This guide is only partially
governed by the Companies Law (2007 Revision) and the Winding
Up Rules and in other areas serves as a 'best practice' guide.
Any queries related to the guide may be addressed to Chris Johnson Associates Ltd.
1.4 THE LIQUIDATOR
1.5 THE LIQUIDATION COMMITTEE
2.THE FUNCTIONS OF THE COMMITTEE
2.1 LIQUIDATOR'S REMUNERATION
2.2 EXPENSES AND DISBURSEMENT
2.3 COURT ASSESSMENT OF COSTS
3. LIQUIDATOR'S OBLIGATION TO COMMITTEE
4. LIQUIDATOR'S ACCOUNTING RECORDS
5 ESTABLISHMENT OF THE COMMITTEE
5.1 COMPULSORY LIQUIDATION
5.2 FORMALITIES OF ESTABLISHMENT
5.3 FORMAL DEFECTS
6.1 GENERAL REPRESENTATIVES
6.2 RESIGNATION AND TERMINATION OF MEMBERSHIP
6.4 COMPOSITON OF COMMITTEE WHEN CREDITORS PAID IN FULL
7.3.2 First Meeting
7.3.3 Subsequent Meetings
7.4 NOTICE OF VENUE
7.5 VOTING RIGHTS AND RESOLUTIONS
7.6 RECORDS OF MEETINGS
7.7 POSTAL RESOLUTIONS
8. CONFIDENTIALITY OF DOCUMENTS
9. CHARGES FOR COPY DOCUMENTS
10. EXPENSES OF COMMITTEE MEMBERS
11. DEALINGS BY COMMITTEE MEMBERS AND OTHERS
1.1.1 This guide has been produced to assist
members of liquidation COMMITTEES to be aware of:
- The duties and functions of the COMMITTEE.
- Their rights as members of the COMMITTEE
- The procedural rules relating to COMMITTEE business.
1.1.2 This introduction gives a brief
explanation of liquidation procedures, and summarizes the
principal functions of the COMMITTEE and the liquidator's
primary duties in relation to it.
1.1.3 The authority for the liquidation
COMMITTEE is derived by Practice Direction No. 2/2003. Whereby
it is the practice of the Grand Court of The Cayman Islands
to require that liquidation COMMITTEES should be established
in every case unless:
- The number of creditors, or shareholders as the case
may be, is so small that the functions normally performed
by the COMMITTEE can be performed conveniently by the whole
body of creditors or shareholders.
- It is anticipated that the liquidation will be completed
in less than six months.
1.2.1Liquidation (also termed winding up') is the formal winding
up of a company's affairs, entailing the realization of its
assets and the distribution of the proceeds in a prescribed
order of priority. Liquidation may be either compulsory, when
ii is instituted by order of the Court usually on the application
of a creditor, or voluntary, when it is instituted by resolution
of the shareholders. As the laws of the Cayman Islands do
not distinguish between a solvent liquidation and an insolvent
liquidation, for the purpose of this guide an insolvent voluntary
liquidation will be referred to as a 'creditors voluntary
liquidation' and a solvent voluntary liquidation will be referred
to as a 'shareholders voluntary liquidation'. The latter are
not covered in this guide as there is no COMMITTEE in such
1.2.2 The guidance which follows applies to both compulsory
liquidations and creditors' voluntary liquidations unless
1.3 The Liquidator
1.3.1 The liquidator appointed to conduct the winding up has
wide powers, which are detailed in the Companies Law (2007
1.4 The Liquidation
1.4.1 The COMMITTEE in liquidations is known as the liquidation
COMMITTEE'. In the majority of cases the liquidation COMMITTEE
will consist entirely of creditors of the insolvent company.
1.4.2 The purpose of the liquidation COMMITTEE is to represent
the interests of the creditors as a whole, not just the interests
of its individual members. The principal functions of the
COMMITTEE are to sanction the exercise of certain of the liquidator's
powers and to fix his remuneration. In addition to its statutory
functions the COMMITTEE may also serve to assist the liquidator
generally and act as a sounding board for him to obtain views
on matters pertaining to the liquidation.
1.4.3 The liquidator is required to report to the COMMITTEE
on matters relating to the liquidation and to submit copies
of his accounts when required. Meetings are generally held
when determined by the liquidator, and voting is by majority
1.4.4 COMMITTEE members are not entitled to remuneration,
but they may be reimbursed for reasonable traveling expenses
incurred on COMMITTEE business.
