21/03/2024

Is it time to dispose of the definition of disposition? Section 146(2) of the Cayman Islands Companies Act (2023 Revision)

Is it time to dispose of the definition of disposition in the Cayman Islands Companies Act (2023 Revision)? In this briefing, the authors Stephen Atherton KC and Sarah Tresman advance the argument that differences between the Cayman Islands legislation and its UK equivalent, the Insolvency Act 1986, in how key terms are defined – and indeed, whether they are defined at all – creates a series of problematic and unnecessary consequences, particularly with respect to the potential for success of a liquidator’s claims under section 146(2).

The authors highlight that, with respect to a liquidator’s claims under this section, the current definition and application of ‘disposition’, the key term in the Caymans legislation:

• is counterintuitive, in its apparent effect of imposing primary or sole liability on a company’s bank, while excluding the recipient of value consequent upon an electronic bank transfer from the consequences of a ‘disposition’, and thus from claims to pay compensation;
• arguably therefore creates an unintended and unreasonable liability on banks involved in such transactions; and
• potentially extends banks’ duty of care, through effectively requiring banks to underwrite all payments debited from accounts in credit upon a company’s insolvency.

The authors conclude that: “… for the sake of coherence and, more importantly, to make the relevant section far more effective in addressing what was plainly the mischief at which section 146(2) was directed, the Cayman Islands legislature should either remove entirely the definition given to ‘disposition’, or refine it (for example) to remove the reference to a ‘disposition’ constituting a transaction, ‘by which any legal or equitable interest in property is created, transferred or extinguished’.”

Read the full briefing