Audrey Roe, Cayman Islands Monetary Authority
Claire Loebell, EY
Rupert Bell, Walkers Global
Sam Dawson, Carey Olsen
Q3 2016 – Quarterly Technical Session
29 September 2016
Recovery & Insolvency Specialists Association
Agenda Recent/Past Events
Q1 2016 Quarterly Technical Session 10 March 2016
“Derivatives For Dummies”
Mike Gasior
Q2 2016 12 May 2016
RISA/Chancery Bar association seminar
“Cayman Insolvency Clawback Claims”
Hugh Dickson, Stephen Atherton QC,
Peter McMaster QC, Matthew Morrison
Agenda (continued)Forthcoming Events
Local Events
Cayman Investment Forum (via the CFA Society) 13 October 2016 (Ritz Carlton)
Q4 Quarterly Technical Session BREXIT panel discussion
1 November 2016 (Cinema)
RISA/South Square conference 22 November 2016 (Ritz Carlton)
Christmas Luncheon 15 December 2016 (GTYC)
Agenda (continued)
Forthcoming Events (continued)
International Events
INSOL one day course BVI
17 November 2016
INSOL 2017 Congress
19 to 22 March 2017, Sydney
Agenda (continued)Today's presentation
Practical Considerations of Controllership Appointments
Sam Dawson, Carey Olsen
Claire Loebell, EY
Rupert Bell, Walkers
Audrey Roe, CIMA
Followed by networking at Abacus
Statutory Powers of Appointment Mutual Funds Law – s 30(1)(e) (mutual funds) and s 31(1)(e) (fund administrators)
“the Authority may ……appoint a person to assume control of the affairs of the [mutual fund] or [administrator relating to mutual fund administration].
Banks and Trust Companies Law – s 18(1)(v)
“the Authority may forthwith do any of the following-…at the expense of the licensee, appoint a person to assume control of the licensee’s affairs who shall, mutatis mutandi, have all the powers of a person appointed as a receiver or manager of a businessappointed under section 18 of the Bankruptcy Law (1997Revision);”
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Statutory Powers of Appointment Securities Investment Business Law – s 17(2)(f)(viii)
“the Authority may…at the expense of the licensee, appoint a person who shall be known as the Authority’s appointed controller, to assume control of the licensee’s affairs who shall, subject to necessary modifications, have all the powers of a person appointed as a receiver or manager of a business appointed under section 18 of the Bankruptcy Law (1997 Revision);”
The Insurance Law – s 24(2)(h)
“the Authority may…at the expense of the licensee, appoint a receiver or person to assume controlof the licensee’s affairs who shall have all the powers necessary to administerthe affairs of the licensee including power to terminate the insurancebusiness of the licensee;”
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Enforcement – What Powers? CIMA’s powers are broadly similar under all four statutes
CIMA can (in general terms):
suspend/revoke licence;
impose new/further conditions on licence;
require substitution/removal of any controlling officer, director, etc;
appoint a person to advise on proper conduct of affairs; or
appoint a person to assume control (a “controller”)
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Controllership Statistics
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Enforcement Manual
• Forms part of the Authority’s Regulatory Handbook
• Details the Authority’s approach in exercising its enforcement powers
• Ladder of Compliance
• Warning and Decision Notices
• No Notice Procedure
The Enforcement Process
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The Authority may exercise actions without the notice procedure
Examples include when it is in the public interest to do so, and where it is necessary to use the Authority’s statutory powers immediately
Situations are likely to include one or more of the following characteristics:
Information indicating a significant loss, risk of loss, or other adverse effects for stakeholders;
Information indicating that a regulated entity’s conduct has put it at risk of being used for purposes of financial crime, or of being involved in such crime;
Evidence that the regulated entity has submitted inaccurate or misleading information to the Authority causing serious concerns regarding the regulated entity’s ability to meet its regulatory obligations;
Circumstances suggesting a serious problem within the licensee or its management that call into question the licensee’s ability to continue to meet its regulatory requirements.
Appointment of Controllers is an action taken without the notice procedure
Appointment of a Controller
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Appointment of a Controller
• This enforcement action applies to all Licensees1
• The appointment of a person to assume control of the affairs of a regulated entity is used by the Authority to fulfil its regulatory objectives, protect stakeholders and reduce financial crime by, amongst other things, enabling it to:
• Stop regulated entities and unauthorised persons carrying on insolvent or unlawful business, and
• Protect the assets of the company.
• A Controller is appointed at the expense of the Licensee
1. Also applies to regulated mutual funds as defined in the Mutual Funds Law. 16
Factors considered before appointing a Controller
• Severity of the breach of the regulations and the steps required to correct the breach
• The extent of any loss, risk of loss or other adverse effect on stakeholders
• The extent to which the stakeholder’s assets appear to be at risk
• The financial resources of the regulated entity
• Management’s present and historical attitude to resolving regulatory
problems
• The availability and effectiveness of alternative solutions
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When determining which person or persons to appoint as Controller
• Potential conflicts of interest
• Expertise in the respective industry
• Presence in any foreign jurisdictions where the licensee operates
• Available resources to perform the Controller function
Documents requested from potential appointees
• Conflicts of interest checks
• Willingness to act letter
• Proposed charge-out rates
Factors considered before appointing a Controller
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Role of Insolvency Practitioners
Appointment of Controller and the Terms and Conditions documents
• Assume control of, collect and get all property or assets of the entity
• Safeguard interests of stakeholders
• Take possession of the books and records of the entity
• Assess whether any applications should be made to the Grand Court of the Cayman Islands
• Reporting requirements to the Authority
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Appointment Conflict check Personal appointments Certificate of appointment – requirements of the Controller
Court applications Timing of reports Application under Section 18 of Bankruptcy Law
Notices Appointment Letter
Control assets and safeguard interests Asset and liability inventory Books and Records Controllers recommendations to CIMA Appoint agent (with CIMA approval) Discussions/negotiations Legal/supervisory nature issues
Advertisements
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Extent of Control and Powers Which law has the controller been appointed under?
