The rights of creditors of Cayman Islands funds have recently come under the spotlight as a result of high-profile crises affecting a number of Cayman domiciled funds, including two Bear Stearns funds. This has resulted in familiar misapprehensions being raised by the press and onshore commentators about how the Cayman Islands insolvency regime operates and whose interests are protected in a crisis.
One of the principal reasons why the Cayman Islands are so popular with the financial markets is because of their creditor and investor-friendly insolvency regime. The Cayman Islands have no bankruptcy reorganisation regime comparable to US Chapter 11 or UK administration which provide protection for the debtor by way of moratoria on secured creditor action and a ‘breathing space’ in which the business can restructure. In the Cayman Islands, the legislative and practical focus is on protecting the interests of those with the direct financial interest in a fund, i.e. its creditors and investors.
