Beijing Law Review, 2011, 2, 145-154
doi:10.4236/blr.2011.24015 Published Online December 2011 (
Copyright © 2011 SciRes. BLR
A Cayman Islands Perspective on Transborder
Insolvencies and Bankruptcies: The Case for
Judicial Co-Operation
Anthony Smellie
Cayman Islands Judiciary, Grand Cayman, Cayman Islands
Received August 4th, 2011; revised September 10en, 2011; accepted October 6th, 2011.
The freedom of movement of capital in the modern global economy has been indispensable to the development of in-
ternational corporate en terprise. This paper argues that the judicial and legal institution s of states are as essential to the
stability of the global econo my as the traditio nally h eralded intern ational economic channels th at have been so carefully
crafted globally. In fact, in the sphere of trans-border inso lvency and bank ruptcy, jud icial and legal institu tion s cou ld be
perceived as even more vital, as the vibrancy and the health of global enterprises can be radically challenged and even
severely impeded should countries fail to institute universally accepted legislative and judicial codes of practices. The
quest for this normative approach has found expression by the United Nations in its development of the UNCITRAL
Model Law, a prototype which has since been adopted by twenty-two States. A number of other States, as well, have
adopted measures which mirror the cooperation and co-ordination principles of the UNCITRAL Model Law These
States all accept that legislative and judicial capacity and competence are essential ingredients in the salutary infusion of
mutual confidence, and it is this very shared trust that is the ultimate catalyst for successful resolution of cross-border
and other disputes. For Offshore Financial Centres (OFCs), reinforcement of confidence in their Courts in the interna-
tional arena is perhap s even more highly critical to their sustain ed roles in today’s globalized economy. This pap er out-
lines the legislative and judicial competencies and roles that have enabled the Cayman Islands, as an example of a key
OFC, to emerge as a major player in international cross-border conflict resolution. This discourse also acknowledges
the hurdles OFCs have had to overcome in both perceptions and reality in the global marketplace and the increased
pressures faced by Courts today in meeting demands of public policy objectives. With specific regard to the Cayman
Islands as an example of an effectively functioning OFC, the paper examines the Islands’ insolvency regime, reviews a
number of cases demonstrating the efficacy of the approach of the Islands’ Courts, and highlights relevant Cayman Is-
lands’ legislation and orders made pursuant to those laws. This analysis demonstrates how, by implementing through its
Courts a public policy model on a par with international codes of conduct, the territory has vouchsafed its ability to
render the kind of international judicial assistance that is critical to the fulfilment of the tenets of the UNCITRAL
Model law and to the principles of universality of bankruptcy that the Law embraces. A further benefit is that Cayman’s
Courts and court-appointed officials, in turn, may expect to receive full cooperation from other jurisdictions. Indeed, the
emergence of the Cayman Islands as a leader among financial centres is due in no small part to its compliance with in-
ternational regulatory requirements across the breadth of its financial industry. In addition to complying with FATF
Directives on money laundering, the territory complies with OECD threshold requirements for tax information ex-
change and serves as a member of the Steering Committee of the OECD’s Global Forum on Transparency and Ex-
change of Information. Furthering its position of strength, the Islands’ legal and judicial system is based on English
common law traditions, and its local legislative arsenal is being constantly modernized to meet contemporary Cayman
Islands’ needs. This leg islative progression, given the Islands’ continued status as a Br itish Overseas Terr itory (UKOT)
located in the North West Caribbean Sea, includes the extension, as required, of United Kingdom legislative prov isions
to the Islands.
Keywords: Global Economy; Bankruptcy; Judicial Capacity; Cross-Border; Insolvency Regime; Legislation
A Cayman Islands Perspective on Transborder Insolvencies and Bankruptcies: The Case for Judicial Co-Operation
1. Introduction
Since World War II, economists, business interests and
politicians have worked together to promote trade and
growth and manage adverse consequences. Institutions
such as the World Bank , the International Monetary Fund
and the World Trade Organisation were formed as vehi-
cles for global objectives. Barriers to international trade
have been lowered through international agreements,
such as the General Agreement on Tariffs and Trade
This structure has fostered the emergence of world-
wide production markets and allowed consumers and
corporations broader access to worldwide markets and
foreign products. It was intended to, and has successfully
stimulated the emergence of, worldwide financial mar-
kets and created easier access to external financing for
corporate and governmental borrowers alike.
As a central tenet of this post-World War II phe-
nomenon, “freedom of movement of capital” has been
the clarion call. So much so that it has found expres-
sion at the core of the most advanced political economic
unions. For instance, Article 73b(1) of the European
Community Treaty provides in terms that within the
framework of the other provisions of the Treaty “all re-
strictions on the movement of capital between Member
States and between Member States and Third countries
shall be prohibited”.1
Because of the size and strength of its economy and
the influence of the dollar, the United States has been
very successful in utilizing the global market place. Like
the United States, the rapid rise of the Chinese economy,
the growth of India’s economy, and the success of the
European Union are all due to the ability of their econo-
mies to respond to the opportunities provid ed by globali-
Other emerging economies also recognise the benefits
to be gained from globalization, and the competition
amongst them to attract inward investment has become a
driving force of the internation a l financial markets.
This is the well-spring of international financial activ-
ity from which the Offshore Financial Centres (“OFCs”)
have emerged.
That activity also explains the advent of offshore cor-
porate vehicles and gives the background to their impor-
tant role as instruments for the movement of capital in
the global economy.
In this context, the success of some of the OFCs dem-
onstrates that the on ly way that they can and will survive
as global players in international financial markets is to
ensure that their legal and judicial institutions comply
fully with common law principles of comity, in line with
the principles of the UNCITRAL Model Law.
