Validating payments under section 99 of the Cayman Islands Companies Act

• The evidence in support of a validation application must include sufficient specificity that clearly identifies, explains and justifies the transactions / payments for which validation is sought and why they are necessary to maintain the status quo - the status quo in question is the position of the company and of those interested in any future winding up as at the date of the presentation of the petition, so that they are not prejudiced by the necessary time taken to determine the petition.
   
• The Court will have real difficulties determining validation applications if the application is not supported by recent financial information about the applicant. 
   
• The applicant must seek validation over specific payments and demonstrate that each is necessary to maintain the status quo. The Court will not grant a general validation over all payments required to maintain the status quo. 
   

Walkers, together with Mr Anthony Beswetherick KC, act for the petitioning contributory (the "Petitioner") of Rasmala Trade Finance Fund ("Fund") and were successful in their opposition of the Fund's application for validation of certain payments and transactions under section 99 of the Companies Act of the Cayman Islands (the "Companies Act"). 
 
Under section 99 of the Companies Act, any payments or dispositions made by a company after a winding up petition has been presented against it are at risk of being void if a winding up order is made, unless the company during this time seeks validation in respect of such payments from the Court under section 99. The purpose of section 99 is to preserve the status quo during the twilight period between presentation and determination of the winding up petition. It enables a liquidator to unwind any transactions which may have taken place during that period and to return the assets and circumstances of the company and its contributories to those which were in place at the time the winding up commenced.
 
In this case, the Fund's primary position was that it was entitled to a general validation order in respect of all transactions in the ordinary course of the Fund’s business since the petition was filed, both retrospectively and prospectively. It also, in the alternative, sought validation with respect to certain payments. However, the Fund's evidence was very high level and failed to explain why some of the payments and transactions it sought to validate were required to preserve the status quo of the Fund. 
 
Under section 99, the Court will need to consider whether, if a winding up order were to be made, the applicant company and its contributories are unlikely to be worse off as a result of any particular validation order that the Court might make than if no validation order is made and the transaction is susceptible to avoidance. In this instance, the evidence of the Fund was too high level and this handicapped the Court's ability to undertaking the exercise required under section 99. 
 
Walkers' Insolvency and Dispute Resolution team in Dubai are regularly instructed to advise contributories and creditors with respect to winding up Cayman Islands and BVI entities. If you require legal advice in respect of Cayman Islands or BVI legal issues, please contact any of the following individuals on the Insolvency and Dispute Resolution team.