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Chambers Global Practice Guide 2020: Private Equity – Cayman Islands: Law and Practice

Partner Rolf Lindsay has authored the Chambers 2020 Global Practice Guide: Private Equity - Cayman Islands: Law and Practice.

The publication provides guidance on the current Private Equity market, including trends, a panoramic view of the impact of the current legal and regulatory environment and more. 

"The use of Cayman Islands-incorporated entities in M&A structures by private equity fund sponsors is now well established. That is particularly so for fund sponsors based in North America and Asia, where Cayman is the default jurisdiction for international transaction structuring. There has also been encouraging growth in this area from European fund sponsors where there is an international element to the investor base or the underlying asset class: financial services, medical technology, property, mining and energy/infrastructure are noteworthy sectors..."

Click to view guide

Published with permission from Chambers and Partners (October 2020)

Chambers Global Practice Guide 2020: Banking & Finance – Bermuda: Law and Practice

Partners Adam Bathgate and Nathalie West have authored the Chambers 2020 Global Practice Guide: Banking & Finance - Bermuda: Law and Practice.

The publication provides guidance on the current Banking and Finance market, including a panoramic view of the impact of the current regulatory environment and economic cycles, the impact of the COVID-19 pandemic, project finance, bankruptcy and insolvency, tax, assets and forms of security, and more. 

Click to view guide

Published with permission from Chambers and Partners (October 2020)

A Cayman Islands Hedge Fund Review | Part 5: Relations with CIMA and Investors

A review of Cayman Islands hedge fund corporate governance and best practice, including in times of distress

It may be business as usual for hedge funds as they seek to weather the market storm caused by Covid-19. However, the true economic effects are perhaps yet to be seen.

This five-part series considers some of the guiding principles that apply to corporate governance in a Cayman Islands hedge fund context and some of the best practices that boards of directors should be implementing as a matter of course, which may need to be re-visited and adapted in times of distress.

To access part 1, part 2, part 3 or part 4 please click hereherehere and/or here.

Part 5: Relations with CIMA and Investors

It is important to recall that the directors of Cayman Islands hedge funds must conduct a fund's affairs in a transparent and honest manner, always disclosing to the Cayman Islands Monetary Authority ("CIMA") any matter which could materially and adversely affect the financial soundness of the fund and any breach of law and regulation. For example, CIMA would expect to be notified in the event the board of directors resolved to suspend NAV calculations and/or redemptions.

The fund may also be subject to filing and/or notification requirements in the Cayman Islands and other jurisdictions, depending on the resolutions of the board of directors vis-à-vis the continued operations of the fund.

Communication with investors is also key, particularly in a time of distress. Of course, depending on the facts, disclosure may be required as matter of law, rule or regulation, and/or in accordance with the terms of investment of the fund. However, if a fund does need to be restructured, it may be that the consent of all or some of the investors (e.g. two-thirds by NAV) is required to implement the proposed course of action. Accordingly, broader commercial considerations are also relevant to the timing, nature and extent of disclosure to investors. Similar considerations also apply as regards communications (if any) with creditors of the fund.

It is therefore imperative that the board of directors works closely with legal counsel to ensure that these important matters are navigated and addressed, and in a legally compliant and commercially sensitive manner.

Conclusions

There is no 'one size fits all' solution as to how boards of directors should regulate their business and conduct their meetings. However, directors must always pay regard to the principles set out in CIMA's Statement of Guidance for Regulated Mutual Funds – Corporate Governance and, of course, act at all times in accordance with their duties as directors, including fiduciary duties.

Ultimately, fund governance must be appropriate and suitable to enable effective oversight, direction and management of a fund, including oversight of risk. How these principles translate as a matter of practice will be a question for the board of directors, in consultation with the fund's professional advisors, including legal counsel, having regard to factors such as assets under management, number of investors, the complexity of the structure, the nature of the investment strategy and the nature of the operations.

It is imperative to establish best practices in a 'business as usual' environment, and for the board of directors to continue such practices (proactively adapted as necessary) during all phases of a fund's life, including in times of distress. There is no substitute for active engagement by the board of directors.