2. Historical Misconceptions about OFCs
The role of OFCs and of offshore corporate vehicles has
been a constant source of controversy. This paper does
not proceed on a premise that is oblivious to the peren-
nial debate about this su bject, generated especially by th e
concerns about “harmful tax competition” and about the
unfavourable impact some OFCs could potentially have
upon the high tax regimes of “Onshore” jurisdictions.2
But such concerns having been time and again met and
addressed by the OFCs within the various international
fora, the debate should not be allowed to detract from the
reality of the crucial role of offshore companies, the re-
cognition of which is necessary for a proper appreciation
of the juridical and economic imperatives that require the
giving of judicial co-operation, not only by the judiciary
of the OFCs to the judiciary of Onshore jurisdictio ns, but
also the other way around.3
3. Courts’ Cooperation and Co-Ordination
the Challenges
Indeed, the recent global financial crisis and the conse-
quential failure of many transnational entities have chal-
lenged the courts of countries—including the OFCs—to
respond with unprecedented urgency and efficacy. The
nature of the challenge has come to be described in the
2The impact that OFCs have upon the global financial system is now
regarded in a more positive light by “Onshore” regulators, since the
OFCs’ near universal acceptance of the need for strict anti-money
laundering regimes and tax co-operation agreements. The Cayman
Islands complies with FATF Directives on money laundering and with
OECD threshold requirements for tax information exchange agree-
ments and serves as a member of the Steering Group of the OECD’s
Global Forum on Transparency and Exchange of Information. As long
ago as 5th April 2000, the Financial Stability Forum of the IMF con-
cluded that the OFCs present no threat to world financial stability. See
its Report of that date at page 9 Box 3 where some of the benefits o
OFCs are discussed.
3There is already a body of academic work in support of the proposi-
tion that OFCs are beneficial in the impact that they have on the global
economy. See for instance: “Offshore Financial Centers and Regula-
tory Competition” Edited by Andrew P. Morriss; AEI Press. (May
2010) and “Offshore Financial Centers and the Canadian Economy
by Walid Hijazi, Rotman School of Management, University of To-
1This is a provision that the European Court has been called upon to
interpret in a number of cases [C-484/93; C-367/98; C-483/99; C-
503/99; C-174/04].
In Case C-367/98—Commission of European Convention v Portuguese
epublic, the Court emphasized the particular importance of the free-
dom of investors to acquire shares in corporate entities, including
where such entities may own and control national undertakings. In this
regard, the Court held that: “A member state which adopts and main-
tains in force national rules 1) prohibiting the acquisition by investors
rom other Member States of more than a given number of shares in
certain national underta kings and 2) requiring the grant by th e S tat e o
rior authorisation for the acquisition of a holding in certain nationa
undertakings in excess of a specified level fails to comply with its ob-
ligations under Article 73b of the Treaty (now Article 56 EC).
Copyright © 2011 SciRes. BLR
A Cayman Islands Perspective on Transborder Insolvencies and Bankruptcies: The Case for Judicial Co-Operation147
“co-operation” and “co-ordination” principles of the
UNCITRAL Model Law on Cross-Border Insolvency,
Articles 25, 26, 27, 29 and 30. These provisions place
obligations on both courts and inso lvency represen tatives
in different States to communicate and co-operate to the
maximum extent possible, to ensure that a deb tor entity’s
insolvent estate is administered fairly and efficiently,
with a view to maximizing benefits to creditors. Those
principles are designed to meet the following public po-
licy objectives:
1) The need for greater legal certainty for trade and
2) The need for fair and efficient management of in-
ternational insolvency proceedings, in the interests of all
creditors and other interested persons, including the
3) Protection and maximization of the value of the
debtors’ assets for distribution to creditors, whether by
reorganization or liquidation;
4) The desirability and need for courts and other com-
petent authorities to communicate and cooperate when
dealing with insolvency proceedings in multiple states;
5) The facilitation of the resumption of financially
troubled businesses with the aim of protecting investment
and preserving employment.
This is a far-reaching and daunting mandate. Ho wever,
as a basic position from which to respond, it is reassuring
that the commercial necessity for international co-opera-
tion between courts in matter s of cross-bor der inso lvency
has long been recognized and is repeatedly stressed in
case law.4
4. The Cayman Islands’ Insolvency Model
As in England and Wales, in the Cayman Islands foreign
bankruptcy or insolvency proceedings (whether corporate
or personal) may be recognized at common law if the
bankrupt or debtor company submitted, or is properly
deemed to have submitted, to the jurisdiction of the for-
eign court. See Barclays Bank plc v. Homan (1993)
BCLC 680, In the Matter of Al-Sabah (below); and, in
the case of foreign corporate receiverships, see the semi-
nal Cayman Islands decision in Kilderkin v Player (be-
Judicial internation al co -op eratio n is a well-estab lish ed
tradition in Cayman Islands’ jurisprudence, and the
common law conflict-of-law rules applicable in this area
are carefully applied. The circumstances under which
assistance may be given or requested and the principles
that guide the making or granting of requests are many
and varied. Many instances are the subject of judicial
pronouncement. The Cayman Islands Law Reports con-
tain the reported judgments on the subject of judicial
international assistance.5 Some of these judgments have
come to attract academic interest in seminal textbooks on
the subject.6
Comity as a Central Tenet of OFC Survival: The
over-arching principle is, of course, Comity—that civi-
lized notion that requires reciprocity of co-operation and
assistance between the courts of different countries, clas-
sically described by Lord Denning in the Westinghouse
case in relation to a request by the United States Federal
Court in this way:
It is our duty and pleasure to do all we can to assist
that court, just as we would expect the United States
Court to help us in like circumstances. Do unto others as
you would be done by.”7
An alternative and more categorical definition was
given as long ago as 1895 by the United States Supreme
Court in Hilton v Guyot (1895) 159 U.S. 113, 164, in the
following terms recently adopted by the Cayman Islands
Court of Appeal:8
…comity is the recognition which one nation allows
within its territory to the legisla tive, executive or judicial
acts of another nation, having due regard to interna-
tional duty and convenience, and to the rights of its own
citizens or of other persons who are under the protection
of its laws.
