A Year in Review: Reflections on the Cayman Islands Restructuring Officer Regime

The Cayman Islands’ restructuring officer regime came into effect on 31 August 2022, but there have so far only been six applications for the appointment of restructuring officers. FTI Consulting’s Senior Managing Directors were nominated in relation to three of these applications, and appointed as restructuring officers by the Grand Court of the Cayman Islands in the very first use of this flexible tool. 

Here are 10 conclusions from our first-hand experience of restructuring officer roles so far:

1. The restructuring rebrand works – the fiduciary role that has replaced the use of provisional liquidators helps to facilitate the breathing space that is required for restructuring, and temper the counter-productive negative sentiment that can easily ensue among stakeholders in crisis situations, particularly if there is any impression that the procedure may be terminal.
2. The wave of restructurings expected by some was never going to happen in August 2022 – the new regime delivered highly effective improvements to what was already in place and, to a large extent, working effectively. A number of high-profile restructurings were successfully delivered by deploying light-touch provisional liquidators. The new law was not, in and of itself, a catalyst for a step-change in market activity.   
3. Macroeconomics will typically be the main driver of activity – the new regime was introduced during a relatively quiet period for court-supervised offshore restructuring. We can expect its use to increase in the near term, as the impact of the ‘higher for longer’ interest rate environment bites and necessitates a greater number of balance sheet restructurings.  
4. Applying to appoint restructuring officers is unlikely to be effective as a reactive and unplanned defensive response to creditor winding up petitions – Cayman has a vastly experienced and commercially astute judiciary, that has already set clear expectations for the minimum evidential threshold required to demonstrate a credible restructuring effort and win the approval of the court. If an application fails, a winding up is the most likely outcome. 
5. Concerns in relation to loss of control and increased restructuring costs have dampened the number of applications – such concerns are understandable given the introduction of additional stakeholders in the form of court-appointed restructuring officers. However, these concerns are capable of being managed by carefully agreeing the scope of work and realistic budgets prior to appointment.
6. The tool works well in the right situations – a unique skill set is called for to provide leadership and stakeholder management in crisis situations, conduct objective analysis of restructuring proposals and navigate the implications of court supervision. In scenarios where such experts are required, restructuring officers will enhance the prospects of a successful restructuring. 
7. Moratorium protection is not always a prerequisite for a successful restructuring – the extent of financial restructuring sought to be carried out by way of Cayman Islands schemes of arrangement has been unprecedented in 2022/23. This is due to the well-publicised disruption in China’s property development sector. Restructuring practitioners are often identified in case creditors take preemptive action, and can also assume alternative financial advisory or contingency planning roles. 
8. There seems to be little downside in deploying the restructuring officer regime as a contingency plan – strategic, well-planned and defensive use of the regime is positively different to being reactive and defensive. The former approach is much more likely to find favour with the court, whilst the latter may be viewed as an abuse of process. This contingency approach can also mitigate the aforementioned risks of losing control or escalating costs.
9. Appointment of restructuring officers is not a silver bullet – there has to be a viable operational and balance sheet proposition on the other side of a restructuring. If new money is required, we are in a challenging refinancing environment for attracting investment, especially given that financing terms must facilitate a better outcome for incumbent stakeholders to secure their approval of the restructuring plan. For secondary market investors, purchasing distressed assets from an insolvency process may be more attractive than funding a restructuring. 
10. Sourcing new money will often be a key aspect of the restructuring officer role – practitioners must be able to leverage global networks of industry insiders and investors, and there are three key groups who can support the funding requirements for restructuring: (i) stakeholders who are already invested and incentivised to promote a rescue, (ii) secondary market participants who are used to dealing with special situations and distress, and (iii) industry-specific strategic investors. There will often be overlap between such groups and tapping into these relationships can be essential.  

We are delighted to be at the forefront of this fast-developing area of offshore restructuring and clearly there is much more to come from the regime. Already we are seeing the development of new law. At the time of writing, a decision from the Grand Court is pending on how to deal with individual portfolios within a segregated portfolio company that would benefit from accessing the restructuring officer regime. 

We welcome feedback from our colleagues and clients on the views expressed in this post. Please do also contact Andrew Morrison, David Griffin or Iain Gow if you would like to discuss any specifics. 

The views expressed herein are those of the author(s) and not necessarily the views of FTI Consulting, Inc., its management, its subsidiaries, its affiliates, or its other professionals

FTI Consulting, Inc., including its subsidiaries and affiliates, is a consulting firm and is not a certified public accounting firm or a law firm.