Law Talk

In the courts

A recent decision of the Grand Court of the Cayman Islands in Re China Shanshui Cement Group Limited looked at the ability of Cayman Islands directors to present a winding up petition on behalf of a Cayman Islands company.

In Re China Shanshui Cement Group Limited (23 November 2015) Mangatal J, sitting in the Financial Services Division of the Grand Court of the Cayman Islands, has declined to follow the decision of Jones J in Re China Milk Products Group Ltd.1, and has struck out a winding up petition submitted by the directors of the company for lack of standing to file the petition.

Since it was handed down in 2011, the decision in Re China Milk has been subject to some criticism by Cayman Islands’ practitioners and the recent decision in Re China Shanshui (effectively turning Re China Milk on its head) probably confirms a long-held belief shared by many of them as to the correct interpretation of section 94(2) of the Cayman Islands’ Companies Law.

The question at issue was whether or not directors of a Cayman Islands company had the authority to present a winding up petition on behalf of the company in the absence of either (a) a shareholders resolution or (b) an express provision in the articles of association authorizing such action to be taken by the directors.

Mangatal J held that as a matter of Cayman Islands’ law they did not have such authority. She held that the law was correctly stated by Smellie J (as he then was) in Banco Economico SA v Allied Leasing and Finance Corporation2, applying the well-known English decision in Re Emmadart Ltd.3 which was reversed by statute in England4, but had not been reversed by statute in the Cayman Islands. There had been debate as to this very point in the discussions leading to the 2007 amendments to the Companies Law, but Mangatal J concluded that a deliberate decision had been taken not to reverse Re Emmadart by statute in the Cayman Islands.

In short, she held that section 94(2) of the Companies Law which provides that “where expressly provided for in the articles of association of a company the directors of the company incorporated after the commencement of this Law have authority to present a winding up petition on its behalf without the sanction of a resolution passed at a general meeting” applied to both solvent and insolvent companies (and not just to solvent companies as Jones J had decided in Re China Milk). It merely provided statutory confirmation of the position which had been previously held to be the case in Re Emmadart. There was nothing in section 94(1)(a) allowing “the company” to present a petition which could be construed as allowing “the directors” to do so.

Mangatal J’s decision would appear to be correct as a matter of strict statutory construction. However, Jones J’s approach in China Milk does hold some practical commercial appeal, in that it allows directors to take steps to protect the interests of all stakeholders where a company is insolvent (or soon will be).

scalesThe appointment of one or more provisional liquidators in connection with a winding up petition can be a useful tool in a restructuring due to the resulting moratorium on other proceedings. Where a company is facing actual or potential insolvency, the power to petition for a winding-up can be of significant comfort to directors and can facilitate the preservation of assets and value through an expedited restructuring. Denying the directors the power to petition to wind up the company absent express authority either in the articles or in a resolution of shareholders may therefore be considered commercially undesirable, although standard and accepted in some structured finance special purpose vehicles.

Those who are considering taking appointment as directors of a Cayman Islands company are encouraged to check whether the directors are given the power in the articles to petition for a winding up. Depending on the financial position of the company, shareholders may have little or no continuing economic interest in the company and, given the time that it can take to convene a general meeting, a requirement for shareholder consent in support of a petition for winding-up could operate to the detriment of creditors and/or the company.

The restriction on directors confirmed by the Emmadart case has been criticised (and, as discussed, reversed by statute in England) and has not been followed in some Commonwealth countries5. It does however represent current law in the Cayman Islands. Whether the Cayman Islands Legislature sees fit to legislate to restore the position taken in China Milk remains to be seen.


Introduction of LLCs

The much anticipated Limited Liability Companies Bill, 2015 has been published this quarter6 and is expected to be enacted into law in early 2016. Once enacted, it will add another key facet to the Cayman Islands’ entity formation toolbox. It allows for the incorporation of a new Cayman Islands’ vehicle, the limited liability company.

This important legal development has been sought by attorneys and clients in the United States for some time (particularly in the investment funds industry) and is based, in part, on the Delaware form of limited liability company.

Whilst there are various types of limited liability companies presently available in the Cayman Islands, the Cayman LLC will be a distinct entity. The LLC Bill has been modelled using both local legislation (notably the Cayman Islands company and partnership laws) as well as the limited liability legislation of Delaware. As such, the Cayman LLC will have certain features of Cayman companies and partnerships (for example, member liability not being limited by shares nor by guarantee but rather by reference to members’ capital accounts and capital contributions) and also features of a Delaware LLC (for example, allowing for freedom of contract amongst the members as to determining the internal operations of the company).

