Frequently Asked Questions
Q. What laws are applicable to
liquidations in the Cayman Islands?
A. Although there are no Insolvency Laws per se the
law pertaining to liquidations, both voluntary and compulsory
are contained in the Companies Law (2007 Revision). The
English Winding-up Rules 1986 apply so far as practicable
and insofar as they are not inconsistent with the Companies
It should be noted that the Companies law does not distinguish
between a Creditors Voluntary Liquidation and a Members
Q. What Courts govern liquidation
A. The Grand Court of the Cayman Islands is the Court
with jurisdiction with regard to companies incorporated
in the Cayman Islands. Appeals from the Grand Court lie
to the Court of Appeal, a traveling Court which meets quarterly
in the Cayman Islands. Appeals from this Court lie with
the Privy Court in England.
Q. What are insolvency proceedings?
A. These are formal measures taken to deal with company
debt. There are many different types of company insolvency
Q. What types of liquidation are
- Voluntary liquidation – this is when the shareholders
of a company decide to put it into liquidation, whether
or not there are sufficient assets to pay all the debts
of the company.
- Compulsory liquidation (or Court liquidation) –
this is when the Court makes an order for the company
to be wound up (a ‘winding-up order) on the petition
of an appropriate person.
Q. Do all companies have to go
through insolvency proceedings before being dissolved?
A. No. If the Registrar has reason to believe that
a company is not carrying on business or is not in operation,
its name may be struck off the register and dissolved without
going through liquidation.
Q. Where can I get advice about
A. Before you take any action to put a company into
liquidation, you should obtain your own legal or financial
advice about this insolvency procedure and any other options available
to you. You can get advice from your lawyer, a qualified
accountant, an authorized and licenced insolvency practitioner or any
reputable financial adviser.
Q. Is there an alternative to a Court or compulsory liquidation?
A. An informal arrangement whereby the company
could consider writing to all its creditors to see if a
mutually acceptable agreement can be reached. It is advisable
to include a timetable of when payments will be made.
Q. What is the role of a liquidator?
A. Chiefly these are:
- To advise and to establish a strategy,
- To act upon that advice professionally and to take
- To look after the interests of creditors,
- To act impartially at all times.
- To follow the ethical guidelines as set out by the
- To fulfill statutory obligations placed on him by the
Q. What are the primary duties
of a liquidator?
A. The liquidator is appointed to wind up the company’s
affairs. The liquidator does this by realising all the
company’s assets and distributing them to its creditors.
If anything is left over, the liquidator distributes it
among the members of the company.
Q. What are the powers of a liquidator?
A. A liquidator’s powers are extensive and
- Powers to dispose of the company’s assets.
- To bring and defend legal proceedings and to agree creditors' claims and,
- To pay dividends to the company’s creditors.
Q. What laws if the Cayman Islands
govern the liquidation of the Cayman Islands companies?
A. The primary law that relates to the winding up
of a Cayman Islands company is the Companies Law (2007 Revision).
However certain statutory laws relating to companies regulated
by CIMA enable them to be wound up. The Winding-up
Rules (1996) supplement the Companies Law insomuch that
they are not in conflict with the laws.
Q. Are there any preferential creditors
under the laws of the Cayman Islands?
A. Section 162 of the Companies Law (2007 Revision)
notes companies of debts to be paid in priority to others.
Q. Does a liquidator have to advertise
A. Yes, in the Cayman Islands Gazette. It is also
recommended that advertisements are placed in a periodical
of any country in which a company has transacted a substantial
amount of business.
Q. Does a liquidator need to notify
anyone of his or her appointment?
A. Yes. Following the liquidation resolution and
the liquidators’ appointment, he must publish a notice
of appointment in the Cayman Islands Gazette www.gov.ky
and notify the Registrar of companies within 15 days.
Q. What happens when the company’s
affairs are fully wound up?
