Cayman Court Exercises Inherent Jurisdiction To Restore A De-Registered Company - Corporate and Company Law - Corporate/Commercial Law (2024)

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Introduction

In a recent judgment Re Cradle Holdings Inc. (FSD 318of 2022, unreported, 4 September 2023), the Chief Justice of theCayman Islands ruled on the novel issue as to whether and by whatroute a company which has been de-registered could be restored tothe register of companies, where there is no express route forrestoration in the provisions of the Companies Act (the"Act").

The Chief Justice found that where a statute requires somethingto be done, relief may be granted on the basis that the statutecontains an implied power to set aside the relevant decision orproceeding on grounds of substantial non-compliance. In arriving atHer Ladyship's decision, the Chief Justice followed KawaleyJ's judgment in Re Real Estate and Finance Fund(Dissolved) (FSD 135 of 2022, unreported, 24 August 2022).

Statutory Provisions in Relation to De-Registration

Under section 206(1) of the Act, a Cayman-incorporated companywhich proposes to be registered by way of continuation as a bodycorporate limited by shares under the laws of any jurisdictionoutside the Cayman Islands may apply to the Registrar of Companies(the "ROC") to be de-registered in theCayman Islands. Under section 206(2) of the Act, the ROCshall so de-register the company if the company is able todemonstrate, among other requirements, that the laws of therelevant jurisdiction with respect to transfer have been or will becomplied with. Under section 206(3), such requirement shall besatisfied by filing with the ROC a declaration of a director to theeffect that, having made due enquiry, that person is of the opinionthat the requirement has been met.

Section 207(3) of the Act provides that from the commencement ofthe date of de-registration, the company shall cease to be acompany for all purposes under the Act and shall continue as acompany under the laws of the relevant jurisdiction. Section 209requires the ROC to forthwith give notice in the Gazette of thede-registration of a company, the jurisdiction under the laws ofwhich the company has been registered by way of continuation, andthe name of the company, if changed.

There is no express provision under the Act which provides for aroute to restore a company which has been de-registered.

Background

The company in question (the"Company") was incorporated in theCayman Islands as an exempt company in 2001. In or about 2020, theCompany commenced the process to re-domicile itself in Barbados,which would involve an application to the ROC to de-register theCompany.

For the purpose of the de-registration application, the soledirector of the Company declared that, among other things, the lawsof the relevant jurisdiction with respect to de-registration hadbeen or would be complied with.

On 3 December 2021, the ROC issued the Company's certificateof de-registration.

Subsequently, it became apparent that in order for the BarbadosRegistrar to advance the re-domicile, a certificate of goodstanding from the ROC was required. Such certificate could nolonger be obtained owing to the Company's de-registration.

The unintended consequence of its de-registration was that theCompany was in limbo, having no existence under the laws of eitherjurisdiction. The failure of the transfer to Barbados bycontinuation threatened the conclusion of an agreement for the saleand purchase of the land held by the Company.

The Plaintiffs, being the executors of the estate of the soleshareholder cum sole director of the Company, sought an order thatthe Company be restored to the register of the Cayman Islands afterthe intended re-domicile of the Company failed.

The matter was ultimately resolved in favour of the Plaintiffs,with the Defendant (i.e. the ROC) raising no objections to therelief sought.

Applicable Principles

In Re Real Estate and Finance Fund (Dissolved), KawaleyJ set aside a dissolution following a voluntary winding up, havingfound that a fraud had occurred in the voluntary liquidation whichundermined the statutory purpose of the voluntary liquidationregime. Kawaley J held that although the Court had no expressstatutory power to grant the relief sought, the Court could do soin the exercise of its inherent jurisdiction to grant a declarationthat an act is void pursuant to section 11(2) of the Grand CourtAct.

Kawaley J extracted from two 19th century English cases theprinciple that where a statute requires something to be done,relief may be granted on the basis that the statute contains animplied power to set aside the relevant decision or proceeding ongrounds of substantial non-compliance. His Lordship described theprinciple as one of "general application".

The Chief Justice in the current case accepted that theprinciple could be relied on to assist the Company which wouldotherwise remain in limbo.

Findings

The Chief Justice found that:

• The legislature did not intend that a company seeking tocontinue in another jurisdiction be de-registered in Cayman unlessand until the laws of the jurisdiction of the intended redomicilehad been complied with and the company had been registered ascontinued in that jurisdiction.
• The legislature's intention that the de-registration becontingent on the registration by continuation in the relevantjurisdiction may be inferred from the wording of section 207(3)(which provides that from the commencement of the de-registration,the company shall continue as company under the laws of therelevant jurisdiction) and section 209 (which requires theRegistrar to gazette a notice of the de-registration and where thecompany has been registered by way of continuation) of the Act. Itis implicit that the ROC must be satisfied, before the certificateof de-registration is issued, that the company is continuing in therelevant jurisdiction.
• As matter of construction, the proper working of thelegislation that permits a company to change its place ofincorporation requires that the company can be registered ascontinuing in the relevant jurisdiction before it is de-registeredin the Cayman Islands.
• The director's declaration was wrong, as at the time it wasmade, the Company had not and could not comply with the provisionsfor continuation in Barbados. A necessary condition for thede-registration of the Company was not satisfied. Given that amandatory statutory requirement was not met, it was a properexercise of the Court's power to set aside thede-registration.

The Chief Justice made it clear that no criticism could be madeof the ROC, as the statute provides in mandatory terms that the ROCshall de-register a company where a declaration is made that thelaws of the relevant jurisdiction have been or will be compliedwith. Section 206(2), as presently drafted, does not require theROC be satisfied that the company has been continued in the newjurisdiction before de-registering the company in the CaymanIslands.

The Chief Justice proposed adding the following requirement andprovision to the Act:

• A requirement that a notice of continuation in the relevantjurisdiction be filed with the ROC by the company's registeredagent before the Registrar issues a certificate ofde-registration.
• An express provision that a company does not cease to be aCayman Islands company until it has been continued in its newdomicile (referring to section 184(2) of the BVI Business CompaniesAct 2004).

The Chief Justice noted that, in the absence of any change tothe existing legislation, it would be open to the ROC to make theissuing of a certificate of de-registration conditional on receiptof evidence that the company has successfully migrated, such as acertificate of continuation from the jurisdiction outside theCayman Islands.

Takeaways

This case is yet another testimony to the Cayman Court'spragmatic and company-friendly approach when it comes to, inparticular, the establishment, continuation and conclusion of acompany. It assures investors that the Cayman Court will step in todeliver an effective solution to an issue which has not yet beendealt with by the legislature.

The Cayman legislature has been diligent in revising the Act,resulting in an annual revision of the Act in recent years. It isanticipated that in the next revisions, the Chief Justice'sproposal for legislative amendments may well be incorporated.Before that takes place, a company which wishes to migrate toanother jurisdiction should expect requests from the ROC forevidence that the company has successful migrated – forexample, a certificate of continuation from the relevantjurisdiction.

The content of this article is intended to provide a generalguide to the subject matter. Specialist advice should be soughtabout your specific circ*mstances.