Petition Filings Snapshot – Interim Report Q3 2014

Compulsory winding up petition filings offshore fell, on average, by 31% in the first three quarters of 2014 says latest Appleby report

The latest compulsory winding up petition data, published in our Snapshot: Interim Report – 2014 Petition Filings, points to an about-face turn from the spike experienced across many offshore jurisdictions in 2013 insolvency proceedings.

The report examines Bermuda, the British Virgin Islands, Cayman Islands, Guernsey, the Isle of Man and Mauritius.

Since our six-year look back at petition filings in the Cayman Islands, published in January 20141, we have continued to closely monitor petition filing activity across our network of offices offshore. In Cayman, the review has continued to extend to compulsory winding up petitions, petitions for conversion of voluntary liquidation to court supervised liquidations, schemes of arrangement and capital reductions. For the purposes of this interim report, the point of cross-jurisdictional comparison has been limited to filings of wind-up petitions in each jurisdiction. These comparisons reveal a high degree of correlation between trends observed and reported in the Cayman Islands, and those seen in the other offshore jurisdictions.

This interim report tracks developments so far in 2014, in advance of a full year multi-jurisdiction review and analysis that will be published in early 2015.

There are a number of key findings from our interim analysis:

■        the anticipated continuation of 2013’s rise in the number of winding up petition filings into this year has not eventuated. In fact, the number of winding up petitions filed in 2014 to date has (with the exception of Mauritius) been significantly less than the number filed last year, in each of the jurisdictions;

■        across the jurisdictions, on average, winding up petition filings have fallen by 31% so far in 2014 as compared to the number of filings for the same period last year;

■        in the Cayman Islands, the number of filings of petitions for conversion from voluntary to court supervised liquidations has also fallen dramatically, down by 47%;

■        in Cayman, the only category of petition to continue the 2013 rise into 2014 is petitions for sanction of schemes of arrangement, which are up 25% on last years filings;

■        the number of winding up petitions filed in Mauritius in the last two years is more than the rest of the jurisdictions combined, although this profile is more linked with domestic trade than international investment.

GLOBAL OVERVIEW

Taking the four categories of petitions in the Cayman Islands and winding up petitions in all the other jurisdictions together as the total filings in all jurisdictions, there has been a 22% decline to the end of September, compared to the equivalent period of last year.

As at the end of the third quarter of 2014, the number of winding up petitions filed in all of the jurisdictions had declined in comparison to last year’s filings at this time. Across the jurisdictions, winding up petition filings have dropped by as little as 2% and as much as 60%.

Filings of winding up petitions fell by an average of 31% in the first three quarters of 2014.

COMMENTARY

This uniform trend of a fall in winding up petitions is a reflection of the extent to which, this year, market conditions have been such that investors have had opportunities to exit long-standing investments without recourse to formal insolvency processes. The improvements in liquidity and resulting portfolio realisations, together with the rise in secondary market activity across 2014, has steered investors away from winding up proceedings as a means of resolving legacy investment issues. In the current economic climate, investors are increasingly prioritising new investment over litigation to recoup losses sustained by reason of historic investments. This trend has developed not withstanding that many of the claims that might be asserted against service providers are approaching limitation periods and will soon become statute barred.

An interesting sub-plot in the petitions filing story is the ratio of actual appointments of liquidators to winding up petitions filed. Last year, despite the spike in the number of winding up petition filings, there was not necessarily a corresponding jump in the number of appointments. For example, in the Cayman Islands in 2013, only 59% of winding up petitions filed resulted in appointments being made. The ratio of winding up petitions to appointments in Cayman so far this year is around 37%, however many petitions filed are still pending final hearing.

We will revisit this issue of the rate of successful conversion of petitions to appointments of liquidators and implemented schemes, with the benefit of full-year data, in our annual Petitions Snapshot, to be published in early 2015.

SPOTLIGHT ON CAYMAN

In the Cayman Islands, the total petition filings3 for Q1-Q3, 2014 was among the lowest of the last seven years.

The pronounced spike in insolvency petitions in the Cayman Islands in 2013 appeared to point toward a new wave of shareholder activism in 2014, fuelled by investor dissatisfaction with returns and imminent expiry of limitation periods. That wave never arrived, however, in Cayman nor in any of the other offshore jurisdictions.

Winding up petitions

Following three years of rises, the number of winding up petitions in the Cayman Islands has slowed in Q1-Q3, 2014 and is currently following a very similar pattern to that seen in 2008 (before responses to the financial crisis began to be reflected in the number of filings), and 2011 and 2012 (once the initial impact of the crisis had dissipated).

Schemes of arrangement

Petitions for Court approval of schemes of arrangement appear to be undergoing something of a revival in the Cayman Islands. The Q1-Q3, 2014 total has already equalled that of 2012 and 2013 combined, with an even level of activity spread across the year. Schemes of arrangement have made up one in eight of all petitions filed during the period.

OUTLOOK

At the time of our Cayman Islands Petition Snapshot4 it was thought that one of the drivers for the spike in 2013 petition filings was the imminent expiry of limitation periods in respect of claims that might lie against managers and service providers in connection with management of investments immediately prior to the global financial crisis. As those limitation periods have approached/expired, the prevailing market conditions and investor priorities have been such that, in 2014, formal process has fallen off dramatically.

While 2013 was a year in which much of the ‘dead wood’ of illiquid investments was cleared away by investors, it appears that 2014 (to the present time at least) has been more about investors prioritising the taking of positions in new investment opportunities, rather than expending resources on formal process as a means of resolving remaining issues in relation to legacy investments.

A more extensive analysis of the emerging patterns and trends, with the benefit of richer cross-jurisdictional data, will follow in our annual Petitions Snapshot, for release in early 2015.

ABOUT APPLEBY

Appleby is one of the world’s largest providers of offshore legal, fiduciary and administration services. We have around 800 people, including 68 partners, operating from 12 offices around the globe.

Appleby’s Litigation & Insolvency group is truly international. Our lawyers act on a wide range of significant and high-profile cases in the fields of trust litigation, commercial litigation, corporate litigation and fund disputes, and on insolvency, regulatory and insurance matters. Many of these cases have a multi-jurisdictional component to them, involving lawyers in our various offices working together in our clients’ best interests.

For further information: [Cayman]

Cayman Islands Tony Heaver-Wren Partner

Litigation & Insolvency

+1 345 814 2732 [email protected]

To download the whole Petition Filings Snapshot that includes Mauritius and BVI go to:

http://www.applebyglobal.com/e-marketing/petition-snapshot-q3-2014-(final).pdf