SNAPSHOT /HIGHLIGHTS FROM ANALYSIS OF CAYMAN PETITION FILINGS 2008-2013/
his Snapshot report sets out our analysis of petition filings in the Cayman Islands in 2013 against the backdrop of the prior five years, and covers the following categories of petitions:
Tony Heaver-Wren Partner, Litigation & Insolvency (Cayman)
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Winding up; Conversion of voluntary liquidation to court supervised liquidation; Schemes of arrangement; and Capital reduction.
There are a number of key findings from our analysis:
■ There were more petition filings (across all categories) in 2013 than in each of the preceding
■ Winding up petition filings in 2013 were up 26% when compared to 2012 and up 81% compared to the 2011 filings.
■ In 2013 there was also a 50% increase, compared to 2012, in the number of petitions for conversion of voluntary liquidation to court supervised liquidation based on insolvency grounds.
■ Taken together, winding up petitions and petitions for conversion of voluntary liquidation to court supervised liquidation increased by 33% in 2013 when compared to 2012. Jeremy Walton Partner, Head of Litigation & Insolvency (Cayman)
■ Schemes of arrangement picked up in 2013 as well, having 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 of these filings, across the period. We hope that you find the snapshot on the following pages useful, please do not hesitate to get in touch should you have any queries.
OVERVIEW The last six years present a thought-provoking picture concerning the enforcement of investor rights. Over that period, the international investment community was exposed to unprecedented Ponzi scheme frauds, systemic illiquidity, global financial crisis and recession. Given Caymanâ€™s position at the hub of the offshore investment funds industry and its close connection with the US investments industry, it is therefore unsurprising that there have been large fluctuations in the annual petition filings in the Cayman Islands over this period.
The 66 petitions filed in Cayman Islands in 2013 were split between the reviewed categories as follows:
Winding up petition Court supervision (insolvent) Court supervision (after declaration of solvency) Reduction of share capital Scheme of arrangement
23% 5% 23%
This snapshot review of the Cayman Islands petition filings across 2008-2013 gives some 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 statistics clearly register the systemic shocks which occurred over the reviewed period, but also provide an indication of current trends which reflect the evolution of investor responses to the crisis. The 2013 Cayman petition statistics suggest that investors are increasingly losing patience with investment managersâ€™ efforts or promises of restructurings or other turnarounds.
TOTAL NUMBER OF PETITIONS (ALL CATEGORIES) 2008-2013 120 100 80 60 40
IMPACT OF THE GLOBAL FINANCIAL CRISIS The most immediately obvious trend apparent from our analysis is the impact of the global financial crisis. This trend is vividly illustrated by comparing 2008 and 2009 petition filings. The number of petitions filed in 2009 (across all categories) increased by 270% relative to 2008; and petitions for appointment of official liquidators (including winding up petitions and conversion of voluntary liquidations) increased by 410% in 2009, relative to 2008. As the global economy started to slowly recover, during 2011 and 2012, overall petition activity in the Cayman Islands retreated from the heights of 2009 and 2010. During 2011 and 2012 the responses of investors to the chronic illiquidity of their investments took a more negotiated pathway, and petition numbers waned accordingly. Indeed, petition filings in 2012 reached their lowest levels since 2008.
ANALYSIS OF FILINGS IN 2013 Our analysis reveals that the two-year trend of diminishing petition filings was reversed in 2013, as the number of petitions filed in 2013 increased in all categories.1 Overall petition filings in 2013 (although lower than the peaks of activity recorded in 2009 and 2010) were 32% higher than 2012, and 53% higher than pre-recession 2008.
WINDING UP PETITIONS The number of winding up petitions filed in 2013 rose by 26% as against the previous year. Winding up petition filings in 2013 were approximately midway between the lowest number of such filings (in 2008), and the highest number, recorded in 2009.
COMBINED WINDING UP AND COURT SUPERVISION PETITIONS Petitions for insolvent, court-supervised liquidation can take the form of a winding up petition or a petition for the conversion of voluntary liquidation to Court supervised liquidation. The combination of these statistics gives a clearer appreciation of the number of insolvency-based petitions filed in each of the six years. The number of combined insolvent liquidation petitions in 2013 increased 33% as against 2012, representing a return to a level of these filings not seen since 2010. This increase occurred notwithstanding the relative absence of the factors that led to the marked increase in winding up petition statistics in 2009 and clearly reflects a new trend
PETITIONS TO CONVERT VOLUNTARY LIQUIDATIONS TO COURT SUPERVISION
in the offshore investment market in 2013. The increase in insolvency petitions in 2013 reflects the maturing of investor responses to long-term issues which first arose in 2007/2008. Increasingly, investor patience with informal wind down scenarios is becoming exhausted and expiring, and investors are considering and taking up traditional insolvency processes in order realise what return they can on their investments, through liquidation.
