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Thanks for your patience and enquiry. If your dog is insured this usually also includes legal expense coverage. As such, your insurers should be able to provide legal expense coverage in the event of being sued. I recommend speaking to your insurers now about the incident. Some policies have a clause which voids the policy if you do not report an incident within a certain timeframe from it happening.
Based on what you have said, there is no legal liability on your part. If the cat entered your yard which was secured. There would have been no onus on you in these circumstances to keep the animal safe. I therefore do not see you being legally responsible.
In terms of what to do, there is really no positive steps to take on your part. You may encourage your neighbours to discuss this amicably through mediation. However, it is ultimately a matter for them whether to bring a claim or not. If they opt to do so, then it would be for you to defend the claim denying liability.
It is a civil rather than a criminal matter.
Can I clarify anything for you? I hope I have answered your query in a way that is simple and easy to understand. If anything remains unclear, I will be more than happy to clarify it for you. In the meantime, thank you once again for using our services.
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You are welcome