Click the following link to read the full article: Cayman Islands Chapter – Enforcement of Judgment 2024

This article was first published on www.chambersandpartners.com. 

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In respect of existing ordinary trusts, it is possible for the trustees of the trust (amongst others) to apply to the Grand Court of the Cayman Islands to disapply the rule against perpetuities, the effect of which will be that such trusts can last indefinitely.

Contact

For further information please contact your usual Campbells contact or reach out to any of the key contacts listed below.

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Zhong Ou International Diversified Fund SPC is a mutual fund registered with the Cayman Islands Monetary Authority and managed by Zhong Ou Asset Management International Limited (“ZOAM Intl”). ZOAM Intl is a wholly-owned overseas subsidiary to Zhong Ou Asset Management Co., Ltd., which is a prestigious asset manager in Mainland China, and acts as its global investment center to serve overseas investors. The investment coverage of ZOAM Intl includes, among others, fixed income investment (Chinese onshore bonds, Chinese issuer USD bonds, Asian bonds, ESG bonds) and equity investment in Chinese A-shares and the Hong Kong market.

Partner Robert Searle led the transaction with support from Ben Tao and Hans-Peter Alphart.

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 Following our advisory issued on 11 October 2023, the Beneficial Ownership Transparency Act, 2023 (the “Act”) and the Beneficial Ownership Transparency Regulations, 2024 (the “Regulations”) were brought into force on 31 July 2024 (the “Commencement Date”).  Associated Guidance on Complying with Beneficial Ownership Obligations in the Cayman Islands (the “Guidance”) was also published by the Cayman Registry (the Competent Authority for beneficial ownership in the Cayman Islands) (the Guidance, the Act and the Regulations, together the “New BOR Legislation”).

The Ministry of Financial Services for the Cayman Islands (the “Ministry”) has advised industry members to suspend filing beneficial ownership information for existing Cayman entities under the current framework until industry is notified to commence filing under the new beneficial ownership framework.  The Ministry has also advised that enforcement relating to the new requirements in the framework will be suspended until early next year, giving clients a few months to prepare for these changes.

Background

Our advisory published on 20 April 2017 sets out in detail the beneficial ownership regime in the Cayman Islands (the “BOR”) that applied before the Commencement Date.

Key Changes to the BOR

 The following substantial changes have now been made to the Cayman Islands BOR as a result of the New BOR Legislation:

In Scope Entities

Cayman Islands companies, limited liability companies, limited liability partnerships and foundation companies continue to be in scope for the purposes of the BOR.  For the first time, the New BOR Legislation has now brought into scope exempted limited partnerships (commonly used as closed-ended funds) and limited partnerships (together “Legal Persons”).  Trusts and registered foreign companies continue to fall out of scope of the BOR.

In addition, entities such as general partners, subsidiaries of regulated entities, entities registered under the Securities Investment Business Act or the Virtual Asset Service Providers Act that were previously exempt from the BOR will now need to identify their registrable beneficial owners (“RBOs”) and provide details of their RBOs to their corporate services provider (“CSP”), save for those entities permitted to utilise the Alternative Compliance Route (as defined below).

Registrable Beneficial Owners

A RBO in relation to a Legal Person means an individual Beneficial Owner or a Reportable Legal Entity (“RLE”).

Individual RBO

The Act defines a “Beneficial Owner” as an individual who meets any of the following specified conditions:

• the individual ultimately owns or controls, whether through direct or indirect ownership or control, twenty-five per cent or more of the shares, voting rights or partnership interests in the Legal Person;
• the individual otherwise exercises ultimate effective control over the management of the Legal Person; or
• the individual is identified as exercising control of the Legal Person through other means.

Where an individual operates solely in the capacity of a “Professional Advisor” (which includes a lawyer, accountant, professional advisor or a financial advisor who provides advice or direction in a professional capacity) or a “Professional Manager” (which includes a liquidator, receiver or restructuring officer who exercises a statutory function), such individual will not be considered to meet the definition of a Beneficial Owner under the Act.

