Jurisdictional Risks for US and other onshore creditors filing claims in foreign Cayman Islands liquidations
Sign Up for PublicationsA recent Cayman Islands decision finds a Cayman liquidator does not need leave of the Court to serve certain writs overseas on any creditor that files a proof of debt in the underlying liquidation.
For any US or other onshore creditor of a foreign Cayman company, the decision to file a claim in the liquidation of that company is not typically controversial. Filing such a claim is usually standard even when the foreign liquidation (say of an SPV subsidiary) arises in the context of a broader, multi-jurisdictional restructuring effort, including one that involves disputes among former commercial partners. All this is understandable: the scenario presents as the sort of engagement with an offshore jurisdiction which is routine for many large US organizations across a range of sectors.
However, a recent decision from the Grand Court of the Cayman Islands[1] indicates there may be risks in this seeming procedural step for unsuspecting creditors. Specifically, in Conway & Ors v Air Arabia PJSC, the Grant Court of the Cayman Islands has found that the single act of a creditor filing a proof of debt in the liquidation of a Cayman company was tantamount to submitting to the jurisdiction of the Cayman Court for purposes of defending against a fraudulent trading claim the liquidator subsequently asserted against it.[2] The Court also found that when a creditor files a claim in the liquidation proceeding, the Cayman company’s liquidator does not need leave of the Cayman Court to serve the underlying writ on that creditor outside the Cayman Islands.[3]
Conway arises out of the Abraaj liquidation, begun in 2018. In 2018 and 2019, five years before the liquidators’ fraudulent trading claim was commenced, the defendant creditor filed two proofs of debt together worth about $190 million.[4] The liquidator’s underlying cause of action concerns loans worth $1 billion made by that creditor to Abraaj Holdings in 2013 – 2018, which were allegedly used to prop up that company while it suffered a chronic shortage of cash, and allegedly made in such a way as to allow Abraaj management to “window dress” the accounts (for example by lending to off-balance sheet entities while recording loan proceeds) and conceal the cash shortage from investors and creditors.
The liquidator’s proposed claim alleges that the creditor in its capacity as lender was a knowing participant in the fraudulent carrying on of the business,[5] and that a direct consequence of the loans was to perpetuate the fraud on creditors and to artificially delay the inevitable collapse of that company.[6]
The creditor’s presently recorded position in respect of the claim is that the creditor is wholly unconnected to Abraaj, that it is not an insider or a close associate, but is rather a well-known and reputable, listed, international company. The creditor protests that that it simply happened to have a trading relationship with Abraaj, which commenced long before that company was insolvent, and at a time when Abraaj itself had a good reputation and a huge business footprint.[7]
Having filed proofs of debt, however, Conway removes the creditor’s opportunity to use the Cayman “service out” process (and all the hurdles it requires the plaintiff to clear before leave is given) to stop the litigation before it even gets going. This can be compelling; as recently as 2024 a defendant used this process to extinguish the prospect of a finding in Cayman against it in relation to a $5 billion claim for mis-rated financial products.[8] In that case the defendant won without any proper examination of the merits, without any discovery, without any private documents being tendered at trial and for the fraction of the cost that a “win” otherwise would probably have entailed.
In the substantive claims to which the Conway decision refers, the liquidator asserts fraudulent trading claims, which liquidators can use to seek contribution from any person that was knowingly party to the carrying on of the business with an intent to defraud creditors. The judgment further concludes that claims for voidable preferences (insolvent transactions by a company which prefer one creditor over others) and dispositions undervalue (certain insolvent transactions by a company made undervalue) will attract the same analysis.[9]
Whenever a company cannot pay its debts and is subsequently wound up, the payments it made pre-liquidation may be voidable preferences or dispositions undervalue in the right circumstances. So, any creditor that company pays could be a target for a voidable preference or disposition undervalue claim, and, following Conway, every foreign creditor who files a proof of debt in the liquidation has a diminished ability to argue that the liquidator should not get leave to serve that claim on it overseas.
Putting aside the risk of automatic submission to jurisdiction presented by filing a proof of debt, the consequential point about leave to “serve out” is significant. The requirement to obtain leave can present a relatively large legal hurdle for any Cayman liquidator to overcome before foreign (i.e. non-Cayman) defendants can be pursued. The process is costly, time consuming and uncertain. Hearings can last a week, “mini trials” are not uncommon, and yet a “win” for the plaintiff does not bring with it any entitlement to or prospect of recovery. The process also entails a final and binary outcome about which litigation funders may be wary. In short, the challenges associated with this part of the Cayman process may hamper the investigation or launching of legal claims. The potential to streamline the “serve out” process will therefore inure to the benefit of the liquidators.
It is important to note that in Conway, the Cayman Court has gone beyond procedural issues to find that substantively, the fraudulent trading claim the liquidator sought to pursue has extraterritorial effect. That suggests leave to serve out was not required in any case.
But such a conclusion carries policy considerations in common-law jurisdictions. No doubt, these issues will be contested the next time the Court hears a similar case in which the creditor-defendant has not already otherwise submitted to the jurisdiction by filing a proof of debt.[10]
Following Conway, creditors should carefully consider the implications of filing a claim before deciding to participate in any Cayman liquidation.
The case is Conway & Ors v Air Arabia PJSC [2025] CIGC (FSD) 41.
Quinn Emanuel does not advise on the laws of the Cayman Islands, but navigates foreign law issues every day on complex, cross-border disputes and restructuring projects.
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Footnotes
[1] FSD 2024-0183 (JAJ), Conway & Ors v Air Arabia PJSC [2025] CIGC (FSD) 41, Justice Jalil Asif KC, 20 May 2025.
[2] At [66], [150.3].
[3] At [150.11].
[4] At [8], [11].
[5] At [17].
[6] At [18].
[7] At [21].
[8] FSD 37 of 2023 (IKJ) Royal Park Investments v S&P Global et al (Unreported, 3 June 2024).
[9] At [83], [134.4].
[10] For example, by reference to the “factors preventing injustice” present in England but not in the Cayman Islands, recorded at [86]. The Court’s conclusion that the requirement for the liquidator to seek Court sanction to exercise the relevant power fills that role [87] will likely be tested, including because the proposed defendant has no standing to participate in that process.