This established and in creasing reliance on comity has
come, in the field of bankruptcy and corporate insol-
vency, to embrace the principle of universality, explained
by Lord Hoffmann in a trilogy of seminal judgments
given on behalf of the House of Lords and the Privy
Council. Perhaps most famously, in the following terms
from the second judgment, that given in the Cambridge
Gas case:
The English common law has traditionally taken the
view that fairness between credito rs requires tha t, ideally,
bankruptcy proceedings should have universal applica-
6Cross-Border Judicial Co-operation in offshore litigation (The British
Offshore World) Editors: Ian R. C. Kawaley, Andrew Bolton and
Robin J. Major; Widdy Simmonds & Hill publishing; Confidentiality
in Offshore Financial Law; Prof. Rose-Marie Antoine; Oxford Univer-
sity Press.
7In Re Westinghou se Uranium Contract [1978] 1 AC 547,560.
8In HSH Cayman II GP Ltd. and others v ABN Amro Bank N.V. Lon-
don, Civil Appeal No. 3 of 2010 (Judgment: 24 May 2010). In this case
the Court of Appeal unsurprisingly did not a ccede to an application fo
a stay of a local petition to wind up HSH in deference to proceedings
which were merely pro
osed to be brought in Delaware but not ye
instituted there. It was proposed to place HSH in Chapter 11 Bank-
ruptcy proceedings there.The local petition was found to be properl
based upon a due but unpaid liability and no realistic pros
ect of a
compromise by way of Chapter 11 proceedings was shown to exist.
4See for example: In re African Farms Ltd. [1906] T.S. 373; Schemmer
v Property Resources Ltd. [1975] Ch. 273; In
e Bank of Credit an
Commercial S.A.. [1992] BCLC 570; Banque Indosuez v Ferrome
esources Inc. [1993] BCLC 112.
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A Cayman Islands Perspective on Transborder Insolvencies and Bankruptcies: The Case for Judicial Co-Operation
tion. There should be a single bankruptcy in which all
creditors are entitled and required to prove. No one
should have an advantage because he happens to live in
a jurisdiction where more of the assets or fewer of the
creditors are situated… universality of bankruptcy has
long been an aspiration, if not always fully achieved, of
United Kingdom law. And with increasing world trade
and globalization, many other countries have come
around to the same view.”
…the underlying principle of universality…is given
effect by recognising the person who is empowered under
the foreign bankruptcy law to act on behalf of the insol-
vent company (or bankrupt) as entitled to do so in Eng-
The cases also reflect the important developments at
common law which now clearly recognise that bank-
ruptcy, whether personal or corporate, is a collective
proceeding to enforce rights, not to establish them” (per
Lord Hoffman in the Cambridge Gas case (para. 15)).
The import of this statement, for present purpo ses, is that
a foreign insolvency or bankruptcy proceeding may be
granted recognition as a collective regime for the en-
forcement of rights, though particular stakeholders may
seek to assert different rights and may not have sub mitted
to the jurisdiction of the foreign courts, provided that
their interests (as shareholder or creditor) are to be pro-
perly regarded as subsumed within the collective en-
forcement regime of the foreign proceedings.10
5. A Review of Cayman Islands’ Insolvency
A review of Cayman Islands cases will reveal that the
aspirations embodied in the principle of universality and
in the mandate in the case law for the collective en-
forcement of rights in insolvency and in bankruptcy have,
for quite some time, been shared, recognized and en-
forced by the Courts.
Kilderkin v. Player 1984 CILR 63: This case, decided
by the Cayman Court of Appeal, is an appropriate start-
ing point. There a receiver, having been appointed as
such over an Ontario-registered company by the Supreme
Court of Ontario, applied to the Cayman Grand Court for
an order recognizing its appointment. The receiver had
been appointed at the instance of investors and creditors
whose investments had been diverted to purposes outside
the authorised scope of investments by the principals of
the company. Proceeds of investments (and of certain
loans) were traced to bank accounts held by related
companies in the Cayman Islands and the receiver ap-
plied to the Grand Court for recognition of its appoint-
ment by the Ontario Court and for ancillary orders to en-
able its recovery of the traced assets. In granting recogni-
tion, the Court of Appeal held (among other things) that:
The Grand Court had jurisdiction (derived from that
exercised by the High Court in England) to recognize in
the Cayman Islands the receiver as a receiver appointed
by a foreign court if it were satisfied that there was a
sufficient connection between the defendant company
[(or its affiliates in whose names so me assets were held)]
and the jurisdiction in which the receiver was appointed,
to justify recognitio n of the foreign courts order. Such a
connection clearly existed as the defendant companies
were obliged to and had submitted to the jurisdiction of
the Ontario Court. Since the receiver had the power to
litigate on behalf of the defendant companies and the
duty to preserve the assets in the interests of all lawful
claimants, there was a sufficient connection with the re-
ceivers claim to justify the application for recognition
and for authority to identify and recover the defendant
companies assets within the Cayman Islands.”
Thus the case is an expression of the Courts’ under-
standing of the principles—later to be given the label of
“universality”—with the particular emphasis upon en-
suring the success of the “collective” approach to the
admini stration of the debtor’s estat e .
The Court of Appeal also noted— though not as a con-
dition of the recognition given the receiver in the case—
that a relevant consideration could be whether or not the
courts of the jurisdiction where the company in receiver-
ship was incorporated would themselves recognize a
foreign-appointed receiver. In the case of the courts of
Ontario, that was noted to be so.
The Al-Sabah Case: In circumstances of personal
bankruptcy, the need for cross-border co-operation can
be just as urgent and important for the protection of
creditors, as in circumstances of corporate insolvency.
In 2004, the worldwide quest of the Kuwaiti Govern-
ment to recover the proceeds of Sheikh Fahad Al Sabah’s
massive fraud found support in the Cayman Courts, as
ultimately confirmed in a judgment of the Privy Coun-
cil11. A bankruptcy order against Sheikh Fahad was ob-
tained in the Bahamas, where he lived , by reliance on an
unpaid English judgment in favour of the Kuwaiti Go-
vernment in the order of some L600 million.