A. The liquidator presents a final account at the final
meetings of creditors or members of the company. He or she
must also advertise the meetings in the Cayman Islands Gazette.
The company is dissolved three months after notice has
been given to the Registrar of Companies of the final meeting.
At this time a certificate of dissolution is issued.
Q. Can a company be taken out of
A. No, unless there are exceptional circumstances.
Q. Can a company distribute its
assets in specie to shareholders or creditors?
A. Yes; provided it is outlined in the Company’s
Articles of Association or by passing a special resolution
of the shareholders.
Q. Who pays the liquidator?
A. The liquidator is paid out of the individual‘s
or the company’s assets in agreement with either the
shareholders or the liquidation committee or the Grand Court
if the company is insolvent.
Q. Can freezing orders be obtained
by a liquidator?
A. Yes, by way of obtaining a Court order known as
a mareva injunction.
Q. Can additional information be
obtained by a liquidator following the serving of a mareva
A. Yes, by way of obtaining a Court order known as
an Anton Pillar order.
Q. What is the effect of the commencement
of a voluntary liquidation?
A. The effect of a commencement of a voluntary liquidation
is that the company ceases to carry on its business
insofar as may be required for its ‘beneficial winding-up’.
In addition, all transfers of shares except those made to
or with the sanction of the liquidator are valid from the
commencement of the liquidation.
Q. When can a company go into voluntary
A. This can take place when the director of a company
believes that the company is solvent. However the directors must still recommend a liquidation even though the company
is insolvent. Unlike the United Kingdom laws and those of
many other countries there are no separate creditors voluntary liquidations. A creditors only means of action
is to take out legal proceedings for the company to be wound
up by the Grand Court.
Q. When does the liquidation actually
A. The liquidation commences when the shareholders
pass special resolutions convened at an extraordinary
meeting to wind up the company voluntarily at which time
a liquidator is appointed. In the even that there is only
one shareholder, a resolution of the shareholder is necessary.
Schemes of Arrangement and Provisional
Q. How can a company commence
A. Sections 86 to 89 of the Companies Law relate
to ‘arrangements’ and reconstructions’
which enables a company to compromise its debts with its members and
Q. Can a Provisional Liquidation
be used to accommodate reorganization?
A. Yes. This is a common procedure that has been
used in cross border re organizations. This enables the
company to trade whilst insolvent under supervision of the
Court as long as it is in the best interest of the creditors
and in addition it allows the company breathing space
during the implementation of a Scheme of Arrangement.
Compulsory or Court Liquidations
Q. What is a ‘compulsory
or Court liquidation’?
A. Compulsory or Court liquidation of a company occurs
when a company is ordered to be wound up by the Court.
Q. Which Court orders a compulsory
A. The Grand Court of the Cayman Islands. Frequently
this is on the petition of a creditor or creditors on the
grounds that the company cannot pay its debts.
A company is regarded as unable to pay its debts if, for
example, a creditor:
- is owed more than CI$100;
- presents a written demand in prescribed form (known
as a statutory demand) to the company; and
- the company fails to pay, secure or agree a settlement
of the debt to the creditor’s reasonable satisfaction.
There are other situations where a company is deemed unable
to pay its debts. Please read the relevant legislation.
The Court may also order the company to be wound up on
the petition of:
- the company itself
- the company’s directors or one or more members
In certain circumstances a licenced entity may be wound
up on a petition from the Government or the Cayman Islands
Monetary Authority ("CIMA").
Q. What are the consequences of winding up petition?
A. The company’s bankers will usually freeze
the company’s bank account on receipt of the petition.
Any disposal of the company’s property, or payments
to creditors, after the date of the petition may be recoverable
by a liquidator. Customer contracts may be cancelled. The
petition is advertised in the Government Gazette. A winding
up order may be made if the petition debt is not paid.
Q. What are the consequences of a winding up order?
- The director’s powers cease as from the date of the order.
- The contracts of employment are automatically
- All enforcement procedures (other than those taken by
a landlord) are stopped.
