Sep 2023
Introduction
In a recent judgment Re Cradle Holdings Inc. (FSD 318 of 2022, unreported, 4 September 2023), the Chief Justice of the Cayman Islands ruled on the novel issue as to whether and by what route a company which has been de-registered could be restored to the register of companies, where there is no express route for restoration in the provisions of the Companies Act (the “Act”).
The Chief Justice found that where a statute requires something to be done, relief may be granted on the basis that the statute contains an implied power to set aside the relevant decision or proceeding on grounds of substantial non-compliance. In arriving at Her Ladyship’s decision, the Chief Justice followed Kawaley J’s judgment in Re Real Estate and Finance Fund (Dissolved) (FSD 135 of 2022, unreported, 24 August 2022).
Statutory Provisions in Relation to De-Registration
Under section 206(1) of the Act, a Cayman-incorporated company which proposes to be registered by way of continuation as a body corporate limited by shares under the laws of any jurisdiction outside the Cayman Islands may apply to the Registrar of Companies (the “ROC”) to be de-registered in the Cayman Islands. Under section 206(2) of the Act, the ROC shall so de-register the company if the company is able to demonstrate, among other requirements, that the laws of the relevant jurisdiction with respect to transfer have been or will be complied with. Under section 206(3), such requirement shall be satisfied by filing with the ROC a declaration of a director to the effect that, having made due enquiry, that person is of the opinion that the requirement has been met.
Section 207(3) of the Act provides that from the commencement of the date of de-registration, the company shall cease to be a company for all purposes under the Act and shall continue as a company under the laws of the relevant jurisdiction. Section 209 requires the ROC to forthwith give notice in the Gazette of the de-registration of a company, the jurisdiction under the laws of which the company has been registered by way of continuation, and the name of the company, if changed.
There is no express provision under the Act which provides for a route to restore a company which has been de-registered.
Background
The company in question (the “Company”) was incorporated in the Cayman Islands as an exempt company in 2001. In or about 2020, the Company commenced the process to re-domicile itself in Barbados, which would involve an application to the ROC to de-register the Company.
For the purpose of the de-registration application, the sole director of the Company declared that, among other things, the laws of the relevant jurisdiction with respect to de-registration had been or would be complied with.
On 3 December 2021, the ROC issued the Company’s certificate of de-registration.
Subsequently, it became apparent that in order for the Barbados Registrar to advance the re-domicile, a certificate of good standing from the ROC was required. Such certificate could no longer be obtained owing to the Company’s de-registration.
The unintended consequence of its de-registration was that the Company was in limbo, having no existence under the laws of either jurisdiction. The failure of the transfer to Barbados by continuation threatened the conclusion of an agreement for the sale and purchase of the land held by the Company.
The Plaintiffs, being the executors of the estate of the sole shareholder cum sole director of the Company, sought an order that the Company be restored to the register of the Cayman Islands after the intended re-domicile of the Company failed.
The matter was ultimately resolved in favour of the Plaintiffs, with the Defendant (i.e. the ROC) raising no objections to the relief sought.
Applicable Principles
In Re Real Estate and Finance Fund (Dissolved), Kawaley J set aside a dissolution following a voluntary winding up, having found that a fraud had occurred in the voluntary liquidation which undermined the statutory purpose of the voluntary liquidation regime. Kawaley J held that although the Court had no express statutory power to grant the relief sought, the Court could do so in the exercise of its inherent jurisdiction to grant a declaration that an act is void pursuant to section 11(2) of the Grand Court Act.
Kawaley J extracted from two 19th century English cases the principle that where a statute requires something to be done, relief may be granted on the basis that the statute contains an implied power to set aside the relevant decision or proceeding on grounds of substantial non-compliance. His Lordship described the principle as one of “general application”.
The Chief Justice in the current case accepted that the principle could be relied on to assist the Company which would otherwise remain in limbo.
Findings
The Chief Justice found that:
- The legislature did not intend that a company seeking to continue in another jurisdiction be de-registered in Cayman unless and until the laws of the jurisdiction of the intended redomicile had been complied with and the company had been registered as continued in that jurisdiction.
- The legislature’s intention that the de-registration be contingent on the registration by continuation in the relevant jurisdiction may be inferred from the wording of section 207(3) (which provides that from the commencement of the de-registration, the company shall continue as company under the laws of the relevant jurisdiction) and section 209 (which requires the Registrar to gazette a notice of the de-registration and where the company has been registered by way of continuation) of the Act. It is implicit that the ROC must be satisfied, before the certificate of de-registration is issued, that the company is continuing in the relevant jurisdiction.
- As matter of construction, the proper working of the legislation that permits a company to change its place of incorporation requires that the company can be registered as continuing in the relevant jurisdiction before it is de-registered in the Cayman Islands.
- The director’s declaration was wrong, as at the time it was made, the Company had not and could not comply with the provisions for continuation in Barbados. A necessary condition for the de-registration of the Company was not satisfied. Given that a mandatory statutory requirement was not met, it was a proper exercise of the Court’s power to set aside the de-registration.
The Chief Justice made it clear that no criticism could be made of the ROC, as the statute provides in mandatory terms that the ROC shall de-register a company where a declaration is made that the laws of the relevant jurisdiction have been or will be complied with. Section 206(2), as presently drafted, does not require the ROC be satisfied that the company has been continued in the new jurisdiction before de-registering the company in the Cayman Islands.
The Chief Justice proposed adding the following requirement and provision to the Act:
- A requirement that a notice of continuation in the relevant jurisdiction be filed with the ROC by the company’s registered agent before the Registrar issues a certificate of de-registration.
- An express provision that a company does not cease to be a Cayman Islands company until it has been continued in its new domicile (referring to section 184(2) of the BVI Business Companies Act 2004).
The Chief Justice noted that, in the absence of any change to the existing legislation, it would be open to the ROC to make the issuing of a certificate of de-registration conditional on receipt of evidence that the company has successfully migrated, such as a certificate of continuation from the jurisdiction outside the Cayman Islands.
Takeaways
This case is yet another testimony to the Cayman Court’s pragmatic and company-friendly approach when it comes to, in particular, the establishment, continuation and conclusion of a company. It assures investors that the Cayman Court will step in to deliver an effective solution to an issue which has not yet been dealt with by the legislature.
The Cayman legislature has been diligent in revising the Act, resulting in an annual revision of the Act in recent years. It is anticipated that in the next revisions, the Chief Justice’s proposal for legislative amendments may well be incorporated. Before that takes place, a company which wishes to migrate to another jurisdiction should expect requests from the ROC for evidence that the company has successful migrated – for example, a certificate of continuation from the relevant jurisdiction.