9Cambridge Gas Transportation Corp. v Official Committee of Unse-
cured Creditors of Navigator Holdings plc and others [2007] 1 AC 508
at 517 to 518. See also Wight v Eckhardt Marine GmbH 2003 CILR
211 (P.C. on appeal from the Cayman Islands and In Re HIH Casualty
and General Insurance Ltd. [2008] 1 WLR 852 H.L., and see furthe
McGrath v. Riddell [2008] UKHL 21.
10Cambridge Gas Transportation Corp. v Official Committee of Unse-
cured Creditors of Navigator Holdings plc and others (above) followe
and a
lied in
ubin v Euro
inance S.A.
EWCA Civ.895.
The Trustee-in-bankruptcy then applied to the Cayman
11First instance judgment reported at 2002 CILR 148 upheld in In the
atter of Al Sabah 2004-05 CILR 373. Injunctive measures for the
reservation of assets until the bankruptcy proceedings could be ins
tuted were also made available: sub nom Grupo Torras S.A. v Bank o
ield et a
.2000 CILR 441.
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A Cayman Islands Perspective on Transborder Insolvencies and Bankruptcies: The Case for Judicial Co-Operation149
courts for recognition and authority to enforce the judg-
ment debt as against certain trusts (one of which was
originally governed by Bahamian law but was migrated
to the Cayman Islands when the English proceedings
against Sheikh Fahad were already imminent). The assets
of the trusts were alleged to be amenable on the basis that
they had been fraudulently disposed into the trusts by
Sheikh Fahad and were so recoverable as assets belong-
ing to his bankrupt estate. The recognitio n of the Trustee
and enforcement of the judgment were opposed by
Sheikh Fahad on the basis that the Court lacked jurisdic-
tion. By the rather arcane but essential route of reliance
on the old Imperial Bankruptcy Act of 1914—long since
repealed by the British Parliament, but the extension of
which to the Overseas Territories had never been re-
pealed—the Cayman Courts, in the exercise of their
bankruptcy jurisdiction, were regarded as having the ju-
risdiction to grant recognition of and to enforce the or-
ders of other fo rei g n c ou rt s of ban k ru pt c y .
In this case, while the enforcement process may be
said to have been engaged at the instance of a single
judgment creditor—the Kuwaiti Government—the proc-
ess by which Sheikh Fahad was forced into bankruptcy
was nonetheless of universal and “collective” effect, one
in which any creditor, wherever located, could have
sought relief.
The principle decided by the Al-Sabah case may also
be regarded as addressing the objectives of Article 23 of
the UNCITRAL Model Law which prov ides standing for
a foreign repr esentative, on being gran ted recognition, to
take proceedings to rectify illegitimate antecedent trans-
actions. The parallel in the Al Sab ah case was the setting
aside of the earlier fraudulent dispositions of assets into
the trusts.
As to the jurisdiction to recognise and enforce the Ba-
hamian bankruptcy judgment: by dint of judicial con-
struction, the jurisdiction of the Grand Court was con-
strued to be as wide as that conferred by section 426 of
the modern Inso lvency Act 1986 of the UK, which oper-
ated as though the bankruptcy had occurred in the terri-
tory receiving the request (here, the Cayman Islands). So
construed, the powers vested by the Act of 1914 enabled
the Grand Court, in the further exercise of its special
statutory powers given in local legislation, to apply those
powers in favour of the Bahamian trustee, even though
similarly wide powers may not have been granted to him
there due to the Bahamian statute’s stricter requirements.
An important consideration in recognising the appoint-
ment of the Bahamian Court was the bankrupt’s connec-
tion to the Bahamas as the requesting state, which there
was no reason to doubt, having regard to his established
permanent residence there. The bankruptcy judgment
having been recognised, there was no need for the sepa-
rate recognition or enforcement of the English judgment
as that judgment debt, along with all other liabilities and
assets of the bankrupt, had been subsumed within his
bankruptcy estate.
Accordingly, the assets of the Cayman trusts (USD 30
- 40 million in value) were made available ultimately to
the Trustee as part of the global recovery of all the bank-
rupt’s assets in satisfaction of the judgment debt.
The BCCI case: An unheralded success of the Bank of
Credit and Commerce (Overseas) Ltd. (BCCI) case has
been the unprecedented level of transnational co-opera-
tion attained as between the three primary insolvency
regimes of BCCI and other international entities and in-
stitutions, ever since the worldwide operations of the
bank were put into co-ord inated liquidation in 1991. This
has been achieved notwithstanding many obstacles en-
countered at national levels, including the ring-fencing of
twenty-seven branches of BCCI by their respective na-
tional regulatory authorities, seeking to prefer the inter-
ests of local depositors over those of the general world-
wide body of creditors o f the ba nk.
Such obstacles notwithstanding, by the crucial agree-
ment reached by which all assets and liabilities were
pooled and by the steadfast adherence to the pari passu
principle, the Liquidators, acting with the sanction of
their supervisory co urts (in the Cayman Island s, England
and Luxembourg) have managed to achieve practical
parity of treatment across the entire BCCI estate.12 This
parity of treatment has been extended to include even the
ring-fenced branches, where returns were realised typi-
cally at less than the levels realized by the Liquidators
within the pooled estate. Creditors of many of those
branches, by a process of “hotchpot” (bringing into ac-
count returns paid by the branches) were allowed to “top
up” to the levels of dividends paid globally to the credi-
tors.13 As the result of the remarkable co-operation be-
tween the principal liquidation regimes and the Majority
Shareholder that led to the agreed pooling of assets, li-
abilities and expenses worldwide, the woeful projection
of recoveries of a mere few cents in the dollar at the out-
set have instead now materialised, near the end of the
liquidation, into returns of m ore than 86 cents in t he dollar.
