Whilst this was a pragmatic interpretation of Cayman Islands law that resulted in the logical commercial outcome in that particular case (in which there was no shareholder opposition), the ruling in China Milk was criticised for giving directors a wider discretion than was intended by the legislation. In a carefully considered judgment handed down on 25 November 2015, Mrs Justice Mangatal disagreed with Mr Justice Jones’s construction of the statutory provisions and struck out a winding up petition brought by the directors of an insolvent company who did not have the requisite authority from the shareholders to petition for the company’s winding up.

The decision, as has been widely anticipated would occur in an appropriate case, has removed the ability of directors to unilaterally petition for the winding up of an insolvent company in circumstances where the shareholders do not support their proposal. This absence of this alternative will inevitably cause difficulty for directors’ who owe fiduciary duties to the company, and must take into account the needs of creditors in considering these duties, when the company enters the “zone of insolvency”. Directors may then be left in the difficult position of being forced to resign rather than carry on as stewards of an insolvent company without the power to petition the Court to place the company in liquidation. The legislative intent of the relevant Companies Law provision in the Cayman Islands is to permit a winding up of insolvent companies by creditors. This decision highlights that the law as drafted prevents the directors from acting directly in the interests of creditors when the shareholders are apathetic or act in their own self-interests and highlights the need for consideration of further legislative reform.

Read More

Type

Insight

Locations

Cayman Islands

Share
Twitter LinkedIn Email Save as PDF
More Publications
13 Sep 2021 |

Loans & Secured Financing in the Cayman Islands 2021

First published in Getting the Deal Through 2021. This practice guide provides topical analysis of L...

Contributors: Alexandra Simpson
21 May 2021 |

2021 - A Jekyll and Hyde Year for SPACs

In this article we offer our views on why this has happened and look ahead to the future for SPACs a...

Contributors: Dean Bennett
13 May 2021 |

The 2021 Cayman Islands Real Estate Guide

The Real Estate 2021 guide provides the latest legal information on the impact of disruptive technol...

Contributors: Norman Klein
13 May 2021 |

British Virgin Islands: Mergers & Acquisitions Comparative Guide

This country-specific Q&A provides an overview to Mergers & Acquisitions laws and regulati...

Contributors: Brittany Cummings
13 May 2021 |

Cayman Islands: Mergers & Acquisitions Comparative Guide

This country-specific Q&A provides an overview to Mergers & Acquisitions laws and regulati...

Contributors: Dean Bennett, Vance Power
15 Apr 2021 |

6 months on: Temporary relocation and residency by investment continues to increase in popularity

Six months on from the new digital nomad programmes, did the predicted upward trend reflect the real...

25 Mar 2021 |

Full Steam Ahead at the Jersey Ships Registry

Against a backdrop of uncertainty surrounding Brexit and the difficulties created by the global pand...

24 Mar 2021 |

Economic Substance update Q1 2021

Economic Substance update Q1 2021

12 Mar 2021 |

Material adverse change clauses in light of the Covid-19 pandemic

Experts from each of our key global offices provide jurisdiction specific advice and answer question...