The Companies (Amendment) Act, 2021, which was drafted with the intent of attracting and maintaining restructuring and liquidation business in the Cayman Islands, came into force on August 31.
The legislation applies to a company, and any other entity or partnership, that is liable to be wound up under the provisions of Part V of the Companies Act (2022 Revision). Its two main objectives are to separate restructuring from the winding-up regime; and to improve access to both the restructuring and winding-up regimes.
The amendment originates from proposals made by the Financial Services Legislative Committee (FSLC), which proposes enhancements to the Cayman Islands financial services regime, for Government’s consideration and potential action.
Geoff Ruddick, Partner, Paradigm Governance Partners, explains that, prior to the amendment, a company that wanted to restructure first needed to apply to the Court to wind up (liquidate) the company. This may have given an incorrect impression that the company was going out of business rather than restructuring. The winding-up application also could have triggered wind-up covenants in finance documents, he notes.
“This may have been a deterrent to companies looking at using Cayman and undermined use of the regime,” Ruddick says.
The Act addresses this issue by separating the restructuring regime from the winding-up regime. It also improves access to the restructuring regime by no longer requiring a shareholder resolution, or an express power in the company’s articles of association, before company directors can apply for a restructuring.