Some key features of the Cayman LLC will include:

  • The Cayman LLC will be a body corporate with separate legal personality (unlike partnerships in Cayman) and members will have limited liability;
  • At least one member is required and the Cayman LLC may be managed by a “managing member” or a non-member;
  • Members are given considerable flexibility to agree the internal workings and management of the Cayman LLC in their LLC agreement;
  • No share capital – members may have capital accounts and make capital contributions with profits and losses allocated amongst them in accordance with the LLC agreement;
  • Registration is effected by filing a simple registration statement with the Cayman Islands’ Registrar of Limited Liability Companies. The LLC agreement need not be filed; and
  • Existing Cayman Islands exempted companies and certain foreign companies continuing into the Cayman Islands may convert or merge into a Cayman LLC.

The Cayman Islands is the leading jurisdiction globally for fund formation. Given the obvious benefits of using a Cayman LLC (including, simplified fund administration, similar corporate features to a Delaware LLC and the general flexible nature of such an entity) together with the longstanding industry demand for this type of vehicle in the Cayman Islands, once the LLC Bill is enacted into law, we expect that the Cayman LLC will hit the ground running. The flexible nature of this vehicle means it will also be well suited to a broad range of general corporate and commercial applications such as joint venture companies, general partner entities and holding vehicles.

The Cayman LLC is an exciting development for the Cayman Islands and is expected to become available in the early part of 2016. The development of the LLC legislation into law is likely to feature in greater detail in the next Law Talk.

Common Reporting Standard

In the last edition of Law Talk we advised that the OECD’s Common Reporting Standards had been implemented in the Cayman Islands via The Tax Information Authority (International Tax Compliance) (Common Reporting Standard) Regulations, 2015.

The Cayman Islands Tax Information Authority has now published new entity and individual self-certification forms which address disclosure requirements under each of Common Reporting Standards, US FATCA7 and UK FATCA8. The forms are not obligatory (so extracts of them or modified versions may be used) but they are designed to collect all information required.

Cayman Islands reporting financial institutions are required to obtain data on new account holders with effect from 1 January 2016. The Tax Information Authority has published a list of 96 “Participating Jurisdictions”9 for the purposes of Common Reporting Standards and affected Cayman Islands’ entities are required to conduct due diligence on pre-existing and new accounts to determine their reporting requirements in respect of each of the Participating Jurisdictions.

Further Common Reporting Standards-related legislation dealing with penalties and enforcement powers of the Tax Information Authority are anticipated to be issued in the first quarter of 2016, along with guidance notes. The guidance notes are likely to be limited to practical matters specific to the Cayman Islands as the Tax Information Authority has advised that Common Reporting Standards issues should primarily be addressed by information contained on the OECD’s automatic exchange portal.

The Cayman Islands is well placed to deal with the regulatory and reporting issues thrown up by US FATCA, UK FATCA and Common Reporting Standards. Having passed much of the required legislation and guidance and established practical procedures for the submission of information by Cayman Islands’ entities, the Cayman Islands appears to be organized, well informed and on top of these challenging new requirements.


  1. [2011] 2 CILR 61
  2. [1998] CILR 102
  3. [1979] 1 Ch.540
  4. Section 124(1) Insolvency Act 1986
  5. In particular, in a line of Australian cases and, in Bermuda, in Re First Virginia Reinsurance Ltd [2003] 66 WIR 133.
  6. On 18 December 2015.
  7. We have discussed US FATCA in detail in earlier editions of Law Talk. In summary, it refers to the foreign account tax compliance provisions of the Hiring Incentives to Restore Employment Act, 2010 of the United States of America.
  8. We have also discussed UK FATCA in detail in earlier editions of Law Talk. In brief, it refers to the United Kingdom’s equivalent of US FATCA. UK FATCA will likely be phased out by the end of 2017 as the UK will be a Participating Jurisdiction (defined herein) under CRS.
  9. Notably this does not include the United States so the US FATCA legislative framework in the Cayman Islands will continue unaffected.
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Tania Dons

Tania advises on all areas of corporate and commercial law but with a particular focus on establishing and advising hedge funds and private equity funds and related regulatory matters. Tania has over 12 years of legal experience and represents major institutions, investment banks, fund managers, directors and trustees in all aspects of investment funds, including structuring and ongoing operations. Tania regularly advises on fiduciary duties, side letters, managed accounts, managing illiquid assets and other key issues facing investment funds.

Tania Dons
Conyers Dill & Pearman
Cricket Square
PO Box 2681
Grand Cayman KY1-1111
Cayman Islands


T. +1 (345) 814 7766
E. [email protected]



Conyers is a leading international law firm with a broad client base including FTSE 100 and Fortune 500 companies, international finance houses and asset managers. The firm advises on Bermuda, British Virgin Islands and Cayman Islands laws, from offices in those jurisdictions and in the key financial centres of Hong Kong, London and Singapore. We also provide a wide range of corporate, trust, compliance, governance and accounting and management services. The Cayman Islands office provides advice on all aspects of Cayman Islands corporate, company and commercial law as well as commercial litigation and private client matters. SIX, 2nd Floor, Cricket Square, PO Box 2681, Grand Cayman, KY1-1111, Cayman Islands
Tel +1 345 945 3901 Email: [email protected]