The Act also considers the following persons as individuals:

• a corporation sole;
• a government or government department of a country or territory or a part of a country or territory;
• an international organisation whose members include two or more countries or territories (or their governments); and
• a public authority.

Trustees

Where no individual meets any of the definitions of a Beneficial Owner but the trustees of a trust meets one of the definitions of a Beneficial Owner, the trustees of the trust will be the Beneficial Owners of the Legal Person if they have ultimate effective control over the activities of the trust other than solely in the capacity of a Professional Advisor or a Professional Manager.

Senior Managing Official

If no individual meets the definition of a Beneficial Owner, the Act provides that a Legal Person’s “Senior Managing Official” (“SMO”) will be identified as the contact person.  A Senior Managing Official includes (for the first time under the BOR) a director or a chief executive officer of the Legal Person and the Guidance provides further clarity on who to identify as a SMO in this respect.

Reportable Legal Entity

A reportable legal entity or “RLE” in relation to a Legal Person means another Legal Person (other than a foreign company, foreign entity or a foreign limited partnership) that if it were an individual would be a beneficial owner of the first mentioned legal person.

It is not necessary for a Legal Person to report individual beneficial owners of a RLE since that entity will itself have its own reporting obligations under the New BOR Legislation.

Alternative Compliance Route

Any Legal Person:

• licensed under a regulatory law[1];
• listed on the Cayman Islands Stock Exchange or an approved stock exchange[2]; or
• that is a subsidiary of an entity listed on the CSX or an approved stock exchange,

may provide their CSP with details of their regulatory license or listed status rather than provide details of their RBO.  The Legal Person’s CSP will in turn provide this information to the Competent Authority and this process is the “Alternative Compliance Route”.

Investment Funds

Legal Persons which are registered as mutual or private funds (“Registered Funds”) with the Cayman Islands Monetary Authority (“CIMA”) may provide their CSP with details of a “contact person” rather than their RBOs.  The contact person will not be required to maintain a beneficial ownership register, but must provide the Competent Authority with the requested beneficial ownership information within twenty-four hours of a request being made, or at any other time as the Competent Authority may reasonably stipulate.  Campbells Corporate Services Limited proposes to act as the contact person for its Registered Fund clients and further particulars will be provided by us in due course on implementing this arrangement.

Alternatively, Legal Persons who may otherwise avail themselves of the Alternative Compliance Route may decide to opt in to the BOR and provide details of their RBOs to their CSP.

Obligations on Legal Persons that do not benefit from the Alternative Compliance Route

Such Legal Persons must:

• identify every RBO;
• give written notice to those individuals or entities which have been identified as RBO’s and to any individuals or entities whom the entity reasonably believes may be a RBO. That notice requires each addressee to respond within 30 days of receipt, confirming whether the individual or entity is a RBO and, if so, to confirm or correct any of the information required to be inserted in the BOR;
• establish and maintain an up to date beneficial ownership register which includes the RBOs of such Legal Person. The register must be kept at the Legal Person’s registered office and is typically maintained by the Legal Person’s CSP;
• where it becomes aware that there has been a ‘relevant change’[3] to the information contained in the BOR, give notice as soon as reasonably practicable (and no later than 30 days after it becomes aware of the relevant change) to the RBO requesting confirmation of the change;
• provide the required particulars of its RBOs which includes:
  • in respect of individuals:
    • name;
    • address;
    • date of birth;
    • nationality(ies);
    • information from their unexpired and valid passport, driver’s license or other government issued identification document;
    • the nature in which the individual owns or exercises control of the Legal Person;
    • the date on which the individual became (or ceased to be) a RBO;
  • in respect of RLEs:
    • name;
    • address of registered or principal office;
    • legal form and law by which it is governed;
    • the date on which the RLE became (or ceased to be) a RBO.

