Silicon Valley Bank customers who saw their Cayman Islands deposits wiped down to zero have won a court ruling that could help them get their money back.
A Cayman Islands court on Thursday approved a petition to wind up the local branch of SVB, according to Paul Kennedy, a partner at law firm Campbells, who filed the petition and attended the hearing.
The petition was filed June 13 on behalf of SVB customers who collectively had around $38 million in deposits before the bank collapsed in March.
That money was seized by the Federal Deposit Insurance Corp., which guaranteed the bank’s deposits held inside the U.S. but not those outside the country. SVB’s customers in the Cayman Islands checked their deposit balances one morning and saw they had been wiped down to zero.
These customers are still expected to pay back loans they had taken from SVB, since they are now owned by First Citizens BancShares, a large U.S. regional bank that bought SVB’s loans in late March. The money they had earmarked to repay the debt is in the Cayman bank accounts, the customers said.
SVB’s Cayman Islands depositors think the ruling will increase their chances of getting their money back from the FDIC. In the petition, they argued that it was “just and equitable” for SVB’s local branch to be wound up due to its inability to pay debt. Many of these customers were venture-capital funds in Hong Kong and mainland China.
The Cayman Islands court also approved the appointment of two liquidators, who will begin investigating ways to challenge the FDIC’s classification of the Cayman depositors as unsecured creditors, according to people familiar with the matter.
“We see this as a very positive outcome for the Cayman depositors who up to now were not represented by an officeholder that could take steps on their behalf,” said Kennedy.
The Cayman Islands Monetary Authority, the islands’ main financial regulator, is also considering its legal options, The Wall Street Journal previously reported. André Ebanks, the Caymans’ minister of financial services and commerce, met depositors in Hong Kong in May, people attending the meeting said.
The Cayman Islands doesn’t have an equivalent to U.S. federal deposit insurance, which officially covers up to $250,000 per bank account.
SVB had branches in Germany and Canada that made loans but didn’t take deposits. It also had a subsidiary in the U.K., which was taken over by HSBC and had the equivalent of about $8.5 billion in deposits on March 10 of this year.