- It is likely that the company will cease to trade.
- The winding up order is advertised in the Government
Gazette and a local paper.
- The Official Receiver is receiver and manager of the
- A report on the director’s conduct will be submitted
to the Department of Trade & Industry.
Q. Can a company continue to trade
even if it is insolvent?
A. Yes. Only as a part of a formal insolvency procedure
or restructuring plan agreed by all creditors. In these circumstances
directors should not continue to trade until expert advice
has been received from an Insolvency Practitioner.
A director should be aware that he may become personally
liable for any debts incurred after a time when he knew
or ought to have known that the company was insolvent.
Q. Must the petition be advertised?
A. Unless the Court directs other arrangements, the
petition must be advertised in the Cayman Islands Gazette.
Where the company is carrying on business outside the Cayman
Islands, the liquidation is likely to be advertised in the jurisdiction
of which the company was trading.
Q. What appears on company record
held by the Register of Companies?
A. If the petition is successful, the liquidator
must notify the Registrar of the liquidation immediately after their appointment and it will be placed on the company’s public record.
Q. Who acts as the liquidator when
an order is made to wind up the company?
A. The nominated insolvency practitioner becomes
liquidator on the making of a Wind-Up order against a company
by the Court. On his appointment his title is ‘Official
The official liquidator has the duty to investigate the
affairs of the company and to investigate the cause of its
failure and report to the Court thereon.
Additionally, is his duty to realize the assets of the company,
to pay creditors and where there are surplus monies, to
pay shareholders. He is obliged to call meetings or creditors
and circulate periodic reports.
Q. What happens when the winding-up
A. The official liquidator presents his final report
to the Court, and seeks his discharge and the dissolution
of the company.
Q. Is an insolvency practitioner
required to be resident of the Cayman Islands?
A. Practice Direction No. 2/03 issued by the Grand
Court of the Cayman Islands determines the procedures by
which fees charged by Official Liquidators are approved.
In the event that a liquidation committee is established,
it is charged with determining the scale of hourly rates
and the appropriateness of the amount charged.
If there is no committee or the committee does not make
the requisite determination, the official liquidator’s
remuneration may be fixed by a resolution of creditors or
shareholders in the case of a solvent company.
Q. To whom does the official liquidator
A. The official liquidator is an officer of the Grand
Court of the Cayman Islands and must report on a timely
manner to the Court as determined in the Order containing
his appointment, The official liquidator must also form
a committee or creditors with whom he should meet every
six months and furnish creditors with periodic reports.
Q. What is a liquidation committee
and what are its powers?
A. A liquidation committee can be appointed at the
creditors’ meeting if, at least three and not more
than five in number wish to act. The liquidator must periodically
report to the committee and the committee approves such
items as the liquidator’s remuneration.
The committee also sanctions the exercise of some of the
powers of the liquidator and acts also in the interests
of all creditors.
Q. What are the duties and responsibilities
of the liquidation committee?
A. To advise and to establish a strategy. To act
upon that advice professionally and to take appointments.
To look after the interests of the creditors. To act impartially
at all times. To follow the ethical guidelines as set out
by the licensing bodies. To fulfill the statutory obligations
placed on him by the appointment (See Guide to Liquidation
Q. How is a claim against a company
A. A creditor must submit a ‘Proof of Debt’
form containing details of the claim accompanied by documentary
proof. Should the liquidator wish to do so he may request
further particulars and evidence.
The time limit for the production of the proof is at the
discretion of the liquidator who will arrange for the Gazetting
of a notice.
The liquidator may admit the debt in whole or in part or
may reject it with a statement of reasons. Any creditor
who is dissatisfied with the decision of the liquidator
may apply to the Court within 21 days for the decision to
be reversed or modified.
Q. If a company is without available
funding to enable a liquidator to realize assets or claims
are there any remedies available to him?
