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Amendments to the Companies Winding Up Rules 2008

Effective from 1 March 2013, the Companies Winding Up (Amendments) Rules 2013 introduce amendments to the Winding Up Rules 2008. The advisory sets out the significant amendments to the Rules.

Listing of Hearings

Previously under the Rules, the Registrar would fix a date for hearing of the petition upon presentation. The Amendment now requires any petitioner (whether creditor (O.3, r5), contributory (O.3, r11(2)) or Authority O14, r.14(1)) to apply in writing (by letter or e-mail) to the Registrar to have the proceedings assigned to a Judge and a hearing date fixed before the petition may be presented.

A petition will not be accepted for filing unless and until the proceeding has been assigned to a Judge and a hearing date fixed and endorsed on the petition. The Court’s expectation is that the proceeding will be assigned to a Judge and a hearing fixed within 24 hours of the Registrar receiving the documents.

This amendment reflects the practice of the Financial Services Division that a specific Judge be assigned to each case and that each Judge manages their own cause list. It is also intended to allow winding up petitions and summonses for directions (where required) to be served, with hearing dates, on the same day that they are filed.

The Amendment also requires any application made by or relating to the liquidation committee under Order 9 to be made by way of a letter to the assigned Judge, with a supporting affidavit (O.9, r.9).

Reconstitution of the Liquidation Committee

In circumstances where, during the course of a liquidation, the official liquidator changes his certification of the company’s solvency or insolvency, the Amendment (O.9, r.3) allows the official liquidator to reconstitute the liquidation committee, automatically removing creditors or contributories as appropriate. The official liquidator shall then convene a meeting of creditors or contributories, as the case may be, for the purpose of electing new members to the liquidation committee.

This amendment ensures that the liquidation committee reflects those with an economic interest in the conduct of the liquidation. Previously under the Rules there was no specific provision allowing such a reconstitution of the liquidation committee.

In addition, O.9, rr.1 and 2 seem to have removed the power of the Court to direct that a liquidation committee be constituted with fewer members than prescribed by O.9, r.1(3). Previously, O.9, r.1(7)(b) specifically conferred a power on the Court to direct that a liquidation committee be established with fewer members or with a different combination of creditors and contributories than prescribed. That provision has been deleted by the Amendment. Similarly, O.9, r.(2)(1) was previously qualified by reference to Rule 1(7)(b). That qualification has also been removed by the Amendment.

Sanction Applications

O.11, r.3(3) introduces a new provision in respect of sanction applications which are concerned with substantive rights between any class of creditors or contributories. The Amendment confers upon the Court a power to make a representation order in respect of the different classes of creditors and contributories. The Court has previously made such orders relying on section 18(2) of the Grand Court Law (1995 Revision).

The Amendment also allows the Court to limit or exclude the official liquidator from those proceedings. This replaces the official liquidator’s right to be heard on every sanction application, provided previously by O.11, r.3(2) of the Rules.

Applications for Supervision Orders

The Amendment introduces the requirement that the Judge may only dispense with an application for a supervision order without a hearing if he is satisfied that notice of the petition has been given to creditors (or shareholders if solvent) and there is no reason to believe that any creditor (or shareholder if applicable) objects to the appointment of the voluntary liquidator as official liquidator.

In any other case, the voluntary liquidator must, in addition to the requirement to advertise the hearing of the petition, give notice to the creditors (or shareholder if applicable) in whatever manner is likely to bring the hearing or the petition to their attention. Previously, service on shareholders was required in accordance with the requirements of the Articles of Association.

Transfer of Shares

The Amendment introduces a new Part II to Order 19 dealing with applications for the validation of a transfer of shares under section 99 of the Companies Law (2012 Revision).

O.19, r.4 allows an application for a validation order to be made either by the liquidator, the transferor or the transferee. In circumstances where the shares are fully paid up and the liquidator does not object to the transfer the application may be made by letter to the assigned Judge, together with an affidavit verifying that the shares are fully paid up and the liquidator has no objection.

If the liquidator objects to the transfer, the transferee or transferor may apply for the validation order by summons, with that summons being served upon the liquidator. A supporting affidavit is required to explain the circumstances of the transfer and any response to the liquidator’s objections.

Official Liquidator’s Lawyers

Previously, the Rules provided for official liquidators to retain attorneys without leave, but the Amendment requires the official liquidator to seek sanction to retain attorneys (and foreign lawyers), which is consistent with the requirements of Paragraph 11 of the Third Schedule to the Law.

The Amendment also provides (O.25, r.1(4)) that an official liquidator shall not retain a foreign lawyer without written terms of engagement which expressly state that the contract is governed by Cayman Islands’ law, the lawyer submits to the exclusive jurisdiction of the Court in connection with the engagement, that the fees payable will be subject to taxation in accordance with O.25, r.3(1) and that the lawyer has no right to exercise any lien over files as against the official liquidator.

O.25, r.1(4) provides that any engagement of a foreign lawyer which is inconsistent with Order 25 will be void and of no effect. These requirements do not affect the validity of any engagement letter entered into prior to the commencement date of the Amendment.

Other amendments are as follows:

  • 3, r.2(3) any amendment to a petition after service requires leave of the court. This reflects the provisions of the Grand Court Rules (“GCR”) in relation to the amendment of pleadings and the practice of the Court.
  • 3, r.6(4)(d) the advertisement of a creditor’s petition must now include details of the name and address of the qualified insolvency practitioner (and any foreign practitioner) nominated for appointment as official liquidator.
  • 3,r.17(3) requires that the winding up order states which (if any) of the powers contained in Schedule 3 to the Law are to be conferred on the official liquidator. Previously, under the Rules, it was possible for those powers to be set out in a separate order.
  • 8,r.5(2)(a) allows the official liquidator to provide, in respect of any meeting of creditors or contributories to be convened by way of a telephone conference, a contact number or e-mail address to which creditors and contributories may apply to obtain dial-in details. Previously, under the Rules, the official liquidator was required to include this information in the notice.
  • O.8, r.10(5) requires the official liquidator to circulate minutes of any meeting of creditors and contributories within 28 days. There was no such time stipulation previously.
  • O.9, r.4(6) provides that a liquidation committee may, by unanimous consent, dispense with the notice required by O.9, r.4(5)(b).
  • O.9, r.5(9) provided that a written resolution circulated to the liquidation committee would be deemed passed if signed by all members within 14 days. The Amendment substitutes the time stipulation of 14 days with such period or deadline as specified by the official liquidator.
  • A new O.25, r.3(1) confirms that a taxation of the fees of the official liquidator’s lawyers shall be governed by GCR Order 62.
  • To reflect the above amendments, Forms No. 3, 5, 21 and 22 have been revised.

This advisory should not be construed as providing specific legal advice. It is intended only as a general guide to clients or prospective clients. We recommend that, in connection with any particular transaction or circumstance, specific legal advice be obtained.

Should you have any queries regarding the above, or if we can be of any assistance, please do not hesitate to contact your usual Campbells contact or any of the following:

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Alistair J. Walters, Campbells Law Firm in Cayman Islands

Alistair J. Walters

Partner
+1 345 914 5861
Guy Manning, Campbells Law Firm in Cayman Islands

Guy Manning

Partner, Head of Litigation, Insolvency & Restructuring
+1 345 914 5868
J. Ross McDonough QC, Campbells Law Firm in Cayman Islands

J. Ross McDonough QC

Senior Partner, Managing Partner Hong Kong
+852 3708 3010