Another crucial benefit of early co-operation involved
12The sanctioning decision of the English Court is explained inRe
CCI (No. 3) [1993] BCLC 1490. The pooling agreement was ap-
roved in the Cayman Islands by Harre J on June 14th 1992: See 1992
CILR Note 7.
13Explained in Wight v. Eckhardt Marine GmbH 2003 CILR 211 (at p.
222); and in which the Cayman Liquidators obtained declaratory relie
from the Privy Council confirming the applicability of the pari passu
rinciple to ring-fenced branches which remained the legal subsidiaries
of BCCI Overseas and provided the indebtedness had not been fully
and legally extinguished at the branch level. See also In Re BCCI 2009
CILR 373: the need for a standard rate of exchange for payment o
dividends across global liquidation estates to ensure ap
lication of the
ari passu principle.
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A Cayman Islands Perspective on Transborder Insolvencies and Bankruptcies: The Case for Judicial Co-Operation
persuading the United States author ities to abate the very
draconian penal sanc tions they had imposed o n BCCI for
its role in the unlawful acquisition of certain American
banking interests, a role that led to the subsequent col-
lapse of the banks involved. As a result, after arduous
negotiations between the Liquidators (approved by their
respective courts) and the American authorities, a plea
agreement was struck which allowed, among other things,
for the restoration to the BCCI liquidation estate of more
than 1.2 billion dollars of forfeited assets. The following
is an extract from the BCCI (Overseas) Liquidators’ re-
In November and December of 1991, under the su-
pervision of the Grand Court of the Cayman Islands, the
District Court of Luxembourg, and the High Court in
England, the BCCI liquidators negotiated an historic
plea and co-operation agreement with the United States.
The Agreement was presented to the Grand Court of the
Cayman Islands and approved in December 1991.”
In accepting this agreement, Judge Joyce Hens Green
of the United States District Court for the District of Co-
lumbia stated:
The Plea Agreement now before the court reflects on a
truly global measure extraordinary efforts and amazing
co-operation of a multitude of signatories representing
myriad jurisdictions, to fully settle actions against the
corporate defendants, which had operated in 69 coun-
tries around the globe, and through the plea restitution,
to locate and protect all realizab le assets of BCCI for the
ultimate benefit of the depositors, creditors, United States
financial institutions, and other victims of BCCI. The
promise of the Plea Agreement is that those extraordi-
nary efforts, that amazing co-operation, should continue.”
Seven and a half years later, as she closed the case,
Judge Green found that the promise of the Plea Agree-
ment for unprecedented international co-operation had
been realized. She called the agreement a “partnership
between the Department of Justice and the Court Ap-
pointed Fiduciaries” and praised the foresight of the offi-
cial liquidators acting pursuant to the direction of the
Cayman Court, stating that “their efforts on behalf of the
victims in this case and beyond have been truly inspira-
Here, too, were to be found early emanations of the
doctrine of universalism, as the judge reflected that the
hallmarks of the Plea Agreement “are principles which
should serve to guide the relationship between (countries)
in dealing co-operatively with international frauds in the
future. Those principles are restitution to victims, co-
operation in sharing investigative materials and respect
and comity for their respective legal systems”.15
The Case of FU JI Food and Catering Services Hold-
ings Limited: From the Cayman Islands perspective, the
inventiveness of the common law and the benefit of
co-operation have become manifest in this still further
example of judicial cooperation in aid of trans-border
The Matter of FU JI Food and Catering Services
Holdings Limited (FSD Cause No: 222 of 2010, Grand
Court of the Cayman Islands) involved an unusual re-
quest for judicial assistance from the High Court of Hong
Kong to the Grand Court.
Fu Ji Food and Catering Services, is a Cayman Islands
holding company which has subsidiaries operating a sub-
stantial business in the People’s Republic of China
(PRC). The group’s underlying business interests—prin-
cipally in food production, restaurants and related ser-
vices—experienced massive strain in 2009 and the trad-
ing of the company’s shares on the Hong Kong Stock
Exchange (HKSE) was sus pended.
As the company was also registered in Hong Kong, th e
High Court there was persuaded to place it into provi-
sional liquidation to allow for its capital restructuring, an
eminently attainable objective, given the substantial un-
derlying value of the company and the then active in-
terest of potential buyers.
This objective would not have been realised, however,
if, despite its provisional liquidation in Hong Kong,
creditors remained able to petition for the winding up of
the company in the Cayman Islands, the place of its in-
corporation and domicile, or remained able otherwise to
sue the company for recovery of indebtedness before the
Cayman Courts.
The co mpany the refore ne eded the pr otection of a s tay
of proceedings by the Cayman Courts and the ability of
its provisional liquidators (the JPLs) to act for the com-
pany in the Cayman Islands. Hence the request from the
High Court of Hong Kong.
The Grand Court first noted the existence of its inhe-
rent jurisdiction at common law to send or receive letters
of request for judicial assistance.16
16Fully discussed in In the Matter of Basis Yield Alpha Fund (Master)
2008 CILR 50 in which the Grand Court issued letters of request to the
Australian court in New South Wales seeking the recognition of its
court-appointed liquidators and authority for them to garner informa-
tion about the Fund in Australia by reliance on the powers of the Aus-
tralian Court. That court granted the letter of request and accorded the
Cayman Proceedings “Foreign main proceedings” recognition in keep-
ing with Article 20 of the UNCITRAL Model law. In Basis Yield Al-
ha in the Cayman Court, the earliest exercise of the jurisdiction by the
Grand Court in which letters of request were sent to the English High
Court was noted and applied: In Re BCCI (Overseas), Grand Cour
Cause 284 of 1991, December 7 2002, unreported, applied. The Eng-
lish Courts judgment in which that request was granted by reliance on
the statutory jurisdiction under section 426 of the English Insolvency
Act 1986 is reported at Bank of Credit and Commerce Intl S.A. (1994)
3 All. E.R. 764 (per Rattee J).
14United States v BCCI Holdings (Luxembourg) S.A. 1999 WL 499134
at 27.
