Answer ... (a) Debtor
Upon the making of a winding-up order, the debtor’s affairs will be wound up by the official liquidator (although the official liquidator may elect to continue to trade the debtor's business for a period, with the sanction of the court).
(b) Directors of the debtor
Upon the making of a winding-up order, the directors’ powers to manage the debtor cease. Directors have duties to cooperate with the official liquidators and may be compelled to produce documents and attend for examination.
(c) Shareholders of the debtor
Shareholders have little role in the official liquidation of an insolvent company. In general terms, it is the creditors that are entitled to attend meetings and vote on certain matters (although this will differ where the official liquidators have determined that the debtor is solvent or of doubtful solvency).
(d) Secured creditors
Neither the presentation of a winding-up petition nor the appointment of a restructuring officer or a provisional or official liquidator prevents a secured creditor from enforcing its security. However, a secured creditor may only prove in a liquidation to the extent that any portion of its debt is unsecured. If it chooses to do so, a secured creditor can release its security and participate in the liquidation as an unsecured creditor.
(e) Unsecured creditors
Where official liquidators have determined that the company in official liquidation is insolvent, they will call a meeting of its unsecured creditors. At the meeting, the unsecured creditors will vote to appoint a liquidation committee consisting of three to five creditors. The liquidation committee will:
- represent the body of creditors at liquidation committee meetings with the liquidators; and
- receive notice of certain applications that the official liquidators wish to make.
The wider body of unsecured creditors will:
- receive copies of the official liquidators’ reports to court on the progress of the liquidation; and
- submit proofs of debt in order to participate in any distributions to creditors.
(f) Administrator
There is no office of administrator in Cayman Islands insolvency law.
(g) Employees
Employment contracts are terminated on the making of a winding-up order. Certain sums that accrued to employees are payable as a preferential debt, but an employee will be an unsecured creditor with respect to all other amounts owed by the debtor.
(h) Pension creditors
Any sum that is due and payable by the debtor on behalf of an employee in respect of pension contributions is payable as a preferential debt.
(i) Insolvency officeholder
On making a winding-up order, the court will appoint one or more official liquidators to conduct the winding up. Official liquidators (and provisional liquidators) must be licensed insolvency practitioners, and at least one of the official liquidators must be resident in the Cayman Islands.
The official liquidators displace the debtor’s directors and control its affairs, subject to the supervision of the court. The official liquidators’ powers, some of which may only be exercised with the sanction of the court, are set out in the Companies Act. The official liquidators are remunerated out of the assets of the debtor, subject to the approval of the court after consultation with the liquidation committee.
(j) Court
The Grand Court has discretion to make a winding-up order on the presentation of a winding-up petition. Once the debtor is in official liquidation, the court performs a supervisory role.
Certain of the official liquidators’ powers are exercisable only with the sanction of the court and official liquidators may also apply to court for directions concerning any aspect of the liquidation. Creditors and contributories may apply to court for an order directing the official liquidators to take (or not take) certain action.
The court may also be involved in the adjudication of a creditor’s proof of debt if:
- the official liquidators’ decision to reject the proof in whole or in part is appealed by the creditor; or
- a different creditor or contributory applies to expunge admission of the proof.
The official liquidators’ remuneration must be approved by the court, although official liquidators can advance 80% of their reported fees in advance of obtaining approval (but must return any overpayment to the debtor’s estate).