In the Cayman Islands (‘Cayman’) an Official Liquidator (‘OL’) is appointed to a company and given powers by the Grand Court (‘Court’) in accordance with Cayman legislation. Under section 105 of the Companies Law (2018 Revision)(‘Companies Law’) the Court may appoint such person as it sees fit to be the OL of a company. Under section 108(2) of the Companies Law an OL is an officer of the Court whose role is to “wind up” a company’s business. In the first of a series of articles we take a brief look at the powers of OLs, and subsequent articles will consider their duties, how to challenge decisions made by OLs and how they can be removed.
What is the function of an OL?
Under section 110 of the Companies Law the function of an OL is to collect, realise and (after satisfying liabilities) distribute the assets of the company to its creditors and, if there is a surplus after full payment of creditors, to the shareholders. It reports to the creditors/shareholders on the affairs of the company and the manner in which it has been wound up. An OL will also investigate the reason why a company is being wound up.
What gives an OL power over a company?
OLs are given powers set out in Schedule 3 ‘Powers of Liquidators’ to the Companies Law. These powers enable them to carry out their functions and there are various specific duties imposed on an OL in the exercise of those powers. (The duties of OL's will be considered in a subsequent piece.)
Do OLs need the Court’s approval to exercise their powers?
The OL will be able to exercise some powers without asking the Court i.e. seeking ‘sanction’, but others will require the OL to apply to Court for sanction.
Can anyone ask the Court to sanction an OL’s actions?
In any circumstance where a creditor or shareholder is aggrieved by action or inaction of an OL they can apply to the Court for an order directing the OL to exercise or refrain from exercising any of their powers in a particular way. Such application is called a Sanction Application. The process for making such an application is set out in the Companies Winding Up Rules 2018 (‘CWR’), Order 11 and will be the subject of a later piece on challenges to an OL's actions.
What OL powers always need Court sanction?
Section 110 of the Companies Law confers powers on the OL to do conduct the winding up, which are subject to the control of the Court. The powers in Part I of Schedule 3 the OL may use only with the sanction of the Court. These are the powers:
- 1. to bring or defend any action or other legal proceeding in the name and on behalf of the company.
- 2. to carry on the business of the company so far as may be necessary for its beneficial winding up.
- 3. to dispose of any property of the company to a person who is or was related to the company.
- 4. to pay any class of creditors in full.
- 5. to make any compromise or arrangement with creditors or persons claiming to be creditors or having or alleging themselves to have any claim (present or future, certain or contingent, ascertained or sounding only in damages) against the company or for which the company may be rendered liable.
- 6. to compromise on such terms as may be agreed all debts and liabilities capable of resulting in debts, and all claims (present or future, certain or contingent, ascertained or sounding only in damages) subsisting, or supposed to subsist between the company and a contributory or alleged contributory or other debtor or person apprehending liability to the company.
- 7. to deal with all questions in any way relating to or affecting the assets or the winding up of the company, to take any security for the discharge of any such call, debt, liability or claim and to give a complete discharge in respect of it.
- 8. to sell any of the company’s property by public auction or private contract with power to transfer the whole of it to any person or to sell the same in parcels.
- 9. to raise or borrow money and grant securities therefor over the property of the company.
- 10. to engage staff (whether or not as employees of the company) to assist him in the performance of his functions.
- 11. to engage attorneys and other professionally qualified persons to assist him in the performance of his functions.
What powers can be exercised without sanction?
The OL can exercise with or without Court sanction those powers set out in Part II of Schedule 3. The OLs must exercise their statutory powers for the purposes for which the powers had been conferred by the Companies Law and in an impartial manner, bearing in mind their quasi-judicial role as Officers of the Court. These are the powers:
- 1. to take possession of, collect and get in the property of the company and for that purpose to take all such proceedings as he considers necessary.
- 2. to do all acts and execute, in the name and on behalf of the company, all deeds, receipts and other documents and for that purpose to use, when necessary, the company seal.
- 3. to prove, rank and claim in the bankruptcy, insolvency or sequestration of any contributory for any balance against his estate, and to receive dividends in the bankruptcy, insolvency or sequestration in respect of that balance, as a separate debt due from the bankrupt or insolvent and rateably with the other separate creditors.
- 4. to draw, accept, make and indorse any bill of exchange or promissory note in the name and on behalf of the company, with the same effect with the respect of the company’s liability as if the bill or note had been drawn, accepted, made or indorsed by or on behalf of the company in the course of its business.
- 5. to promote a scheme of arrangement pursuant to section 86.
- 6. to convene meetings of creditors and contributories.
- 7. to do all other things incidental to the exercise of his powers.
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 Hatfield, Tom Wright or Kai McGriele.
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.