Cayman Islands Schemes of Arrangement: An Alternative Tool For Cross-Border Restructuring

Cross-border restructurings often present a number of challenging issues for practitioners not least where the company in financial difficulty is incorporated in a jurisdiction without an efficient or sophisticated restructuring regime. It is typical for such companies to look to other jurisdictions for assistance or parallel processes such as, for example, the United States to commence Chapter 11 and/or 15 proceedings in the US Bankruptcy Courts or England to implement a restructuring by way of an English scheme of arrangement where the company is able to demonstrate that it has a sufficient connection to England. However, it has become increasingly the case that US Chapter 11 proceedings or an English process may not be appropriate in circumstances where for example, cost and timing are a priority, the requisite jurisdictional nexus is not achievable or adverse tax consequences are a significant consideration.

The Cayman Islands is a highly sophisticated tax neutral offshore jurisdiction with a legal system based on English common law. Although the Cayman Islands has no formal rehabilitation process for companies in financial distress similar to US Chapter 11 proceedings or English administration, a Cayman Islands scheme of arrangement (with or without a restructuring provisional liquidation protective wrapper) may be used to restructure a company’s financial liabilities.

The Ocean Rig group successfully restructured around US$3.7 billion of New York law governed debt. This was one of the largest cross-border restructurings to take place outside of the United States and involved the first ever use of Cayman Islands schemes of arrangement of foreign incorporated companies. The restructuring deployed a COMI shift from the Marshall Islands and also took advantage of the automatic stay on creditors’ claims provided by a Cayman Islands provisional liquidation. The Ocean Rig case demonstrates that a Cayman Islands scheme of arrangement offers an alternative option for complex cross-border restructurings in the right circumstances.

 

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