Cayman Islands Litigation and Insolvency Review – Case Closed

Case Closed is a publication of Maples Group’s Dispute Resolution and Insolvency team. It provides a review of recent significant judicial decisions affecting Cayman Islands law and practice across insolvency and restructuring, commercial disputes and arbitration and merger appraisal litigation under section 238 of the Companies Act.

The Cayman Islands continues to operate as a leading forum for complex cross-border disputes involving multinational corporate groups and investments funds. The Grand Court, Cayman Islands Court of Appeal and Privy Council have, among other important decisions covered in Case Closed, delivered decisions that refine valuation methodology in appraisal proceedings, clarify the ranking of claims in liquidation proceedings, abolished the shareholder rule on privilege, set parameters around applications for insolvency officeholder remuneration and clarify when certain restructuring tools may be relevant.

This review brings together these and other developments and considers their practical implications for boards, creditors, investors and litigation practitioners operating in the jurisdiction.

Case Closed covers three key areas of Cayman Islands disputes law and practice. Select a section below to read the full analysis.

• Insolvency and Restructuring — Guidance on restructuring provisional liquidators, segregated portfolio companies, security enforcement, the liquidation waterfall, statutory demands and fee applications.
• Commercial Disputes & Arbitration — Appellate decisions on the Duomatic principle, exempted limited partnerships, freezing injunctions, the Abraaj trial judgment and enforcement of foreign arbitral awards.
• Merger Appraisal Disputes — Privy Council guidance in Trina Solar on valuation methodologies, divergent Grand Court approaches in Sina Corporation and 51job, and the abolition of the shareholder privilege rule in Jardine.

Insolvency and Restructuring

While there have been fewer Cayman Islands court implemented restructurings recently, the usual trend of the jurisdiction generating high value and often contentious insolvency and restructuring matters continues at a pace.

Key Decisions

Key decisions provide guidance on:

(i) when to use restructuring provisional liquidators and when to use restructuring officers in Re Asia Television Holdings Ltd (with case law continuing to develop the evidential bar required to be met for both the appointment of restructuring provisional liquidators and restructuring officers);

(ii) the insolvency of segregated portfolio companies in In the Matter of ICM SPC;

(iii) security enforcement in In the matter of Yeung Ka Man;

(iv) where claims for shareholder misrepresentation sit in the liquidation waterfall in In the matter of HQP Corporation Ltd and In the matter of Direct Lending Income Feeder Fund Ltd;

(v) the consequences of submitting a proof of debt in Cayman Islands liquidation proceedings and whether certain clawback claims have extraterritorial effect in Conway & Others v Air Arabia PJSC;

(vi) whether arbitral awards, judgment debts or court orders can form the basis of a statutory demand or winding up petition in In the matter of SIN Capital (Cayman) Ltd; and

(vii) fee applications (both officeholders generally in CL Financial and restructuring officers in Re Holt SPC).

Outside of the Cayman Islands the United States Bankruptcy Court (District of Delaware) considered the principles that would be applied to pre-action discovery applications by Cayman Islands liquidators in Farfetch.

Commercial Disputes & Arbitration

Appellate Guidance

For commercial litigation, the courts provided significant appellate guidance. Firstly from the Privy Council (“PC”) on the limits of the Duomatic principle in Fang Ankong v Green Elite and on the just and equitable winding up of exempted limited partnerships in Aquapoint LP (in Official Liquidation) v Xiaohu Fan.

Exempted Limited Partnerships

The Cayman Islands Court of Appeal (“CICA”) also delivered significant judgments concerning exempted limited partnerships. In Abraaj General Partner VIII Ltd v Abraaj AOB IV SPV Ltd, the CICA provided guidance on limited partner information rights and in One Thousand and One Voices Africa Fund I, LP addressed the replacement of the general partner as liquidator of the partnership.

Jurisdiction, Injunctions & the Abraaj Trial

In IGCF SPC 21 Ltd v Al Jomaih Power Ltd, the PC confirmed the submission to foreign jurisdiction test in the Cayman Islands and, at first instance in Target Global Growth Fund II, SCSPRAIF v Liu Xun, the Grand Court (“the Court”) provided a useful summary of the legal principles relevant to the grant of worldwide freezing and proprietary injunctions.

Last year also saw the Court hand down its comprehensive judgment following the well-known Abraaj trial, dismissing the deceit claims in connection with loans of approximately US$350m made to the Abraaj group before its collapse.

Arbitration

Meanwhile, in the arbitration sphere – decisions in Golden Meditech v Nanjing Yingpeng Huikang Medical Industry Investment Partnership highlighted the proper procedure and Court’s powers to give effect to interim injunctive orders out of foreign arbitral tribunals, whilst the CICA in Suning International Group Co Limited & Suning.com Co Ltd v Carrefour Nederland set out how alternative service may be ordered outside the Hague Convention when dealing with the enforcement of foreign arbitral tribunal awards.

Merger Appraisal Disputes

Section 238 (“s.238”) merger dissent actions in the Cayman Islands are court proceedings in which shareholders who dissent from a statutory merger or consolidation under the Companies Act seek a judicial determination of the “fair value” of their shares, rather than accepting the merger consideration. They have become significant because many international take private transactions involve statutory mergers of Cayman incorporated companies from which experienced merger arbitrage funds dissent and the resulting appraisals often turn on complex valuation evidence (including management projections, market data, merger process issues and expert discounted cash flow analyses).

Recent Developments

There have been several recent developments in the ever-evolving s.238 disputes space. In September, the Privy Council (the “PC”), the highest appellate court for the Cayman Islands provided useful and wide-ranging guidance on the comparative reliability of valuation methodologies in Trina Solar, while in the space of three days in November, Parker J and Doyle J in the Grand Court of the Cayman Islands (the “Court”), gave judgments in Sina Corporation and 51job which represented different approaches to the key valuation methodologies and led to diametrically opposed fair value figures.

Both these judgments are being appealed so it will be important to see how the appeal courts apply the PC’s principles set out in Trina Solar.

XingXuan provided a warning to companies that do not engage with the Court process, showing that the Court can and will determine the fair rate of interest that applies to the fair value award without representations from the company itself or even expert evidence.

Meanwhile the PC in Jardine, in the context of a Bermudan merger appraisal dispute, abolished the rule that a company could not claim privilege against its shareholders in litigation with those shareholders.