A. In circumstances where there are insufficient
monies available to realize assets or pursue claims the
creditors or certain creditors may be persuaded to advance
funds to assist the liquidator. Such funding is an expense
of the liquidation and consequently the lenders would be
repaid out of the assets recovered prior to the declaration
of any dividend.
The liquidator may as an alternative and with the sanction
of the Court assign the benefit of any chose in action to
a third party who would be entitled to bring actions in
their name. This type of action became prevalent in recent
years and one which has been utilized by Chris Johnson Associates
on several occasions.
Q. How can a liquidator be removed
A. In a compulsory liquidation the liquidator has
a duty to summon a meeting of creditors forthwith when required
to do so by notice in writing given by creditors to whom
is owed not less than 25% of the total amount owed to all
creditors of the company.
The liquidation committee can also call a meeting of creditors.
Section 107 of the Companies Law (2007 Revision) provides
that any liquidator may be removed by the Court on due cause
shown and any vacancy in the office of an official liquidator
appointed by the Court shall be filled by the Court. In
practice where creditors wish to replace a liquidator they
should discuss the matter with the liquidator. In theory,
a liquidator should derive little satisfaction in remaining
in office when he/she is not wanted. Hopefully, the liquidator
will not resign then one of the other options will have
to be used as a last resort.
Q. The Company is in financial
difficulties. What procedures or assistant other than liquidation
A. Informal restructuring businesses may be rescued
without requirement for any formal insolvency procedures.
It may be possible to arrange a scheme for the restructuring
or refinancing of the company with the agreement of creditors
including making agreements with company’s bankers,
asset financiers, crown creditors and factors. The degree
of complexity required for these schemes will depend upon
the circumstances prevailing at the time.
Voluntary Liquidation –
This may also permit the reorganization and restructuring
of corporate debt and can allow a Company to continue trading
whilst maintaining a structured repayment plan with its
creditors. The procedure may also allow the company to compromise
Receivership – The
appointment of receiver may also permit the continuance
of trade, the restructuring of the business and potentially
the sale of the business assets and undertaking.
Q. As a Director can he become
personally liable for the debts of the company?
A. If the company goes into insolvent liquidation
and a director is found guilty of wrongful trading, fraudulent
trading or in the misapplication of the company funds, he
may be required to make payment. Even actions undertaken
in good faith or honesty may still lead to a director being
guilty. It is extremely important to take professional advice
as to when, and if, the company should stop trading or when
by continuing he may become personally liable.
If a director has guaranteed any of the company’s
debts it is likely that once the company cannot pay, the
creditor will demand payment from the director under the
terms of the guarantee.
Although a director may not actually become personally
liable for certain transactions entered into before a formal
insolvency he may become guilty of an ‘Insolvency
Offence; which leads to legal action or possibly may form
the basis of a director disqualification application. Such
- Preferences – Where
the position of one creditor is improved in comparison
to other creditors.
- Transactions at an Undervalue
– where the company receives significantly
less value or no value for assets/services that it provides.
- Transactions Defrauding Creditors
– Similar to transactions at an undervalue where
fraudulent intent is proven. There are no time restrictions
in which the transaction must have occurred prior to the
onset of insolvency for an individual to be found guilty
of this offence.
Q. As a director; what are my duties
once a liquidator is appointed?
A. A director is required to co-operate fully with
the liquidator in all matters relating to the business.
All books, records and cheques received must be handed over to the liquidator.
Q. Can assets be sold by the liquidator
A. The liquidator can sell the assets to any interested
party. His duty is to maximize the value of the assets.
Q. Can a director of a company
that has gone into liquidation, still be a director of other
A. Provided that there is no Court Order
precluding a director from acting, he may continue acting
as a director of other companies in the Cayman Islands.
There are no director’s disqualification laws in the
Q. Can those companies purchase
the assets of the company in liquidation?
A. A director or any company in which he
is director may purchase asset of a company in liquidation.
It is likely that the official liquidator will seek Court
direction for this.