Posted: 23 Sep, 2020
On Wednesday 16 September 2020, Mourant kindly hosted a webinar on obtaining restructuring assistance in Cayman, the BVI and the Channel Islands.
The discussion focussed on the type of assistance which can be obtained and the high degree of cooperation between the onshore and offshore jurisdictions.
We thank TMA Director Andrew Pepper for moderating this insightful webinar which was attended by over 200 people and can be accessed in full here.
Peter Hayden, Partner, Mourant Ozannes, Cayman Islands
Nicholas Fox, Partner, Mourant Ozannes, Cayman Islands (Cayman Islands)
Justine Lau, Partner, Mourant Ozannes, Hong Kong (BVI and Cayman Islands)
Abel Lyall, Partner, Mourant Ozannes, Guernsey (Channel Islands)
Richard Fisher QC, Barrister, South Square Chambers, London (United Kingdom)
Overview of offshore jurisdictions
Opening the discussion, Nicholas, Justine, and Abel provided an overview of the legal system in each offshore jurisdiction. They explained that Cayman, BVI and the Channel Islands are all heavily influenced by English law and the decisions of the English courts are considered highly persuasive, particularly in commercial law and insolvency work. In Cayman, for example, the procedural rules are based on an old version of the English procedure rules. The highest court in the jurisdictions is the Privy Council, based in London.
Obtaining assistance offshore – stays and enforcement of judgments
Peter then asked the speakers to describe the types of assistance which can be sought offshore and when it would be necessary or desirable to obtain an offshore appointment. Richard explained that the most common example of obtaining defensive assistance offshore is by seeking a stay of proceedings against the company. This is granted by the offshore court in order to shelter a restructuring taking place onshore, such as the UK or the US. The principle underpinning the stay is to protect the collective nature of the insolvency process by preventing a creditor from bringing its own claim in a different jurisdiction and thereby circumventing the orderly distribution of assets. This mechanism has been exercised frequently since the 19th century and was recently confirmed by the UK Supreme Court in Rubin v Eurofinance SA  1 AC 236 at paragraphs 51 – 54. There are also further scenarios in which a stay may be required, such as to prevent competing litigation taking place in different jurisdictions.
The process of enforcing judgments offshore is also straightforward. Abel and Justine said that in the Channel Islands and the BVI, money judgments obtained in an onshore jurisdiction can be enforced under statute. The offshore court registers and enforces the money judgment as if it were a judgment of the offshore court and this is a streamlined process. Non-money judgments can be enforced under established common law principles by bringing a fresh action in the offshore court. As for Cayman, Nicholas explained there is no difference in the procedure which applies to money and non-money judgments, both of which are enforced under common law principles and require a fresh action to be brought. The usual approach is to then make an application for summary judgment. Abel added that even a worldwide freezing order granted onshore will need to be enforced in the offshore court.
Nicholas explained that the first step towards obtaining the assistance of the offshore courts (such as a stay) is to obtain recognition of the onshore liquidator in the offshore jurisdiction. In Cayman and BVI, a liquidator appointed onshore is recognised under statute or the common law. However, Justine said that the BVI statute does not contain a general recognition provision and instead provides specific case by case assistance. Abel said that the Channel Islands courts extend assistance to onshore office holders under statute and the common law. Nicholas added that the continued application of the common law principles of recognition, as a supplement to the statutory regime, ensures that the offshore courts can operate flexibly, particularly in a situation where the statute does not apply.
Obtaining information and documents
Peter asked the speakers to explain whether a UK appointee could obtain information and documents offshore. Richard said that, under the common law, there is a power to assist a foreign liquidation or other insolvency. The leading case is the Privy Council decision in Singularis v PWC  AC 1675, which confirmed that the power to assist is informed by the principle of modified universalism, which provides for a single jurisdiction to take charge of the liquidation. This common law power to assist can extend to an order by the offshore court for the production of information or documents where necessary for the administration of a foreign liquidation. Various conditions need to be satisfied, such as that an equivalent power could be exercised under the law of the jurisdiction in which the office holder has been appointed.
Justine and Abel explained that the main documents held by the target company (e.g. memorandum & articles, register of directors) in these offshore jurisdictions may be obtained from the company's registered office. There are a number of different legal and practical routes available for obtaining documents and information in each jurisdiction and it is therefore sensible to obtain legal advice tailored to the most suitable route in each case.
Obtaining recognition of a UK scheme or CVA
Peter posited another situation where there needs to be a restructure and there is an offshore entity involved. He asked the speakers how recognition of a UK scheme or CVA could be obtained offshore. Justine said that in Cayman and BVI the established practice for recognising a UK scheme or CVA is to use a parallel scheme. This protects the UK restructure from being undermined by individual creditor action offshore. Abel added that in the Channel Islands, there is a statutory recognition process for CVAs but not schemes and that parallel schemes are sometimes proposed where a Channel Islands company is involved.
Coordinating a restructure through an offshore appointment
The alternative way of coordinating a restructure is through an offshore appointment. Nicholas explained that in Cayman the statutory process is to file a winding up petition and simultaneously apply to appoint a "light touch" provisional liquidator, which postpones the hearing of the winding up petition. This is a very flexible mechanism which is frequently used. He added that legislation will also soon be introduced for the appointment of a restructuring officer, which will not require the presentation of a winding up petition. Justine added that a provisional liquidator may be appointed in the BVI, in principle, under the common law. As for the Channel Islands, Abel explained that administration is normally used in Guernsey but there is no administration process in Jersey.
Dealing with the restructure offshore
Peter asked what procedures are available to deal with the restructuring within the offshore jurisdictions. The speakers confirmed that Cayman, BVI and the Channel Islands provide for schemes of arrangements and involve similar conditions and procedures to those in England.
Recognising an offshore scheme in England
As for seeking recognition of an offshore scheme in England, Richard said that the English courts can recognise an offshore process or office holder. However, under the Gibbs rule, recognition of a compromise or a debt will not be possible if it is English - law governed and therefore a parallel scheme will be required in the UK in this situation.
Closing the webinar, Richard explained that it is likely that there will be an increase in debt restructuring work offshore, given that most company structures include an offshore vehicle. There may also be an increase in traditional insolvency work, such as clawback actions.
Nicholas, Justine, and Abel praised the offshore courts for their continued operation throughout the pandemic without significant interruption and for their success in using video hearings and e-filing. Appointments can be obtained within weeks and urgent applications can be heard within 24 hours.
Thank you to Peter, Nicholas, Justine, Abel, and Richard for their detailed summary of the position offshore and to everyone who joined the webinar.
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