In two recent winding-up petitions issued against investment funds on the just and equitable basis, the Financial Services Division of the Grand Court of the Cayman Islands has revisited the controversial question of the appropriate test for winding up a company on the grounds of loss of substratum (i.e., loss of the purpose for purpose for its existence). Considered in the context of earlier Cayman authorities on the test for loss of substratum, the law is now in a considerable state of confusion and is therefore ripe for clarification by the Cayman Islands Court of Appeal – particularly because of its significance for Cayman’s financial services industry. In this guest article, the first in a two-part series, Tony Heaver-Wren and Sebastian Said, partner and counsel, respectively, at Appleby (Cayman), describe the history of the Cayman Islands loss of substratum and the competing current approaches – the “impossibility test” and the “non-viability test” – being used by the courts. The second article will analyze how the impossibility test can be properly applied in the context of a fund proposing a soft wind-down, and how the potentially valid policy factors identified by courts concerning its usage can appropriately be addressed. For additional insight from Appleby (Cayman) attorneys, see “Changes to Redeeming Investor Distribution Priority and Other Ramifications of the Primeo Appellate Decision for Cayman Islands Hedge Funds” (Sep. 15, 2016); “How Can Service Providers to Cayman Islands Hedge Funds Enforce Rights to Contracts to Which They Are Not Parties?” (Jun. 19, 2014); and the two-part series entitled “How Can Investors in Cayman Hedge Funds Maximize Protection of Their Investments When the Fund Is Near or at the End of Its Life?”: Part One (Dec. 5, 2013); and Part Two (Dec. 12, 2013).