Court Supervised Official & Provisional Liquidations
Inevitably, there are going to be circumstances where a fund encounters more complex issues, and a Court supervised liquidation may be appropriate, or may be required by law.
The appointment of a provisional liquidator is infrequent and is generally sought where there is an immediate risk that assets in the fund or company are likely to be dissipated, misused or misappropriated. Provisional liquidation is often applied for on an ex parte basis.
The precise role of the provisional liquidator is defined by the Court in the appointment order on a case by case basis. However, it is often for a set period of time to allow the provisional liquidators to take control of and safeguard the assets or for further investigations to take place and for the outcome to be reported to the Court. At other times the appointment of a provisional liquidator may be part of a formal restructuring of the company’s operations and finances, sometimes through a scheme of arrangement.
The more common process is for stakeholders to seek the appointment of an official liquidator in the Cayman Islands. There are a number of routes that can be taken to enter into official liquidation, the most common being the presentation of a winding up petition by an aggrieved party with standing, such as an unpaid creditor. The company, its shareholders, or a voluntarily appointed liquidator may also petition the Court to place an entity into Official Liquidation.
The primary responsibility of an official liquidator is to realise the entity’s assets and to distribute the proceeds to creditors in accordance with their respective priorities. In addition to realising the assets in hand, the official liquidator must conduct an investigation into the actions of the various related parties and/or third party service providers to see if there are claims that can be brought that can swell the recoveries for the benefit of creditors.
The length of an official liquidation varies significantly depending on the complexities of the engagement, such as the existence of fraud or litigation, but typically lasts for at least 12 months.
Liquidators, Process and Costs
It is common for entities in voluntary or official liquidation or wind down to have substantive issues to be resolved. Often these are passed to a liquidator because they are beyond the scope of experience, capacity or desire of the existing stakeholders to resolve.
To resolve these issues, they are often passed to qualified and experienced liquidators such as ourselves and typically our fees are charged at hourly rates; on a fixed cost basis; as a percentage of realisations; or some mixture of these. Cayman Islands and British Virgin Islands voluntary liquidations and Delaware wind downs are governed by a combination of engagement letter and statutory provisions. The commencement process is straightforward and will usually entail resolutions of the director/general partner and voting shareholders.
Cayman Islands official liquidations are subject to extensive legislation and are closely monitored by the Court which regulates liquidators, in particular as regards their fees.