Restructurings – Making the Most of the Offshore Aspects from a UK Perspective
22 September 2020
On Wednesday 16 September 2020, Peter Hayden, Nicholas Fox, Justine Lau and Abel Lyall of Mourant, and Richard Fisher QC of South Square Chambers, presented a webinar in association with Turnaround Management Association, UK. They discussed the types of assistance which can be obtained in Cayman, the BVI and the Channel Islands in restructures, and the high degree of cooperation between the onshore and offshore jurisdictions.
Please scroll down to watch our webinar.
Overview of offshore jurisdictions
Cayman, BVI and the Channel Islands are all heavily influenced by English law and the decisions of the English courts are considered highly persuasive, particularly in commercial law and insolvency work. In Cayman, for example, the procedural rules are based on an old version of the English procedure rules.
The highest court in all of these jurisdictions is the Privy Council, based in London.
Obtaining assistance offshore – stays and enforcement
The most common example of obtaining defensive assistance offshore is by seeking a stay of proceedings against the company. This is granted by the offshore court in order to shelter a restructuring which is taking place onshore, such as the UK or the US.
The underlying principle for the grant of a stay is to protect the collective nature of the insolvency process by preventing a creditor from bringing its own claim in a different jurisdiction and thereby circumventing the orderly distribution of assets. This mechanism has been exercised frequently since the 19th century and was recently confirmed by the UK Supreme Court in Rubin v Eurofinance SA  1 AC 236 at paragraphs 51 – 54. There are further scenarios in which a stay may be required, such as to prevent competing litigation in different jurisdictions.
The process of enforcing judgments offshore is also straightforward. In the Channel Islands and the BVI, money judgments obtained in an onshore jurisdiction can be enforced under statute. The offshore court registers and enforces the money judgment as if it was a judgment of the offshore court and this is a streamlined process. Non-money judgments can be enforced under established common law principles, by bringing a fresh action in the offshore court. In Cayman, there is no difference in the procedure which applies to money and non-money judgments, both of which are enforced under common law principles and require a fresh action to be brought. The usual approach is to then make an application for summary judgment. Even a worldwide freezing order obtained onshore will still need to be enforced in the offshore court.
Recognition of onshore liquidator
Recognition of the onshore liquidator in the offshore jurisdiction is the first step towards obtaining the assistance of the offshore courts, such as seeking a stay of legal proceedings.
In Cayman and BVI, a liquidator appointed onshore is recognised under statute or the common law. However, the BVI statute does not contain a general recognition provision and instead provides specific case by case assistance. The Channel Islands courts also extend assistance to onshore office holders under statute and the common law.
The continued application of the common law principles of recognition, as a supplement to the statutory regime, ensures that the offshore courts can operate flexibly, particularly in a situation where the statute does not apply.
Obtaining information and documents
Under the common law, there is a power to assist a foreign liquidation or other insolvency. The leading case is the Privy Council decision in Singularis v PWC  AC 1675, which confirmed that the power to assist is informed by the principle of modified universalism, which provides for a single jurisdiction to take charge of the liquidation.
The common law power to assist can extend to an order by the offshore court for the production of information or documents where necessary for the administration of a foreign liquidation. Various conditions need to be satisfied, such as that an equivalent power could be exercised under the law of the jurisdiction in which the office holder has been appointed.
The main documents held by the target company (such as the memorandum & articles and register of directors) may be obtained from the company's registered office. There are a number of different legal and practical routes available for obtaining documents and information in each offshore jurisdiction and it is therefore sensible to obtain legal advice to identify the most suitable route in each case.
Obtaining recognition of a UK scheme or CVA
In Cayman and BVI, the established practice for recognising a UK scheme or CVA is to use a parallel scheme. This protects the UK restructure from being undermined by individual creditor action offshore. In the Channel Islands, there is a statutory recognition process for CVAs but not schemes. Parallel schemes are sometimes proposed where a Channel Islands company is involved.
Coordinating a restructure through an offshore appointment
In Cayman, the statutory process is to file a winding up petition and simultaneously apply to appoint a "light touch" provisional liquidator, which postpones the hearing of the winding up petition. This is a very flexible mechanism. Legislation will also soon be introduced for the appointment of a restructuring officer, which will not require the presentation of a winding up petition. A provisional liquidator may also be appointed in the BVI, in principle, under the common law. Administration is normally used in Guernsey. There is no administration process in Jersey.
Dealing with the restructure offshore
Cayman, BVI and the Channel Islands provide for schemes of arrangements, which involve similar conditions and procedures to those in England.
Recognising an offshore scheme in England
The English courts will recognise an offshore process or an offshore office holder. However, under the Gibbs rule, recognition of a compromise or a debt will not be possible if it is English - law governed and therefore a parallel scheme will be required in the UK in this situation.
It is likely that there will be an increase in debt restructuring work offshore, given that most company structures include an offshore vehicle. There may also be an increase in traditional insolvency work, such as clawback actions.
The offshore courts have continued their operation throughout the pandemic without significant interruption and the courts have embraced video hearings and e-filing. Appointments are normally obtained within weeks and urgent applications can be heard within 24 hours.