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A Cayman Islands Perspective on Transborder Insolvencies and Bankruptcies: The Case for Judicial Co-Operation151
Recognising and accepting that the objectives of the
restructuring involved the protection of the interests of
all the creditors of the company and its subsidiaries, as
well as the interests of the company itself (in being al-
lowed to resume listing and trading on the HKSE and so
to be divested as a going concern), the request of the
High Court was regarded as justified. In granting the
request, the Grand Court accepted that, although it was
asked to act in aid of the provisional liquidation order of
a foreign court over a Cayman Islands company, doing
so in the circumstances pr esented no public policy ob jec-
tions but complied with the need to ensure the protection
of the legitimate interests of all stakeholders in keeping
with the principle of universality. The following further
dicta from Cambridge Gas was not ed and applie d:
The purpose of recognition is to enable the foreign
office holder or the creditors to avoid having to start
parallel insolvency proceedings and to give them the
remedies to which they would have been entitled if the
equivalent proceedings had taken place in the domestic
forum (para 22, page 518).
In accepting the request, the Grand Court also ac-
cepted that the company (Fu Ji Food Ltd) had a real and
substantial connection to Hong Kong, being the jurisdic-
tion from which its underlying business interests in the
PRC were administered and in which its financing and
working capital were raised. The restructuring was aimed
at restoring the company to th e HKSE and, wit h the new
investor, to enable it to carry on its business in Hong
Kong, where the provisional liquidation would close
without a winding up.
It was ordered that the JPLs and their Appointment
Order be recognized in all respects as if appointed and
made by the Grand Court, including, in particular, the
power and authority of the JPLs to alter or otherwise deal
with the capital structure of Fu Ji Food in accordance
with the terms of the Appointment Order.17
It was further ordered, therefore, that section 97 of the
Cayman Islands Companies Law shall apply in relation
to the company so that no action or proceeding shall be
commenced or proceeded with against the company
within the jurisdiction of the Grand Court except by
leave of that court and subject to such terms as it may
impose. It was additionally ordered that the JPLs have
liberty to apply to the Grand Court in respect of any
matter concerning the company and arising during the
period of the JLPs’ appointment.18
Difficulties in deciding whether to accede to foreign
insolvency proceedings may, however, arise when there
are compelling reasons for winding up in the Cayman
Islands or where there are already insolvency proceed-
ings underway before the Cayman Courts involving the
same company or involving related companies. These
difficulties are likely to be addressed o n the case-by-case
basis, although the emergent principles of private inter-
national law, as recognised in Article 29 of the UNCI-
TRAL Model Law, would maintain the pre-eminence of
local insolvency proceedings ove r foreign proceedings.
In the now commonplace context of the master/feeder
hedge fund structure, corporate operations take place in
different jurisdictions. Often, in the Cayman context, the
structure involves investors’ participating in the fund
through Cayman Islands entities which are either the
feeder or master fund administered in the Cayman Is-
lands, but where the investment management takes place
elsewhere in an onshore jurisdictio n.
Lancelot Investment Fund Limited: This scenario
also applied to Lancelot Investment Fund Limited, a
Cayman Islands domiciled open-ended investment fund
through which investors provided funds, of over USD1
billion, for investment in specified United States securi-
ties to be managed by a United States investment man-
When allegations of fraudulent misappropriation of its
assets were raised by the investment manager against a
borrowing syndicate to which all the assets had been
loaned, a Trustee-in-Bankruptcy was appointed by the
U.S. Court under Chapter 7 of the US Bankruptcy Code
and he took control of the known assets, all of which
were located in the United States.
Nonetheless, some investors—a major international
bank and a third party investment fund, to the combined
value of more than USD80 million—petitioned the Cay-
man Court for the winding up of Lancelot in the Cayman
Islands. They petitioned on the basis that they had made
their investments through Lancelot as a Cayman Islands
entity governed by Cayman Islands law and, as the sub-
stratum had failed amidst the allegations of fraud, they
were entitled to a winding up on the “just and equitable
basis”, so that their interests may be protected by the
involvement of a liquidator acting under the aegis of the
Cayman Court. A particular concern was that it was the
17In this way observing nonetheless, the dictum from Lord Hoffman in
Cambridge Gas (518 e - f) as to the limits of the common law jurisdic-
tion to grant recognition and assistance: “At common law, their Lord-
ships think it is dou
tful whether assistance could take the form o
applying provisions of the foreign insolvency law which form no part
of the domestic system. But the domestic court must at least be able to
rovide assistance by doing whatever it could have done in the caseo
a domestic insolvency”.
18Unusual though the case was, it was not unprecedented. Kawaley J.
of the Bermuda High Court
n Re Dickson Group Holdings Limite
[2008] Bda LR 34, granted a stay of proceedings against a Bermuda
company, at the instance of itsHong Kong Court appointed permanent
liquidators, to enable and facilitate parallel schemes of arrangement
under both Bermudian and Hong Kong law designed to restructure the
company’s debt and capital so that its shares (under substantially new
ownership) cou ld once again trade on the HK SE.
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A Cayman Islands Perspective on Transborder Insolvencies and Bankruptcies: The Case for Judicial Co-Operation
investment manager responsible for placing the loans
with the syndicate, which had itself petitioned the U.S
Court after the allegations of fraud had come to light.
In an approach that demonstrates that there can indeed
be a “(modified) universalism”, Quin J. of the Grand
Court made the order for winding up over the objection
(raised by letter but without formal appearance) of the
Chapter 7 Trustee and the majority of investors (who
formally appeared), as he was satisfied that the peti-
tioners should have someone to represent their particular
concerns to both the U.S. Court and the Cayman Court.
