What is a scheme?
A compromise or arrangement between a company and any class or classes of its creditors (and/or shareholders). The process broadly mirrors an English scheme of arrangement thereby providing legal certainty and predictability.
A scheme is an effective restructuring tool used for reorganising a solvent company or rescuing a distressed company.
Who can use it?
Any company liable to be wound up under the Cayman Islands Companies Act.
Is a moratorium available?
No automatic moratorium is available when launching a scheme, but it can be utilised within a court-supervised process to obtain protection from claims alongside the appointment of Restructuring Officers. The Restructuring Officer regime is summarised here.
Are there voting requirements involved?
Yes. The “headcount test” still applies to creditor schemes (although removed for members schemes) requiring a majority in number representing 75% in value of those voting (in person or by proxy) in each class to approve the proposed scheme.
Can the minority be crammed down?
Yes. Where the statutory voting threshold has been met and the Court has sanctioned the scheme, it will be binding on all affected stakeholders within the same class regardless of whether or not they voted in favour.
At present, there is no cross-class cram down enshrined in Cayman Islands legislation.
Is overseas recognition available?
Yes – there are many examples of foreign recognition of Cayman Islands schemes, including by use of Chapter 15 of the US Bankruptcy Code or section 426 of the English Insolvency Act.
The scheme procedure is typically less expensive and more efficient than a reorganisation procedure under, say, Chapter 11 of the US Bankruptcy Code, with a straightforward non-contentious scheme able to be completed in approximately 8 weeks from the filing of the petition to the date the scheme is sanctioned by the Court.
The Cayman Islands Court
The Financial Services Division of the Cayman Islands Court has extensive commercial, insolvency and restructuring experience with a judiciary that is made up of a number of highly respected judges who have considerable cross-border restructuring expertise.
To read more about Schemes of Arrangement in the Cayman Islands, click here. There is extensive material and commentary dealing with corporate restructuring on our website, including in relation to recent cases and cross-border comparisons, which can be read here.