Originally posted on Corporate Live Wire
Written by Mark Longbottom

The COVID-19 pandemic has resulted in a reduced demand for products and services, disruption in the supply of inputs and a tightening in the provision of credit. This, in turn, has significantly impacted the bankruptcy, restructuring and insolvency industry and this has been and continues to be significant and profound. The measures taken by different governments to tackle the impact of COVID-19 has varied, but generally, the measures sought to restrict the severity of the impact of a global lockdown on both individuals and corporations alike.

A paper released by the World Bank1 outlines three phases that remain key challenges to be addressed by policymakers. All of these phases sought to stave off formal insolvency as long as possible, and further looked to implement fewer formal solutions within feasible reach. This was a necessary and timely paper that arguably helped shape policymakers’ responses to COVID-19.

With a focus on offshore jurisdictions, in which KRyS Global operates, this article assesses the impact of COVID-19 and considers the steps undertaken by the associated governments and policymakers to tackle the issue in the Cayman Islands, the British Virgin Islands (“BVI”) and Bermuda.

With the prevalence of hurricanes in the Caribbean and their usual desire to lead down Hurricane Alley (an alley that stretches from the west coast of Northern Africa to the east coast of Central America, as well as the Gulf Coast in Southern United States), the courts in the jurisdictions mentioned above have, through necessity, needed to address remote working long before COVID-19 was around. Similarly, insolvency practitioners and their staff are well accustomed to remote working as a necessity brought about through the inclement weather associated with hurricanes.

In this regard, we have also seen the courts’ ability to embrace video depositions in high-profile matters, with none more so than in Ahmad Hamad Algosaibi and Brothers Company (“AHAB”) v Saad Investments Company Ltd (in Official Liquidation) (“SICL”) and Others 2018 (3) CILR 1, where numerous depositions were taken via video link.

Prior to the COVID-19 outbreak, there was some reluctance by the court to accept digitally signed documents – instead insisting on wet ink signatures. However, the situation the world found itself in as a consequence of the pandemic saw the courts act proactively and dynamically to ensure that the access to legal remedies, and the courts generally remained unfettered. This nimble and unprecedented reaction to the pandemic by the courts in the three jurisdictions allowed restructurings and insolvencies to continue uninterrupted in times when there would be increased court-based solutions being sought out.

In addition, the upside of remote working has meant that the offshore IPs and their attorneys have been granted the ability to join onshore proceedings remotely, thus, giving them the ability to witness the proceedings without having to attend in person. In turn, this transition allowed the nuances of the interaction between judges and attorneys to be witnessed first-hand, albeit remotely.

Turning to address nuances in each of the jurisdictions, I have teased out some specifics.

Cayman Islands
The onset of COVID-19 brought with it market volatility as the government searched for means to ensure the spending power of the population was not eroded in times of uncertainty. The start of 2019 through 2020 saw the burgeoning of special purpose acquisition companies, effectuated by the
tumultuous market conditions brought about by COVID-19, subsequently leading to an increase in fund financing more generally.

With the increase in financing came an increase in restructurings. The main forms of restructuring in the Cayman Islands tend to be through either light-touch provisional liquidations or schemes of arrangements, both of which have necessary involvement in the Grand Court of the Cayman Islands (“Grand Court”), resulting in the responsiveness of the Grand Court regarding remote access was immediately felt.

The impact of COVID-19 in the Cayman Islands vis-à-vis restructurings and insolvency has been increasingly observed and continues to expand as the full impact of COVID-19 is felt.

British Virgin Islands
While tourism is significant to the BVI, both politically and economically, its financial services associated with the territory’s status as an offshore financial centre are by far its most important aspect.

In the BVI, there are a variety of solutions available to companies looking to restructure in the form of schemes of arrangements, light touch provisional
liquidation, and creditor arrangements –particularly with matters that have a nexus to China.

The registrar of the Supreme Court has indicated that the courts have benefitted from the integration of technology following the introduction of relevant legislation after Hurricane Irma caused widespread destruction in 2017. Additionally, the courts have been conducting global hearings while remaining responsive to the needs in the BVI, Eastern Caribbean, and around the world.

The impact of COVID-19 in the BVI towards restructurings and insolvency has also been increasingly observed and continues to expand as the full impact of COVID-19 is felt.

As a direct consequence of COVID-19, the courts in Bermuda have been relatively active in dealing with an increase in creditor-driven petitions as creditors continue to seek more immediate relief. The more prolonged restructuring processes have seemingly taken a back seat for the most part.

As with the other jurisdictions noted above, there is also a light-touch provisional liquidation process available which has been widely used throughout COVID-19 – and will continue to be used as company-driven restructurings remain constant.

The courts of Bermuda have also seen an increase in large restructuring matters and, in particular, light-touch provisional liquidations. Without the court’s acceptance of remote access, these restructurings would have been difficult.

The impact of COVID-19 in Bermuda vis-à-vis restructurings and insolvency is increasingly observed in the more aggressive stance of creditors seeking formal liquidations and company driven restructurings.

In summary, there has been an understandable impact of COVID-19 on the global stage, resulting in courts having to be more flexible and dynamic in their approaches to dealing with the administration of a restructuring or insolvency. Insolvency practitioners, their firms and their attorneys have likewise had to be responsive to the issues associated with the pandemic, including remote working and staffing, both of which, without the necessary systems in place, would have been problematic. Yet, as noted above, given the Caribbean’s hurricane preparedness and response tools, the impact was felt less than perhaps other countries. That said, the full impacts of COVID-19 are still being felt globally and will continue to be felt as the global economies right themselves once more.

It is notable though, as a closing thought, that three years since the COVID-19 outbreak, the courts in the Caribbean now find themselves at the cutting edge of court procedures worldwide as a consequence of their acceptance and continued ability to deal with digital access, particularly in these interesting times.

1. World Bank Group. Equitable Growth, Finance, and Institutions: COVID-19 Notes, Finance Series. (13 April 2020). COVID-19 Outbreak: Implications on Corporate and Individual Insolvency.