1.4.5 Although the liquidator should normally have regard
to the views of the liquidation COMMITTEE, he may always refer
matters of contention to a general meeting of creditors or
to the Court. It has been held that the Court has a residual
discretion not to follow the wishes of a COMMITTEE where the
special circumstances of the case warrant it.
2. The Functions of the COMMITTEE
2.1 Liquidator's Remuneration
2.1.1 The COMMITTEE is responsible for fixing the liquidator's
remuneration. For additional information, reference should
be made to Practice Direction 2/2003.
Such remuneration must be fixed either:
- As a percentage of the value of the assets which are realized,
or distributed, or of the one value and the other in combination.
- By reference to the time properly given by the liquidator
and his staff in attending to matters arising in the winding-up.
It is for the COMMITTEE to determine whether the remuneration
is to be fixed under a) or b), and if under a), to determine
a percentage to be applied.
2.2 Expenses and Disbursements
2.2.1 There is no statutory requirement for the COMMITTEE
or the creditors to approve the thawing of expenses or disbursements.
However, where the liquidator proposes to recover costs which,
whilst being in the nature of expenses or disbursements, may
include an element of shared or allocated costs (such as room
hire, document storage or communication facilities provided
by the liquidator's own firm), they should be disclosed
and be authorized by those responsible for approving his remuneration.
Such expenses must be directly incurred on the case and subject
to a reasonable method of calculation and allocation.
2.3 Court Assessment of Costs
2.3.1 Where any costs, charges or expenses are
payable out of the assets (for example agents or legal fees),
the liquidator may agree them with the person entitled to
payment however, if the COMMITTEE resolves that any such costs,
charges or expenses should be determined by the Court, the
liquidator must require the person entitled to payment to
deliver his bill of costs for assessment.
2.3.2 Where such costs, charges or expenses are to be assessed,
this does not preclude the liquidator from making payments
on account against an undertaking from the payee to repay
any amount which proves, on assessment to have been overpaid.
2.4 Liquidator's Security
A liquidator must meet the requirements of the Court with
regard to his insurance requirements.
3. Liquidators' Obligation to the COMMITTEE
3.1 The liquidator has a duty to report to the COMMITTEE
all such matters as appear to him to be, or as they have indicated
to him as being, of concern to them with respect to the liquidation.
3.2 The liquidator need not comply with any request for information
where it appears to him that the request is frivolous or unreasonable,
or the cost of complying would be excessive having regard
to the relative importance, or there are insufficient assets
to enable him to comply.
3.3 Where the COMMITTEE, has come into being more than 3
months after the appointment of the liquidator, he should
report to the members in summary form what actions he has
taken since his appointment and answer such questions as they
may put to him regarding the conduct of the proceedings. A
person who becomes a member of the COMMITTEE at any time after
its establishment is not entitled to require a report to him
by the liquidator, otherwise than in summary form, of any
mailers previously arising.
3.4 Nothing in these provisions disentitles the COMMITTEE
or any member of it from access to the liquidator's records
of the liquidation, or from seeking an explanation of any
mailer within the COMMITTEE's responsibility.
3.5 The liquidator should, as and when directed by the COMMITTEE
(but not more than once every two months), send a written
report to every member of the COMMITTEE setting out the position
generally as regards the progress of the liquidation, and
matters arising in connection with it to which the liquidator
considers the COMMITTEE's attention should be drawn. In the
absence of such directions by the COMMITTEE the liquidator
must send such a report not less than once every six months.
3.6 The liquidator should, at their first meeting with him,
discuss with COMMITTEE members their requirements for reports
and obtain their directions. He should also discuss with COMMITTEE
members at that meeting the types of matters which they wish
to have reported to them so that matters of particular concern
to them are identified.
4. Liquidator's Accounting Records
4.1 The liquidator should prepare and keep financial records
in relation to the liquidation, and such supporting documents
as are necessary to explain the receipts and payments entered
in the records, including an explanation of the source of
any receipts and the destination of any payments, must obtain
and keep the bank statements relating to any local bank account
opened in the name of the company.
4.2 If the company's business is carried on, the liquidator
must also keep a separate trading account including, where
appropriate, details of all local bank account transactions.