Banks and Trust Companies Law
Securities Investments Business Law
Insurance Law
Mutual Funds Law
Inconsistency of drafting across legislation
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Extent of Control and Powers (cont’d) What is consistent?
appointment of person to assume control (note SIBL – “Authority’s … controller”)
at the expense of the licensee
What is inconsistent? use of “forthwith” (BTCL)
powers of a person appointed as a receiver or manager under section 18 of the Bankruptcy Law (SIBL and BTCL) vs. powers necessary to administer the licensee (MFL and IL)
recovery of expenses incurred by the Authority from the licensee (MFL)
“to the exclusion of any operator” (MFL – mutual fund)
“to the exclusion of any other person (other than a liquidator or receiver)” (MFL – mutual fund administrator)
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Extent of Control and Powers (cont’d) Mutual Funds Law – s 30(1)(e) (mutual funds) and s 31(1)(e) (fund administrators)
“the Authority may … … appoint a person to assume control of the affairs of the mutual fund.”
Mutual Funds Law – s 30(6) (mutual funds) and s 31(5)(fund administrators)
“the [controller] is appointed at the expense of the relevant [mutual fund/administrator], and any expenses incurred by the Authority … [are] payable by the [mutual fund/administrator]
Banks and Trust Companies Law – s 18(1)(v)
“the Authority may forthwith do any of the following …at the expense of the licensee, appoint a person to assume control of the licensee’s affairs who shall, mutatis mutandi, have all the powers of a person appointed as a receiver or manager of a business appointed undersection 18 of the Bankruptcy Law (1997 Revision);”
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Extent of Control and Powers (cont’d) Securities Investment Business Law – s 17(2)(f)(viii)
“the Authority may…at the expense of the licensee, appoint a person who shall be known as the Authority’s appointed controller, to assume control of the licensee’s affairs who shall, subject to necessary modifications, have all the powers of a person appointed as a receiver or manager of a business appointed under section 18 of the Bankruptcy Law (1997 Revision);”
The Insurance Law – s 24(2)(h)
“the Authority may…at the expense of the licensee, appoint a receiver or person to assume control of the licensee’s affairs who shall have all the powers necessary toadminister the affairs of the licensee including power to terminate theinsurance business of the licensee;”
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Extent of Control and Powers (cont’d) Mutual Funds Law
s 30(7) (mutual fund)
A person appointed under subsection (3)(e) has all the powers necessary, to the exclusion of any operator, to administer the affairs of the mutual fund in the best interests of the investors and creditors of the mutual fund.
s 31(6) (mutual fund administrator)
A person appointed under subsection (3)(e) has all the powers necessary, to the exclusion of any other person (other than a liquidator or receiver),to administer the affairs of the administrator relating to mutual fund administrator in the best interest of investors in the funds administered by the administrator and its creditors and creditors of any such funds.
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Extent of Control and Powers (cont’d) Does a controller take immediate control of licensee to the exclusion
of others? Yes – BTCL
Likely – SIBL, IL – note absence of “forthwith”
MFL – express recognition “to the exclusion of any operator” but note definition of “operator” but note the position with respect to mutual fund administrator which excludes “liquidator or receiver”
Where are powers derived from and requirement for confirmation of powers? Guidance from the Authority
Court due to section 18 of the Bankruptcy Law (SIBL andBTCL)
Direct from legislation (MFL and IL)
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Extent of Control and Powers (cont’d) Timing of when controller can exercise powers
as against licensee
as against third parties
SIBL/BTCL - delay in being able to exercise powers as against third parties until powers confirmed?
MFL/IL
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Initial investigations Books and records
Details off key stakeholders
Discussions with Manager, Directors, stakeholders, CIMA, service providers etc.
Information held by CIMA
Cooperation issues Overseas regulators
Records held overseas
Recognition
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Control of Assets Identification
No Moratorium
Location
Recognition?
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Fees To be drawn from the estate of Company
Approved by CIMA
Format of fee approval request
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Exit from controllership Options
Timing of exit
Recommendation in report
CIMA may apply to court to apply for the company to be wound up
Purpose of a winding up is to facilitate an orderly realization and distribution of the company assets
Moratorium
Adjudication of creditor claims
Recognition
Litigation
Alternative to liquidation
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Regulatory and Enforcement Notices
Regulatory and Enforcement Notices posted on the Enforcement page of the Authority’s Website (www.cimoney.com.ky)
Includes:
• Decision Notices
• Warning Notices issued pursuant to the Lost Contact Procedure
• Notice of Termination of Struck or Dissolved Entities
• Public notices of enforcement actions
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These are located under the Enforcement tab on the Authority’s Website
Publication of Enforcement Notices
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Networking – Abacus