Even though the judge recognized the United States as
the principal place for the liquidation of Lancelot, as its
incorporation and many of the arrangements for the in-
vestments were governed by Cayman Islands law and
would therefore have to be examined and assessed
against that law, he resolved to appoint only a single li-
quidator, mindful that the Chapter 7 Trustee may wish
and should be free to app ly for the recognition of his ap-
pointment in the Cayman Islands. Furthermore, the
Cayman winding up order was stayed, in keeping with
the principles of comity and universality in corporate
This approach would give both the Cayman Liquidator
and the Chapter 7 Trustee an opportunity to discu ss their
respective roles and attempt to reach an agreed protocol
for the efficient liquidation of Lancelot, thus avoiding
multiple proceedings and duplication of costs. Further,
the Court was keen to encourage co-operation with the
US Court, both in recognizing the Cayman Liquidator in
the US Court, with the Chapter 7 Trustee reconsidering
his stated intention to oppose, and in the Trustee simi-
larly being enco uraged to apply to the Cayman Court for
recognition of his appointment.
The wisdom and efficacy of this approach has been
borne out by the fact that a protocol was entered into
between the two Court-appointed office holders and has
been successfully implemented. In practice, the minimal
costs—of having a Cayman liquidator who can liaise
with his U.S. counter-part and the U.S Court and report
to the Cayman Court, with an eye to the Cayman public
interests in the proper investigation and resolution of
allegations of fraud for the protection of investors in a
Cayman Fund company and for the protection of inves-
tors as a whole—is likely to prove a small price to pay.
While the protocol allows in practical terms for the im-
perative that insolvency shall be “both unitary and uni-
versal”—(as Lord Hoffmann further described the prin-
ciple in the House of Lords decision in Re HIH Casualty
& Gen. Ins. Ltd (above) p. 852, para 6)—it also allows
for the legitimate public policy concerns recognized by
the Grand Court. In this regard, the following passage
from Lord Hoffmann in the HIH case (at para 30) was
adopted and applied :
The primary rule of private international law which
seems to me applicable to this case is the principle of
(modified) universalism, which has been the golden thread
running through English cross-border insolvency law
since the 18th century. That principle requires that Eng-
lish courts should, so far as is consisten t with justice and
UK public policy, co-op erate with the courts in the coun-
try of the principal liquidation to ensure that all the com-
panys assets are distributed to its creditors under a
single system of distribution. That is the purpose of the
power to direct remittal [of assets to Australia]19 (em-
phasis supplied).
In citing and following the earlier decision of Hender-
son J of the Grand Court in Re Philad elph ia20 Quin J also
applied the following dictum from Robert Walker J. (as
he then was) in Re Gordon & Breach Science Publishers
(1995) 2 BCLC at 199: dictum that had found favour
with Henderson J. in Re Philadelph ia.
Fairness and commercial morality may require that a
substantial independent creditor (in this case investor)
which feels itself to be prejudiced by what it regards as
sharp practice should be able to insist on the companys
affairs being scrutinized by the process which follows a
compulsory orde r. Such a creditor is en titled to an inves-
tigation which is not only independent, but can be seen to
be independent. This may be so even where the voluntary
liquidation is already well advanced and a compulsory
order may cause further expense and delay….
Such concerns, about “fairness and commercial mo-
rality”, have dictated the need in still further cases for the
appointment of different liquidators after winding up had
commenced by removing liquidators who had been ap-
pointed but who were likely to suffer from a potential
conflict of interest. See Re Bear Sterns High-Grade
Structural Credit Enhanced Leverage (Overseas) Ltd.
Grand Court, February 22, 2008, unreported.
Potential conflicts of interests to arise from the ap-
pointment of the same liquidators over both the master
and feeder funds have also dictated the need for separate
appointments and separate windings up before different
Courts: In the Matter of DD Growth Premium Master
Fund 2009 CILR Note 11.
The foregoing survey of cases reveal the approach
taken by the Cayman Courts at common law and the
general adherence, where circumstances and policy allow,
towards the unitary and collective approach to trans-
19In the Matter of Lancelot Investment Fund Limited 2009 CILR 7.
20In re Philadelphia Alternative Asset Fund Ltd. 2006 CILR, Note 7,
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A Cayman Islands Perspective on Transborder Insolvencies and Bankruptcies: The Case for Judicial Co-Operation153
border co-operation in insolvency matters.21
6. Cayman Islands Legislation Complies
with UNCITRAL Model
Legislation, aimed at expressing statutory confirmation
of the common law precepts of co-operation in trans-
border proceedings and at further achieving the objec-
tives of the UNCITRAL Model Law on Cross-Border
Insolvency, was passed in 2009 with the enactment of
Part XVII of the Companies Law. This came about al-
though the Cayman Islands, unlike the United Kingdom,
have not itself subscribed to the UNCITRAL Model
7. Orders Made Under Cayman Islands
Pursuant to Part XVII, orders “ancillary to foreign bank-
ruptcy proceedings,” have already been made by the
Grand Court.
Among these, on 24th June 2009, the Icelandic court-
appointed “Moratorium Assistant” in bankruptcy pro-
ceedings in relation to the affairs of Straumur Bank—
Iceland’s largest investment bank—was recognized by
the Grand Court as, in the words of the Law, “a foreign
representative”. This recognition authorized him to act
within the Cayman Islands on behalf of Straumur Bank,
including for the purposes of identifying and restraining
assets of the Bank located within the Cayman Islands.