Statutory Offences and Penalties

The Act includes various offences and penalties and directors, managers, officers and partners of the Legal Person may also be liable to the same penalty as the Legal Person. The Competent Authority also has the power to impose administrative fines on any person who breaches the relevant provisions of the New BOR Legislation. The Competent Authority may strike an in-scope entity off the Register if an administrative fine remains unpaid for 90 days.

Public Accessibility

The Act provides that beneficial ownership information can only be made available to the public if and when regulations have been proposed by Cabinet and affirmed by a future resolution of Parliament. It is expected that there will be some limited access for persons with “legitimate interests” in due course and we will provide further information on this as and when available.

At present the major Cayman Islands authorities can access the centralised electronic platform established by the Competent Authority on which the registers of beneficial ownership are maintained.

The United Kingdom has entered into an agreement with the Government of the Cayman Islands for the sharing of beneficial ownership information.

Next Steps

Campbells can assist with all of these aspects.  Please do not hesitate to contact your usual Campbells contact if you have any questions or require any additional assistance.  As mentioned above, Campbells Corporate Services Limited will contact clients if the New BOR Legislation requires additional information or confirmations.

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In the recent judgment of Mark Eric Williams and Ors v Kuwait Ports Authority & Ors[1], the Cayman Islands Court of Appeal (“CICA”) confirmed that the Grand Court had jurisdiction to order the joinder of two plaintiff limited partners of The Port Fund L.P. (the “Fund”) as defendants to a crossclaim which had been filed against the general partner (the “GP”) of the Fund.

In reaching this decision, the CICA determined that the joinder did not contravene the statutory restrictions placed on limited partners pursuant to sections 14 and 33(1) of the Exempted Limited Partnership Act (2021 Revision) (the “ELP Act”), which respectively prohibit a limited partner from (i) taking part in the conduct of the business of the exempted limited partnership (“ELP”) and (ii) being a party to or named in legal proceedings against the ELP.[2]

This decision clarifies the rights and roles of limited partners in an ELP, particularly where limited partners have filed direct and derivative claims. This decision will therefore be of interest to private equity and other professionals and investors familiar with the widely-used Cayman ELP structure.

Background

The Fund is the subject of ongoing litigation in the Cayman Islands[3], and is the first Cayman Islands ELP in which limited partners have brought derivative claims pursuant to section 33(3) of the ELP Act. The relevant limited partners are two Kuwaiti state entities, the Kuwait Ports Authority and the Public Institution for Social Security (“KPA” and “PIFSS” respectively).

In February 2023, the independent directors of the GP resigned, leaving the GP without directors or officeholders, and with only illiquid assets. The GP is a party to various direct and derivative claims by and against limited partners in the Fund, and is also a defendant to crossclaims by codefendants, one of whom is the ultimate beneficial owner of the GP.

Following the resignation of the directors, KPA and PIFSS were purportedly concerned that the crossclaims against the GP may not be defended and that the success of such claims would impact upon their limited partnership interest in the Fund by diminishing the partnership assets. They accordingly sought to be joined as defendants to the crossclaim against the GP pursuant to O.15, r.6 of the Grand Court Rules, and also applied to have interim receivers appointed to the GP under section 11 of the Grand Court Act (2015 Revision).

The joinder application was opposed by the defendants who had brought the crossclaim against the GP on the basis that sections 14 and, in particular, 33(1) of the ELP Act prohibit a limited partner from (i) taking part in the conduct of the business of the ELP in its capacity as a limited partner, and (ii) being a party to or named in legal proceedings (save for the narrow exception provided in section 33(3) of the ELP Act allowing limited partners to bring a derivative claim where a general partner has, without cause, failed or refused to do so).

Section 33(1) states:

“Subject to subsection 33(3), legal proceedings by or against an exempted limited partnership may be instituted by or against any one or more of the general partners only, and a limited partner shall not be a party to or named in the proceedings.”