Furthermore, it is important that the board of directors should not just be, but should be capable of being seen to be, discharging their duties as directors by accurately recording in minutes or written resolutions the matters considered and decisions made, and the information requested from, and provided by, service providers and advisors.

In the event of any doubt, or if issues arise or the circumstances dictate, specific legal advice should be taken by the board of directors.



About Walkers Professional Services
Walkers Professional Services is the leading provider of corporate, company secretarial, regulatory, compliance and fiduciary services to corporate and institutional clients across global financial centres.

Our Company Secretarial and Corporate Governance Services group has extensive experience in their respective fields and offers tailored services to help clients meet ever-changing legal and regulatory demands. Services include: Meeting Support Services, Shareholder Support Services, Global Company Secretarial Services, Action Point Maintenance, Economic Substance Solutions and Custom Data Room Solutions.


The Cayman Islands – A Jurisdiction of Choice for Ultra-Wealthy Chinese Families

The Cayman Islands has long been known and trusted by Chinese nationals as a jurisdiction to establish corporate and fund vehicles for outbound business investments from China or Hong Kong. In recent years, though, the Chinese have also turned to Cayman for wealth structuring and family succession planning, and Cayman Islands trusts, foundations and companies are often part of ultra-high-net-worth (UHNW) families’ personal planning.

Many Chinese families do not only operate within national borders and boundaries. Whether it is family members moving to the US, Canada, Dubai or Europe, they are often not geographically tied to their region of origin and need to ensure that all aspects of their wealth planning take their families’ increased global footprint into account. International families are looking at the broad spectrum of possibilities for wealth planning and structuring, and the Cayman Islands are increasingly becoming a jurisdiction of choice.

Monique Bhullar, a partner with Walkers law firm, which has offices in Cayman and Hong Kong explains: “As a law firm, we have seen a significant increase in the number of ultra-high-net-worth individuals and family offices either relocating or preparing a contingency plan for relocating to Cayman. This is without actively seeking this type of work, so is clearly illustrative of a global trend.

“An uptick in high-net-worth migration from a region is often a signal of negative economic, political or societal factors influencing a region. Where clients are considering contingency planning based on such factors, they are often looking further afield to jurisdictions physically distant from their home jurisdiction or region, and often also economically or politically different, in order to mitigate risk. This applies to immigration planning as well as asset protection and estate planning and makes Cayman an attractive option for residents of Mainland China and Hong Kong.”

Contingency or ‘Plan B’ residency is something that is being considered by many wealthy, global Chinese families who are concerned about political, economic or other societal issues their home country. The recent protests in Hong Kong and the outbreak of COVID-19 have brought these issues into sharp focus.

Bhullar adds: “Where we have assisted ultra-high-net-worth individuals from China and the surrounding region to relocate to Cayman, the driving factors in those clients selecting Cayman have been (i) infrastructure – the quality and diversity of service providers in Cayman are second to none and the level of connectivity is that of any larger country, (ii) safety – Cayman is considered one of the safest countries in the region, which is a paramount issue for UHNW clients, (iii) rule of law – Cayman has a reliable and well-tested legal and judicial system, (iv) anonymity – UHNW individuals are able to maintain an unusually high degree of anonymity in Cayman, compared to other countries, and (iv) lifestyle – Cayman offers luxury real estate and facilities for other significant assets which UHNW clients are likely to be accustomed to and require in their new or contingency jurisdiction.”

Click to read article

Article written by Emma Parker and first published by Dart Real Estate.

A Cayman Islands Hedge Fund Review | Part 4: Distressed Situations

A review of Cayman Islands hedge fund corporate governance and best practice, including in times of distress

It may be business as usual for hedge funds as they seek to weather the market storm caused by Covid-19. However, the true economic effects are perhaps yet to be seen.

This five-part series considers some of the guiding principles that apply to corporate governance in a Cayman Islands hedge fund context and some of the best practices that boards of directors should be implementing as a matter of course, which may need to be re-visited and adapted in times of distress.

To access part 1, part 2 or part 3 please click herehere and/or here.