Out of concern that competing claims to those assets may
be brought against the Bank in the Cayman Islands, on
the 9th September 2010 a further order was made on the
application of the Moratorium Assistant enjoining any
application against the Bank in the Cayman Islands
without the leave of the Court. The Court was informed
about the nature of the Icelandic bankruptcy proceedings
(which afforded the Bank a moratorium during which it
sought to arrive at a composition with all its creditors)
and was satisfied that the objectives of the Icelandic
Court should be supported. In enjoining the commence-
ment of proceedings in the Cayman Islands, the Court
Notwithstanding that there are currently no proceed-
ings against Straumur in the Cayman Islands and there
are no known Cayman Islands creditors, the fact that
there are significant Cayman assets may be sufficient to
tempt a putative creditor of Straumur to commence pro-
ceedings here. In order to protect the global integrity of
the Composition, it is of crucial importance that credi-
tors of Straumur (wherever they may be located) should
not be permitted, while the moratorium is in place, to
issue proceedings in the Cayman Islands against Strau-
mur. 22
The local statutory jurisdiction was also invoked on
February 5th 2010. Then Jones J. of the Grand Court
granted the petition of Irving H. Picard in his capacity as
Trustee of Bernard L. Madoff Investment Securities LLC
(BLMIS), for a declaration that he has the right to act in
the Cayman Islands on behalf of BLMIS. BLMIS was
incorporated in accordance with the laws of the State of
New York and was then the subject of bankruptcy pro-
ceedings before the Hon. Burton Lifland in the U.S.
Bankruptcy Court for the Southern District of New York.
On 15th December 2008, Mr. Picard had been appointed
trustee for the liquidation of the business of BLMIS with
all the duties and powers of a tr ustee as prescribed in the
U.S. Securities Investor Protection Act, 1970.
The Grand Court pronounced its decision in these
Part XVI of the Companies Law (2009 Revision) was
enacted in 2008 and came into force with effect from 1st
March 2009. Section 241(1) (a) did not change the pre-
xisting conflict of laws rules relating to this subject. Its
purpose is to provid e foreign representatives with a con-
venient and expeditiou s manner of establishing their cre-
dentials and right to act on behalf of the debtor in a way
which will have universal effect within the jurisdiction,
without the need to establish his right separately as
against every individual counterparty. The Cayman Is-
lands conflict of laws rules applicable to this issue are
well established. First, all matters concerning the con-
stitution of a corpo ration a re governed by the p lace of its
incorporation. It follows that the law of the place of in-
corporation determines who are the companys officials
authorised to act on its behalf. Second, the authority of a
21Despite this history, Cayman insolvency proceedings have sometimes
not gained ready recognition by the U.S. Bankruptcy Court for reasons
which seem to ascribe too narrow an ambit to the fact of incorporation
in the Cayman Island and to the level of corporate activity that takes
lace there. For instance, notwithstanding that the SphinX Funds were
being liquidated in the Cayman Islands as the place of incorporation
and without any challenge as to it being the proper forum, recognition
of the Cayman proceedings were only accorded the “foreign non-main
roceeding status:” Re SphinX Ltd 371 B.R.10 (Bankr. S.D.N.Y.July
2007). Cayman proceedings were refused recognition altogether on a
very narrow view being taken of the test whether the Fund had an
“establishment” in Cayman and again, notwithstanding the presump-
tion accorded the place of incorporation as the proper forum and the
fact that liquidation was underway in the Cayman Islands:
n re Bear
Sterns Master Fund 374 B.R. 122 (Bankr. SDNY Sept. 2007). A more
acceptable position has however been taken in comparable circum-
stances by the same judge (Lifland J.) on July 22, 2010, by recognition
as “foreign main proceedings”, the liquidation in the BVI of Fairfield
Sentry Limited: In re Fairfield Sentry Limited, et al. Case No. 10-
13164 S.N.D.Y. 22 July 2010).
22Cause No. FSD 0188/2010-ASCJIn the Matter of Straumur-Bur-
daras Investment Bank HF, written judgment delivered on 9th Sep-
tember 2010.
23Cause FSD 47 OF 2010, written judgment delivered on 5th February
2010: In the Matter of BLMIS (In Securities Investor Protection Act
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A Cayman Islands Perspective on Transborder Insolvencies and Bankruptcies: The Case for Judicial Co-Operation
Copyright © 2011 SciRes. BLR
bankruptcy trustee or liquidator appointed under the law
of the place of a companys incorporation is recognised
in the Cayman Islands (Dicey and Morris, The Conflict
of Laws 10th Ed., Rule 139(2) and Rule 143).
…as a matter of Cayman Islands law, Mr. Picard is
entitled to be recognised as the sole person having the
right to act on behalf of BLMIS in this jurisdiction.”
8. Strong Tradition of Cooperation Set to
In the light of such decisions emanating from the early
exercise of the statutory jurisdiction under Part XVII of
the Companies Law, there is every reason to believe that
the strong tradition of co-operation in trans-national in-
solvency and bankruptcy matters at common law will
continue by the Cayman Islands Courts.
Considerations such as whether the foreign court pre-
sides at the “centre of main interests” of the debtor entity
or whether the foreign proceedings are “main” or “non-
main proceedings” or whether in that regard the debtor
entity had an “establishment” in the foreign jurisdiction
—all matters of import under the UNCITRAL Model
Law24—can all be accorded due if not exclusive weight
by the Cayman Courts in deciding whether or not to
grant recognition to foreign proceedings and foreign re-
presentatives. This ability to co-operate can, in large
measure, be attributed to the flexibility provided by the
wide discretion vested in the Court in exercise of the
jurisdiction under Cayman Islands law.
Accordingly, the Cayman Islands jurisprudence can be
expected to develop well in pace with the development of
the common law principles of comity, in keeping with
the principles of the UNCITRAL Model Law and in
keeping with the legitimate demands of the international
financial markets within the wider global economy.
24Cause As well as under U.K. Law by virtue of Insolvency Regula-
tions 2006 giving affect to the UNCITRAL Model Law; also in United
States Law under Chapter 15 of the U.S. Bankruptcy Code which also
gives effect to the UNCITRAL Model Law. The U.K. a nd the U.S. are
two of the 20 States now adhering to the Model Law. Similar consid-
erations will arise as a matter of E.U. Law by virtue of E.C. Regula-
tions No. 1346/2000 (29th May 2000) on Insolvency Proceedings and
the European Union Convention on Insolvency Proceedings.