CAYMAN ISLANDS Law and Practice Contributed by: Sarah Humpleby, Alexandra Franklin, Peter Kendall and Sam Hall, Walkers
proceedings in the Cayman Islands. The local law in the lessee′s jurisdiction of incorporation will govern any such proceedings. If the lessee is incorporated under the laws of the Cay - man Islands and enters into provisional liquidation or official liquidation proceedings in the Cayman Islands: • there is no power to disclaim (or set aside) the lease as an onerous contract; • the Cayman courts will typically recognise and enforce contractual arrangements such as lease- termination provisions (including those created under foreign laws) and self-help remedies by which the lessor may take possession of the air - craft, subject to enforceability considerations under the governing law, the lex situs and other relevant laws (although it should be noted that the CTC Act permits taking possession of the aircraft without leave of the court); • as a matter of Cayman Islands law, leases do not operate to transfer legal ownership from the lessor to the lessee; however, in an insolvency scenario, the lease may be treated as an asset (provided that the lease does not contain an automatic termina - tion for insolvency provisions); and • in a Cayman insolvency process, there may be creditors who rank in priority to the lessor – eg, a registered mortgage will have statutory prior - ity over subsequently registered and unregistered mortgages and will rank in preference to any right, claim or interest of other creditors (certain other rights and interests will take priority under Cay - man law – eg, Cayman government liens for unpaid taxes, charges and repairers′ liens, and liquidation expenses, as well as a prior-registered “interna - tional interest” registered on the IR pursuant to the Cape Town Convention. 2.9.6 Risks for a Lender if a Borrower, Guarantor or Security Provider Becomes Insolvent The main risk is that a lender will not be repaid in full. The lender may also incur certain costs in connection with enforcement, and there will be an inevitable delay in recovering funds (in whole or in part). If the enforcement of security is not sufficient or the guarantor is unable to repay the liabilities owed to
the lender in full, the lender would then need to claim the remaining portion as an unsecured creditor in the insolvency proceedings of the borrower and/or the guarantor. 2.9.7 Imposition of Moratoria in Connection With Insolvency Proceedings In certain circumstances, a moratorium (or similar stay) may be imposed in connection with insolvency proceedings. While no claim may be started or con - tinued against a company in compulsory liquidation in the Cayman Islands without leave of the court, under the Companies Act, a secured party may enforce its security without leave of the court or reference to the liquidator. 2.9.8 Liquidation of Domestic Lessees Assuming that the lessee will not enter into voluntary liquidation (see 2.9.2 Overview of Relevant Types of Voluntary and Involuntary Restructurings, Reorgani- sations, Insolvencies and Receivership ), a creditor, contributory or the company itself may petition the Cayman Court to wind up the company on the ground that the lessee is unable to pay its debts. This is deter - mined on a cash-flow basis (ie, the lessee is unable to pay its liabilities as they become due) and by proof of an unpaid debt (commonly evidenced by a statutory demand which has not been satisfied for 21 days). Receivership is a contractual self-help remedy only available to secured creditors on the terms set out in the relevant security document. There are no specific statutory provisions under Cayman Islands law deter - mining how a receiver should be appointed, and the appointment of a receiver must be made in accord - ance with the terms of the security document to be valid. 2.9.9 Ipso Facto Defaults It is not possible to disclaim onerous contracts in Cay - man Islands insolvency proceedings. Generally, Cay - man courts would be expected to give effect to the terms of the relevant lease regarding the repossession of an aircraft. 2.9.10 Impact of Domestic Lessees’ Winding-Up If the lessee is incorporated under the laws of the Cay - man Islands and enters into provisional liquidation or
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