4.3 The liquidator should submit the financial records to
the COMMITTEE as and when the COMMITTEE requires them for
inspection, and if the COMMITTEE is not satisfied with their
contents it may apply to the Grand Court of the Cayman Islands
(giving the reasons for its dissatisfaction). The Grand Court
of the Cayman Islands may then take such action as he thinks
5. Establishment of the COMMITTEE
5.1 Compulsory Liquidation
5.1.1 The COMMITTEE will be established by general meetings
of the company's creditors and contributories. It is recommended
that the COMMITTEE should consist of at least three, and not
more than five, creditors.
5.2 Formalities of Establishment
5.2.1 The COMMITTEE does not come into being, and accordingly
cannot act, until the liquidator has issued a certificate
of its due constitution.
5.2.2 The liquidator will not issue the certificate until
the minimum number of persons required to be members of the
COMMITTEE have agreed to act.
5.3 Formal Defects
5.3.1 The acts of the COMMITTEE are valid not withstanding
any defect in the appointment, election or qualifications
of any COMMITTEE member or the representative of any COMMITTEE
member, or in the formalities of its establishment.
6.1.1 It is the creditors or contributories themselves who
are the members of the COMMITTEE, not the individuals who
represent them. Thus a company which is a creditor may be
a member of the COMMITTEE but can only act through a representative
appointed in accordance with paragraphs 6.2.1 to 6.2.3 below.
6.1.2 Any creditor (other than one whose debt is fully secured)
may be a member of the COMMITTEE, so long as :
- Has lodged proof of his debt.
- Their proof has neither been wholly disallowed for voting
purposes nor wholly rejected for the purpose of distribution
- He has agreed to act as a member of the COMMITTEE
6.2.1 A member of the COMMITTEE may be represented by another
person duly authorized by him. Such representative must hold
a letter of authority entitling him so to act (either generally
or specially) signed by or on behalf of the COMMITTEE member.
The chairman at any meeting of the COMMITTEE may call on a
person claiming to act as a COMMITTEE member's representative
to produce his letter of authority and may exclude him if
it appears that his authority is deficient.
6.2.2 No member may be represented by :
- A body corporate.
- An un-discharged bankrupt.
- A person who is subject to a bankruptcy restrictions
order or undertaking.
6.2.3 No person may act as representative of more than one
COMMITTEE member, or both as a member and as a representative
of another member, on the same COMMITTEE.
6.2.4 Where the representative of a COMMITTEE member signs
any document on the members behalf, the fact that he so signs
must be stated below his signature.
6.3 Resignation and Termination of Membership
6.31 A member of the liquidation COMMITTEE may resign by notice
in writing delivered to the liquidator. A person's membership
of the COMMITTEE is automatically terminated if:
- He becomes bankrupt
- At three consecutive meetings of the COMMITTEE he is neither
present nor represented (unless at the third of those meetings
it is resolved that this rule is not applied in this case)
- He ceases to be, or is found never to have been, a creditor.
6.3.2 However, if the cause of termination is the members
bankruptcy, his trustee in bankruptcy replaces him as a member
of the COMMITTEE.
6.3.3 A creditor member of the COMMITTEE may be removed
by resolution at a meeting of creditors; 14 days notice must
be given of the intention to move the resolution.
6.4.1 If there is a vacancy among the members of the COMMITTEE
it need not be filled if the liquidator and a majority of
the remaining members so agree provided the number of members
do not fall below three. If another creditor is to be appointed
he can be appointed either by the liquidator (provided the
majority of the remaining COMMITTEE members agree to the appointment
and the creditor consents to act) or by a resolution passed
at a duly convened meeting of creditors, after at least 14
days' notice of the resolution has been given.
6.5 Composition of COMMITTEE when Creditors paid
6.5.1 If the liquidator issues a certificate that the creditors
of the company have been paid in full with interest, the creditor
members of the COMMITTEE cease to be members of the COMMITTEE.
7.1.1 The chairman at any meeting of the COMMITTEE will
be the liquidator, or a person nominated by him to act. A
person so nominated must be either --
- One who is qualified to act as an insolvency practitioner
in relation to the company.
- An employee of the liquidator or his firm who is experienced
in insolvency matters.
7.2.1 A meeting of the COMMITTEE is duly constituted if due
notice of it has been given to all members and at least two
creditor members are present or represented.
The COMMITTEE will meet where and when determined by the liquidator,
subject as follows:
7.3.2 First Meeting
The liquidator must call the first meeting to take place within
three months of his appointment or of the COMMITTEES establishment
(whichever is the later).
7.3.3 Subsequent Meetings
Subsequent meetings of the COMMITTEE must be called by the
- If so requested by a creditor member of the COMMITTEE
or his representative the meeting must be held within twenty
one days of the request being received by the liquidator
- For a specified date, if the COMMITTEE has previously
resolved that a meeting be held on that date.
