On 26 June 2020, the Cayman courts made a winding up order for an insolvent company notwithstanding arguments from the company that the COVID-19 pandemic constituted "exceptional circumstances" which justified the refusal of the order. As governments and insolvency courts around the world wrestle with the proper approach to take with the unique challenges presented in the current situation, the Cayman courts have shown that the current situation will not necessarily be a free pass for insolvent companies.

In common with many jurisdictions which have their origins in English law, Cayman has a statutory demand process by which a debt which has been formally demanded and which remains unpaid after a specified period leads to a non-paying company being deemed to be insolvent. If such a debt is undisputed, a petitioning creditor has a prima facie entitlement to an order winding up the company. However, the making of a winding up order is discretionary and a court may refuse to make the winding up order where there are "exceptional circumstances".

By a petition dated 15 May 2020 (Petition), petitioning creditors (Petitioners) sought the winding up of Obelisk Capital Management Limited (Company) on the basis of its deemed insolvency following its failure to pay a statutory demand which had been served on 6 February 2020. In addition, the Petitioners sought the winding up of the Company on the just and equitable basis to investigate potential wrongdoing by the Company.  The Company responded by claiming that it was temporarily unable to pay the debt due to specific operational challenges which it faced as a result of the measures to combat COVID-19 introduced in a number of countries in which it operated. The Company argued that the service of the statutory demand and the petition were opportunistic and that COVID-19 constituted "exceptional circumstances" which meant that the Court should not make the winding up order.

The Court recognised the severe impact of COVID-19 and was sympathetic to the challenges faced by companies at this time. However, the Petitioners were able to show that the Company's non-payment pre-dated the measures which had been introduced to address COVID-19. The Petitioners were, therefore, able to successfully argue that, in this case, COVID-19 did not constitute an "exceptional circumstance" and the Court made the winding up order.

The approach of the Court highlights the need for petitioning creditors to consider COVID-19 in any petition made at this time. Petitioning creditors need to proactively address COVID-19 and put forward evidence and argument which demonstrate why the current situation, which is clearly capable of causing massive operational and liquidity challenges for enterprises around the globe, does not constitute "exceptional circumstances" for the specific company. Conversely, companies responding to petitions need to closely tie the wider situation to their specific position if they are to successfully rely on COVID-19.

Appleby acted for the successful Petitioners in the above matter.

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