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Cayman Islands Restructuring: What amounts to a “Rational Basis”?

In the recent decision of Evergreen International Holdings Limited, delivered on 11 January 2022, the Grand Court of the Cayman Islands made an order for the immediate winding up of a company notwithstanding the company’s cross-applications for an adjournment of the winding up petition and the appointment of “light-touch” provisional liquidators for restructuring purposes. The Court dismissed the company’s cross-applications on the basis that there was no credible evidence which supported the company’s assertion that a viable restructuring was imminent.

Background
Evergreen International Holdings Limited (the “Company”) is an exempted Cayman Islands company listed on the Hong Kong Stock Exchange (“HKSE”), whose principal places of business are the People’s Republic of China (the “PRC”) and Hong Kong. On 23 September 2021, a creditor served the Company with a statutory demand in respect of an outstanding debt of HK$67,233,452.05.  Upon the Company’s failure to satisfy the statutory demand, the creditor presented a winding up petition against the Company.

The Company did not dispute the debt but asserted that its cash flow was limited given that it was in the process of selling certain real estate in the PRC, which would purportedly realise substantial value sufficient to repay all creditors. The Company therefore cross-applied for the adjournment of the winding up petition and for the appointment of light-touch provisional liquidators (“PLs”) who would oversee a restructuring of the Company.

The Company submitted that while there was no restructuring proposal before the Court, this was not a bar to the appointment of PLs given the Court’s wide discretion to make such appointments under section 104(3) of the Companies Act.  The Company also cited the Chief Justice’s decision in Sun Cheong Creative Development Holdings Limited where a winding up petition was adjourned, in very different circumstances, in order to facilitate a restructuring which was deemed to be in the best interests of all stakeholders.

 

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Cayman Islands Restructuring: What amounts to a “Rational Basis”?

 


Jonathon Milne
Partner

Cayman Islands   +1 345 814 7797
Mobile  +1 345 925 2952


Norman Hau
Partner

Hong Kong   +852 2842 9548
Mobile  +852 6469 3363


Alecia Johns
Counsel

Cayman Islands   +1 345 814 7255


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