Last month, the Cayman Islands Grand Court gave a revealing insight into the principles it will apply in considering an application to adjourn a creditor’s winding up petition.
In In the Matter of ACL Asean Tower Holdco Limited, on the first hearing date, Justice Kawaley refused an application by the Company to strike out a creditor’s petition on the grounds that the validity of the underlying debts had been proven and the Company’s set-off claim had not been sufficiently established.
Rather than making the winding up order straight away, Justice Kawaley adjourned the matter for two months to (1) ensure that Company was not unfairly prejudiced, and (2) allow Joint Provisional Liquidators (JPLs) to prepare and submit a report regarding whether a restructuring deserved further consideration.
The report of the JPLs concluded that the best course of action for the Company was for the Court to appoint Official Liquidators “at the earliest possible opportunity”.
On the adjourned date, the Company’s largest shareholder (who was also a secured creditor) applied to the Court for a further short adjournment in order to undertake a review of the Company’s financial position. Despite his Counsel making a “coherent, cogent and well researched” application, which had the support of some creditors, Justice Kawaley was not prepared to grant the adjournment. His view was that in such circumstances there must be tangible and compelling grounds for an adjournment, including:
- Support from the majority of creditors;
- Proactive restructuring steps taken by the company’s management; and/or
- Support from the JPLs.
Other factors which weighed against the application included that:
- the applicant was not an unsecured creditor (the petitioner was) and had been a founder of the Company;
- the applicant had several opportunities in the recent past to explore the Company’s financial position;
- independent professionals, i.e. the JPLs, had undertaken the examination of the Company’s financial position and reached a conclusion that a winding up order was necessary; and
- a restructuring was still possible in an Official Liquidation.
Further, Justice Kawaley was not persuaded by the shareholder’s submission that a short adjournment would not prejudice the petitioner’s commercial position, concluding “I ultimately steeled myself against the temptation of allowing myself to be swept away on an optimistic tide that logic suggested was more illusory than real”.