provisional liquidation procedure in three main ways:
A director can apply to appoint CROs as opposed to finding a friendly creditor or obtaining a shareholder resolution. This means those with stewardship of the company, who are probably best placed to form a view on a restructuring, don’t need to jump through unnecessary hoops to find someone with standing to do what is in the best interests of the company.
There is a moratorium on bringing claims against the company when the application to appoint CROs is made (as opposed to when provisional liquidators are appointed by the court). This means greater protection for the company.
There is less stigma attached to the appointment of CROs as part of a restructuring process as opposed to broadcasting to the world that your company is in liquidation (albeit, provisional).
The CRO regime is sensible and benefits companies that are weathering a storm that is likely to pass. It doesn’t intend to shut out creditors but it does allow a company a proper forum to present an alternative to what are often expensive and lengthy liquidations.