7.4 Notice of Venue
7.4.1 The liquidator must give seven days' notice in willing
of the venue of any meeting to every member of the COMMITTEE
(or his representative, if designated for that purpose), unless
this requirement has been waived by or on behalf of any member.
Such waiver may be signed either at or before the meeting.
7.5 Voting Rights and Resolutions
7.5.1 At any meeting of the COMMITTEE each member (whether
present himself or by his representative) has one vote, and
a resolution is passed when a majority of the members present
or represented have voted in favor of it.
7.6 Records of Meetings
7.6.1 Every resolution passed must be recorded in writing,
either separately or as part of the minutes of the meeting.
The record must be signed by the chairman and kept with the
records of the liquidation.
7.7 Postal Resolutions
7.7.1 It is possible for resolutions to be passed by post
or other agreed upon communication medium. The liquidator
must send to every member (or his representative designated
for the purpose) a copy of any proposed resolution on which
a decision is sought which must be set out in such a way that
agreement 'with, or dissent from, each separate resolution
may be indicated by the recipient on the copy so sent.
7.7.2 However, any member of the COMMITTEE may, within seven
business days from the date of the liquidator sending out
a resolution, require the liquidator to summon a meeting of
the COMMITTEE to consider the matters raised by the resolution.
In the absence of such a request, the resolution is deemed
to have been passed by the COMMITTEE if and when the liquidator
is notified in writing by a majority of members that they
concur with it.
7.7.3 A copy of every resolution so passed, and a note that
the concurrence of the COMMITTEE was obtained, must be kept
with the records of the liquidation.
8. CONFIDENTIALITY OF DOCUMENTS
8.1 Where the liquidator considers that any document forming
part of the record of the liquidation :
- Should be treated as confidential.
- Is of such a nature that its disclosure would be calculated
to be injurious to the interests of the creditors; he may
decline to allow it to be inspected by a person (including
a member of the COMMITTEE) who would otherwise be entitled
to inspect it.
8.2 A person refused inspection may apply to the Court for
the refusal to be overruled.
9. CHARGES FOR COPY DOCUMENTS
9.1 Where the liquidator is requested by a member of the
COMMITTEE to supply copies of any documents, he is entitled
to charge 80 cents per page or where significant copying is
required, an hourly rate of $95 per hour plus out
of pocket costs.
10. EXPENSES OF COMMITTEE MEMBERS
10.1 My reasonable expenses directly incurred by COMMITTEE
members or theft representatives either in attending meetings
of the COMMITTEE or otherwise on the COMMITTEES business will
be paid by the liquidator out of the assets in the due order
11. DEALINGS BY COMMITTEE MEMBERS AND OTHERS
11.1 The position of all COMMITTEE members is fiduciary and
they must be careful not to expose themselves to a conflict
between their duty as members of the COMMITTEE and their personal
interest. Accordingly, no member of the COMMITTEE, or his
representative, or any person who is an associate of a COMMITTEE
member or his representative, or any person who has been a
COMMITTEE member at any time in the previous twelve months,
can enter into a transaction whereby he:
- Receives out of the company's assets any payment for
services given or goods supplied in connection with the
administration of the liquidation.
- Obtains any profit from the administration of the liquidation
- Acquires any asset forming part of the estate.
(i) he first obtains the leave of the Court to the transaction,
(ii) he enters into the transaction as a mailer of urgency
or by way of performance of a contract in force before the
date of the winding- up order or resolution to wind up and
he obtains the leave of the Court, having applied for such
leave without undue delay, or
(iii) he enters into the transaction with the prior sanction
of the COMMITTEE where the COMMITTEE is satisfied (after full
disclosure of the circumstances) that he will be giving full
11.2 Where a resolution is proposed in the COMMITTEE that
sanction be given to such a transaction, no member of the
COMMITTEE, and no representative of a member, can vote on
the resolution if he is to participate directly or indirectly
in the transaction.
11.3 The costs of obtaining the leave of the Court are not
payable out of the assets unless the Court so orders.
11.4 Circumstances may occasionally arise where s legal
action or dealing involving a member of the COMMITTEE or a
person connected with him make it inappropriate for him to
attend discussions on the subject in the COMMITTEE, in such
circumstances the member may be asked not to attend a meeting,
or part of a meeting, at which the matter is discussed.