Part 4: Distressed Situations

If a fund becomes distressed and liquidity issues arise, an emergency meeting of the board of directors will almost certainly be required. While the constitutional documents of most modern funds permit ad hoc meetings at short notice and by telephone/video conference, the constitutional documents will still need to be checked to ensure any stipulated requirements relating to the holding of board meetings, e.g. the requirement for prior notice (including the ability to waive notice and any other formalities), are satisfied.

In addition, depending on the circumstances, the location of the directors may make attendance difficult (in light of current restrictions/limitations on travels), e.g. in the event the location of a director has adverse consequences on the fund from a non-Cayman legal/tax perspective. It will be important to engage relevant local (tax) counsel on this issue.

Assuming the board of directors is able to validly meet, at the outset of the meeting it will be essential for the board of directors to:

  1. manage conflicts of interest. For example, if a real (or ostensible) conflict arises, a director may wish to recuse themselves from relevant discussions and/or resolutions, or even step-down as a director to ensure the integrity of the board is not, in any way, compromised. In particular, if the investment manager is represented on the board of directors (which is typical), then conflicts as regards "their" director may quickly become apparent, e.g. in the context of discussions around NAV calculation/hard-to-value assets and fee terms. The directors have, amongst others, a duty to avoid conflicts of interest and a duty to act in what the director bona fide considers to be in the best interests of the fund. It is therefore imperative that any conflicts of interest are suitably identified, disclosed, monitored and managed. Any conflicts of interest should be noted in the board minutes (or documented in written resolutions);
  2. establish if the fund is insolvent or 'in the zone of insolvency', i.e. is the fund able to pay its debts as they fall due (including any crystallised redemption payments). This analysis will also include any debts which are prospective in nature[1]. This is because, where the fund is insolvent, the directors must have regard to the interests of the fund's creditors when discharging their duties to the fund, rather than (in a solvent situation) having regard to the interests of the fund. The fund's financial position needs to be verified by the board of directors undertaking a full assessment of the fund's financial position and consistently with the valuation of assets principles discussed above. Such cash flow assessment should be undertaken regularly by the fund to allow the board of directors to make appropriate decisions; and
  3. consider whether they have sufficient and relevant knowledge and experience to carry out their duties as directors in a distressed situation. It might be the case that the appointment of additional or replacement directors who specialise in distressed situations is appropriate.


Once these basic, but essential, issues have been addressed, the board of directors may then seek to manage liquidity in consultation with the investment manager. In doing so, it is strongly recommended that the board of directors consults with its legal counsel (and, in particular, insolvency and dispute resolution teams), as, amongst other matters, there can be significant personal implications on the directors. In particular, the law in this area often evolves quickly and there are restructuring tools available to funds in the Cayman Islands that can facilitate a restructuring of the fund whilst providing a 'safe harbour' for the directors and a stay on claims against the fund. However, it may be the case that certain discussions between the board of directors and legal counsel take place independently; that is, away from the investment manager, in light of the potential conflicts of interest that may arise in a distressed situation.

As ever, detailed minutes of all meetings, including the matters considered and decisions made, and the information requested from, and provided by, service providers and advisors, should then be prepared for the review and sign-off by the directors. Where permitted, a meeting accompanied by detailed written resolutions may be preferable. It is always possible that the resolutions of the board of directors could be scrutinised at a later date, and accurate record-keeping may assist the directors in demonstrating that they discharged their duties as directors.

About Walkers Professional Services
Walkers Professional Services is the leading provider of corporate, company secretarial, regulatory, compliance and fiduciary services to corporate and institutional clients across global financial centres.

Our Company Secretarial and Corporate Governance Services group has extensive experience in their respective fields and offers tailored services to help clients meet ever-changing legal and regulatory demands. Services include: Meeting Support Services, Shareholder Support Services, Global Company Secretarial Services, Action Point Maintenance, Economic Substance Solutions and Custom Data Room Solutions.


Part 5 - the final part - will consider relations with the Cayman Islands Monetary Authority and investors.



[1] There is no prescribed period within which directors need to assess prospective debts, but it is noteworthy that in order to give a declaration of solvency in relation to a company, directors are required to consider the company's ability to meet its debts in the coming 12 month period.

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