Filings of petitions for conversion of voluntary liquidation to court supervised liquidation2 also experienced a marked uptick in 2013, with a 50% increase when compared to 2012.
ANNUAL COMBINED INSOLVENT LIQUIDATION PETITIONS, 2008-2013
Winding up petitions were notably active during the summer period in 2013 with 41% of the yearâ€™s winding up petitions filed between July and September.
Petitions for conversion of voluntary liquidations to court supervised liquidations accounted for 34% of the petitions seeking the appointment of liquidators in 2013. Between 2008 and 2013, the number of petitions for court supervised liquidations has affirmed the marketâ€™s favour for this quick and inexpensive method of placing companies into liquidation in the Cayman Islands.
100 80 60 40 20 2008
applebyglobal.com Save for petitions for reduction of share capital, which remained in line with previous years. 2 These are petitions which were filed where no declaration of solvency was submitted by the directors, which oblige voluntary liquidations to come under court supervision, and so should be treated in the same way as other petitions for the liquidation of insolvent companies. 1
ANALYSIS OF FILINGS IN 2013 cont’d PETITIONS FOR SCHEMES OF ARRANGEMENT IN 2013
PETITIONS FOR REDUCTION OF SHARE CAPITAL
The number of petitions for Court approval of schemes of arrangement in 2013 was four times the number of filings in 2012, however the 2012 scheme filings were unusually low (the lowest of the period reviewed).
The number of capital reduction petitions in 2013 fell in line with such filings throughout the period, there being only a +/-2 filings variance from the average number of such petitions over the past six years.
The table below sets out the percentage that scheme petitions represent when looking at total annual filings yearly since 2008.
Schemes as a percentage of all petitions
Between 2010 and 2012, the percentage of scheme petitions relative to all categories of petitions dropped substantially, however in 2013 this number started to creep north. Whilst the 2013 percentage is little more than a quarter of the peak number of filings in the period (in 2010), it will be interesting to see if this trend continues in 2014.
OUTLOOK The global financial crisis caused a pronounced spike in petition filings in the Cayman Islands. However, by 2012 the number of petition filings (and winding up petitions particularly) had fallen to levels only moderately higher than the filings seen pre-recession. 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. This trend in Cayman’s 2013 petition filings suggests that the ramifications of the largest financial crisis of our lifetimes have not yet concluded, and that the next wave of investor rejections of continued informal wind downs and other manager-led restructurings has begun.
applebyglobal.com Although schemes of arrangement can be deployed in both a distressed context and in a restructuring absent any insolvency considerations, nevertheless these filings appear to follow a similar trend to the other filings for insolvent liquidations namely they have been in decline since 2010, but increased in 2013, relative to the previous year. 3
ABOUT APPLEBY Appleby is one of the world’s largest providers of offshore legal, fiduciary and administration services. We have around 770 people, including 75 partners, operating from 12 offices around the globe. Appleby’s Litigation & Insolvency group is truly international. Our lawyers act on a wide range of significant and high-profile cases in the fields of trust litigation, commercial litigation, corporate litigation and fund disputes, and on insolvency, regulatory and insurance matters. Many of these cases have a multi-jurisdictional component to them, involving lawyers in our various offices working together in our clients’ best interests. The practice in Cayman is well-established and the team is very well regarded. We are often involved in leading Cayman litigation, insolvency and restructuring cases. Our lawyers here specialise in contentious Insolvency and Restructuring matters, and Commercial Dispute Resolution, including fraud, asset recovery and professional negligence, often as part of crossborder and multi-jurisdictional litigation. We also specialise in Fund Disputes, and have significant experience in representing the full range of parties involved in fund-related matters, including liquidators, directors, investment managers, auditors, shareholders and creditors.
For further information contact: Tony Heaver-Wren Partner, Litigation & Insolvency (Cayman) email@example.com Jeremy Walton Partner, Head of Litigation & Insolvency (Cayman) firstname.lastname@example.org
RESEARCH METHODOLOGY The data for this publication has been collected from a review of the filings at the Grand Court of the Cayman Islands between 1 January 2008 and 31 December 2013.
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