In the Cayman Islands (‘Cayman’) under section 107 of the Companies Law (2018 Revision) (‘Companies Law’) an Official Liquidator (‘OL’) may be removed from office by order of the Grand Court (‘Court’) made on the application of a creditor or shareholder of the company.

Will the Court always hear applications?
Where the company is insolvent it is likely that the Court will only consider applications by creditors as having sufficient interest to make the application. This is because only the creditors will be entitled to participate in the distribution of the company’s assets. If on specific facts a shareholder is able to show that they have a financial interest in the outcome of the liquidation then they might have standing to make an application, but this is unlikely.
What are the grounds for removal of an OL?
The Court has a broad discretion to remove an OL and will take into consideration all circumstances in deciding whether to do so. It is not necessary to show the OL is unfit to act.
When is an application likely to succeed?
Removal applications are likely to succeed where:

  • * a majority of creditors oppose the OL;
  • * it is in the general interests of the company to remove the OL (i.e. where the Court is satisfied that to remove the OL is in the best interests (real, substantial and honest interests) of the liquidation, better for the winding up, and to the general advantage of the creditors).

When else might an application will succeed?
Removal applications may succeed where:

  • * the OL fails to investigate claims (i.e. where the OL fails to act on information given to enable him to take legal proceedings against a third party (and a creditor has promised to provide the necessary funds for the litigation);
  • * to pursue litigation would not be in the creditors’ interests;
  • * the OL has an apparent conflict of interest.

How does a creditor or shareholder apply?
A creditor or contributory can apply to the Court by summons for an order to remove the OL. Such a summons is called a removal summons and it must nominate a qualified insolvency practitioner whom the Court can appoint in succession to the OL who the Court is being asked to remove. The OL shall be entitled to at least 14 days' notice of a removal summons. The removal summons must be served upon the OL and; each member of the liquidation committee or, if an attorney has been appointed by the liquidation committee with authority to act generally, counsel for the liquidation committee; and such other creditors or contributories as a Court may direct.
Do they need to provide supporting information?
A removal summons must be supported by an affidavit containing all the facts and matters upon which the applicants rely. Every person nominated in the removal summons as an OL to succeed the OL to be removed must swear an affidavit stating that they are a qualified insolvency practitioner, resident in Cayman and that they, or their employers/firm/company holds a trade and business licence which authorises him or his firm to carry on business as professional insolvency practitioners. In addition the affidavit needs to state they are independent (and they will not be if they have acted as the subject company’s auditor within a period of 3 years of the liquidation starting); sufficient professional indemnity insurance is in place and that they are willing to act as OL if appointed. Where a person nominated is a foreign insolvency practitioner further information on their qualifications will be required.
What happens if the Court removes the OL?
An OL who is removed by order of the Court shall forthwith deliver to his successor the company's books and records and a copy of his liquidation files and within 28 days prepare a report and accounts for which purpose he shall be allowed unrestricted access to the company's books and records. The liquidation files are a complete record of all the work done and steps taken in connection with the liquidation which every liquidator is under a duty to create and maintain.
Who pays the costs of a removal application?
Unlike a Sanction Application there are no specific rules for a removal application. The cost consequences will be those which apply to court proceedings generally under the Grand Court Rules Order 62 Rule 4. This provides that a successful party to any proceeding should recover from the opposing party the reasonable costs incurred by him in conducting that proceeding in an economical, expeditious and proper manner, unless the Court orders otherwise.
Solomon Harris
Solomon Harris has many years of experience in all forms of disputes arising from fund liquidations and receiverships. If you are would like further information on how we can help, contact Laura HatfieldTom Wright or Kai McGriele.
Disclaimer
The information contained in this article is necessarily brief and general in nature and does not constitute legal advice. Appropriate legal or other professional advice should be sought for any specific matter.

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