that stakeholders have all of the information reasonably necessary to enable them to assess the merits of the scheme.
“The liquidator must satisfy the court that the scheme documentation provided to stakeholders will provide all the information reasonably necessary for a decision on the merits of the scheme.”
to compromise complex disputes will want to engage specialist legal counsel who will assist in identifying the disputes to be comprised and how they should be addressed, and with the analysis of stakeholders’ rights and the constitution of classes. Participation of counsel with the appropriate expertise will increase the chances that the proposed scheme will find the necessary support among stakeholders, and will be compliant with legal principles and so be acceptable to the court.
Consensus among stakeholders Implementation of a scheme usually involves eliciting agreement
among often diametrically opposed interest groups. The resolution of disputes among stakeholders may be assisted by negotiations and mediations which ultimately form the basis for a proposal which can be formalised into a scheme. However, throughout the initial period, from the outset of negotiations to the voting at the meetings, there can be a significant risk that the requisite majorities will not approve the terms of the compromise. There may, therefore, be substantial uncertainty about whether the scheme will obtain the necessary approval from stakeholders until the court meetings have been held and stakeholder votes reckoned.
Even after the statutory majorities have been obtained, the scheme can
be challenged by a dissenting stakeholder. If the court is to exercise its discretion to sanction the scheme it has to be satisfied that the majorities were obtained by virtue of the stakeholders deciding that the scheme was in their interests as members of the relevant class, and that the minority have not been oppressed by the majority pushing through a proposal which was actually against the interests of persons in that particular class, because the proposal favours some other interest of the majority.
In order to reduce the risk that the scheme fails because the court is
shown that the majority have been oppressing the minority, or on the basis of unfairness to the minority, the prudent liquidator will ensure that the scheme is formulated against the background of the principles of law by which the court will assess the scheme. The liquidator will want to be confident that the proposals are not dictated just by the commercial considerations of the majority without any regard to the interests of the minority.
Evaluation of impact on the
liquidation estate It may be important for the explanatory memorandum to include
consideration of the impact of the scheme on the recoveries of the estate as a whole. If the terms of the scheme may have negative implications for the assets, the liquidator should conduct an assessment of any potential, or perceived, negative implications on relevant property and appropriately disclose this to stakeholders in the explanatory memorandum, as part of the obligation to ensure
56 CAYMAN FUNDS | 2012
Recognition The cross-border nature of corporate insolvencies in the Cayman
Islands may prompt a liquidator to seek foreign recognition of the scheme, once sanctioned by the Cayman Islands Court, so that the terms embodied within it can be imposed upon stakeholders domiciled outside the Cayman Islands. An application for recognition will require the foreign court to consider the scheme in the context of the applicable law within the relevant jurisdiction and, if appropriate, accede to the terms becoming enforceable within that particular jurisdiction.
A liquidator who proposes to seek foreign recognition for the
scheme may wish to seek legal advice in the relevant jurisdiction at an early stage, particularly before the convening hearing, so that an assessment of the legality of the scheme in that jurisdiction can be conducted. This will ensure that any legal anomalies are resolved and the terms of the scheme can, if necessary, be appropriately modified so that foreign recognition of the scheme is attainable.
Conclusion Schemes of arrangement are intensive for a liquidator to implement
as the process is complex and can be fraught with obstacles. Scheme proposals which seek to resolve complex disputes among stakeholders necessitate development of unique schemes of arrangement, and a prudent liquidator ought to seek assistance from professionals with suitable expertise and experience in this regard. This will enhance the viability of the scheme and equip the liquidator with the appropriate expertise and experience to identify and overcome potential obstacles.
George Weru is a manager at KRyS Global. He can be contacted at:
george.weru@krys-global.com
Scott Andersen is a senior analyst at KRyS Global. He can be contacted at:
scott.andersen@
krys-global.com
George Weru joined KRyS Global in September 2010 and has more than six years’ experience in corporate recovery services. He previously worked in the corporate recovery and finance departments of two big four firms in Kenya, Ghana and the Cayman Islands. His work at KRyS Global has involved
complex cross-border liquidations. He is a CPA (Kenya), a CFA charter holder and has a law degree.
Scott Andersen joined KRyS Global in March 2011 having gained five years’ experience in a specialist business recovery and insolvency firm in Australia. His work at KRyS Global includes court- supervised liquidations involving complex, cross-border investigation and litigation matters. He is a member of the Institute
of Chartered Accountants in Australia and the Insolvency Practitioners Association of Australia.
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