Cayman Islands Schemes of Arrangement: Business as Usual

The Cayman Islands Court recently sanctioned the China Agrotech scheme which (save for the scheme requiring conditional sanction) is a reasonably standard insolvent creditor scheme and parallel Hong Kong scheme. As is common, the scheme's terms included condition precedent.

Some legal commentary has suggested that such a scheme is novel or landmark. This is not the case. For decades it has been entirely standard for Cayman Islands schemes to contain conditions precedent which may not all have been satisfied at the time of the sanction hearing. Recent examples include Ocean Rig and Schahin, none of which required conditional sanction. The anomalous aspect of this scheme was the need for conditional sanction. One potential reason for the Cayman Islands Court's approach was the scheme's unusual drafting, which rather than saying the relevant operative provisions took effect upon the satisfaction of the condition precedent, stated that the scheme itself took effect upon the satisfaction of the condition precedent.

Commenting on the case, senior restructuring expert, Nick Herrod added,  "The approach of providing conditional sanction could be perceived to make Cayman Islands schemes less practical than they should be. This is not the case; as in England, a conditional scheme is perfectly capable of being sanctioned by the Court in one hit. We would expect this to remain the case going forward; with the China Agrotech scheme being an outlier."