“Judicial international co-operation is a well-established tradition in Cayman Islands’ jurisprudence…” wrote Chief Justice Anthony Smellie in an article appearing in the Beijing Law Review nearly 10 years ago… “the over-arching principle is, of course, comity – that civilised notion that requires reciprocity of co-operation and assistance between the courts of different countries…”
The tradition to which the chief justice was referring holds good today as it did then. And in a global economy in which these Islands undeniably play such a critical role, it is as important now as ever before.
As trade takes place on an increasingly international basis so too does corporate insolvency and restructuring. It is not at all uncommon for corporate insolvencies and restructurings to cross borders: such important matters affecting the affairs of a company may, in myriad circumstances, affect the rights and remedies available to those with an interest in that company – most obviously, creditors and shareholders – wherever in the world they, or the company itself, may be situated.
Whenever there is a cross-border insolvency or restructuring, a number of questions arise as to how the company’s affairs ought to be dealt with. Should they be dealt with under one single, global regime (sometimes referred to as ‘universalism’), or on a jurisdiction-by-jurisdiction basis (sometimes referred to as ‘territorialism’)? If there is to be one single global regime, which jurisdiction should administrate that regime, and under which law? If there is a restructuring of corporate affairs in one jurisdiction, will stakeholders in another jurisdiction be able to undermine it?
Many jurisdictions have chosen to codify rules and regulations to address these and many other issues. The most obvious examples are the UNCITRAL Model Law, which has been incorporated into the laws of Great Britain and the United States, amongst many others, and, in the European Union, the EU Insolvency Regulation.
However, in the Cayman Islands, cross-border insolvency law is governed by judge-made common law rather than a single set of rules. One advantage to that is the inherent flexibility of the Cayman court to adapt to particular circumstances as and when they arise.
Underpinning cross-border insolvency and restructuring law in the Cayman Islands is a principle known as ‘modified universalism’. This is a combination of two rules: first, that it is desirable, in the interests of fairness to all stakeholders across the globe, that a cross-border insolvency proceeding should so far as possible be administered on a universal basis, with the same rules for everybody; and secondly, that where a single insolvency proceeding is not possible and courts in an ancillary insolvency proceeding are requested to assist a ‘main’ foreign proceeding, they should do so, unless there exists a compelling reason not to do so.
This modified universalism principle forms part of the jurisdictional basis for the Grand Court’s recent decision, in proceedings connected to the widely reported corporate restructuring of the LATAM Airlines Group, to approve a protocol for direct court-to-court communication between foreign courts in Chile, Colombia and in the US.
The background can be shortly stated. LATAM, Latin America’s leading airline group, filed for bankruptcy under Chapter 11 of the US Bankruptcy Code as part of a financial reorganisation of its affairs, in the wake of the havoc being caused to the airline industry by the pandemic.
In the Cayman Islands, joint provisional liquidators with so-called ‘light-touch’ powers were appointed over three Cayman companies within the LATAM group in order to supervise their restructuring. The appointment of provisional liquidators is not uncommon in the Cayman Islands where the company intends to promulgate a restructuring. This is because the appointment gives rise to a statutory moratorium (or block) on claims against the company, allowing the company time and space to promote a reorganisation of its affairs to its stakeholders with the ultimate aim of returning the company to better financial health.
In the first application of its kind in the Cayman Islands, the joint provisional liquidators applied to the Grand Court for approval of a communications protocol that is loosely based on two sets of guidelines commonly referred to as the ‘ALI/III Guidelines’ and the ‘JIN Guidelines’.
Those guidelines concern the procedural rules that may be adopted in cross-border cases for the purposes of regulating communications between different courts, the appearance of counsel in those courts, notification of various matters to parties in parallel proceedings, the acceptance as authentic of official documents or orders made in different jurisdictions, and joint hearings. They are relevant where insolvency or restructuring proceedings are being supervised by, or involve related applications to, courts in more than one jurisdiction. Their purpose is to facilitate the orderly administration of transnational insolvency and restructuring proceedings with a view to maximising the value of the company’s assets, preserving where appropriate the company’s business, and ensuring a level playing field for creditor classes.
In fact, the ALI/III Guidelines and the JIN Guidelines were administratively approved for use in the Cayman court in cross-border insolvency and restructuring proceedings back in May 2018. However, this is the first time that a protocol based on those guidelines has been judicially approved.
Notably, but perhaps unsurprisingly given this jurisdiction’s longstanding and laudable track record of providing assistance to foreign courts, the protocol was approved without controversy. Accordingly, the decision provides yet another example of the continuing commitment of the Cayman Islands to cooperation and coordination in cross-border insolvencies and restructurings.
James Eggleton, is a senior associate, and Paul Madden, a partner, at Harneys.