Insolvency petition filings in the Cayman Islands jumped more than 30 percent last year compared to 2012. A total of 66 filings was the highest number in the past three years, according to a report by law and fiduciary firm Appleby.
Since the financial crisis, investors were subject to various frauds, systemic illiquidity and the effects of the financial crisis and subsequent recession, all of which gave rise to more insolvency petitions involving investment funds.
Given Cayman’s position as a leading hedge fund center, the increase in filings in 2009 and 2010 was therefore no surprise. However, the 2013 spike reversed a downward trend in the number of petitions filed in 2011 and 2012.
Appleby said the significant increase in overall petition numbers in 2013, and insolvent liquidation petitions filings in particular, signals a shift in investors’ responses to the dilemma of protracted illiquidity.
“The 2013 Cayman petition statistics suggest that investors are increasingly losing patience with investment managers’ efforts or promises of restructuring and other turnarounds,” said Tony Heaver-Wren, Appleby’s Cayman-based litigation and insolvency partner. “Looking back to 2008, these numbers also offer insight into how the international investment market has reacted to the prevailing economic conditions, at least insofar as it is routed through the Cayman Islands.”
The rise in petition filings in Cayman in 2013 suggests that the ramifications of the global financial crisis have not concluded, and the next wave of investor rejections of continued informal wind downs and other manager-led restructurings has begun, the report said. While petition filings in 2013 were down from highs in 2009 and 2010, they were up 53 percent from pre-recession 2008.
The report covers all Grand Court filings for winding up, conversion of voluntary liquidation to court supervised liquidation, schemes of arrangement and capital reduction since 2008. There was a 33 percent increase in insolvency petitions in 2013 fueled by a rise in both the number of winding up petitions, up 26 percent, and in the number of petitions to convert voluntary liquidations to insolvent liquidations, up 50 percent.
Schemes of arrangement picked up in 2013 as well, after they reached their lowest point in the review period in 2012. The number of share capital reduction petitions in 2013 was consistent with the annual number across the period.
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