Section 14(1) provides:

“A limited partner shall not take part in the conduct of the business of an exempted limited partnership in its capacity as a limited partner”

The defendants contended that they were entitled to pursue their crossclaim against the GP alone, which was the sole proper defendant to the claim pursuant to both the ELP Act and the limited partnership agreement governing the Fund.

Grand Court decision

In a judgment delivered on 25 May 2023, the Grand Court of the Cayman Islands ordered the joinder of KPA and PIFSS, limited partners of the Fund, as defendants to the crossclaim, and appointed interim receivers over the GP to manage litigation related to the GP and the Fund.[4]

Justice Parker permitted KPA and PIFSS to be joined as defendants to the crossclaim in circumstances where they had earlier been permitted to bring derivative claims against the GP and the other defendants, and as limited partners had an indirect economic interest in the crossclaim. Specifically, Justice Parker concluded that section 33(1) did not prevent joinder of KPA and PIFSS as defendants to the crossclaim for the following reasons:[5]

• The proceedings, whether based on direct claims or derivative claims authorised under section 33(3), must also include any counterclaims or crossclaims within those proceedings, such that the crossclaim could not be regarded as a separate lis standing alone.
• The direct claims do not fall within section 33 of the ELP Act.
• It would be illogical and unfair if a limited partner permitted to pursue a derivative claim under section 33(3) were not also permitted to defend a counterclaim or a crossclaim in order that the derivative claim could proceed properly.

Justice Parker separately concluded that section 14(1) did not prevent the joinder because KPA and PIFSS sought to defend the crossclaim not as limited partners, but in their “individual capacities” as plaintiffs, and were not representing or replacing the GP. In this regard, Justice Parker held that “=[d]efending the crossclaim to protect their individual interest does not involve the Plaintiffs conducting the business of TPF”.

Justice Parker also held that the Court had a wide and flexible jurisdiction pursuant to GCR O.15, r.6 to permit joinder in the interests of justice when it was appropriate to do so. Justice Parker then exercised his discretion in favour of joinder, finding that, irrespective of the appointment of an officeholder, in circumstances where KPA and PIFSS were the parties most affected by the crossclaim and would bear the actual financial loss if it succeeded, it was just to permit those parties to participate in defending the crossclaim in addition to the GP acting by independent officeholders.

CICA decision

The appellants (being the defendants who brought the crossclaim against the GP) appealed the joinder order on two grounds:

1. The judge erred in law in finding that the Court had jurisdiction to make the said order notwithstanding section 33(1) and section 14 of the ELP Act.
2. The judge acted outside the margin of discretion afforded to him in ordering that KPA and PIFSS be joined as defendants to the said crossclaim notwithstanding his decision to appoint independent receivers with specific authority to conduct the litigation on behalf of the GP.

Section 33(1) and 14 of the ELP Act

The CICA agreed with Justice Parker’s conclusion that sections 14 or 33(1) of the ELP Act were not bars, in this case, to the respondents being joined as defendants to the crossclaim. However, the CICA disagreed with the judge’s reasoning and arrived at this conclusion for different reasons to the judge.

Importantly, while the CICA agreed that a limited partner does not need permission to defend a counterclaim arising within a proceeding which they have commenced themselves (either directly or derivatively having obtained permission pursuant to section 33(3)), this does not necessarily mean that limited partners have authority to defend a crossclaim.[6]

The CICA held that, contrary to Justice Parker’s view, crossclaims may constitute a separate lis such that the crossclaim may fall within the terms of section 33(1). Whether a crossclaim constitutes a separate lis depends on whether the crossclaim may properly be regarded as merely a facet of the existing litigation (in which case it will not fall within the terms of section 33(1)) or the promotion of a separate cause of action (in which case it will fall within the terms of section 33(1)).[7]

Having clarified the above, the CICA then addressed the statutory bar that section 33(1) imposes on limited partners should a crossclaim (or any other proceeding) fall within its terms. The CICA found that:[8]

• Section 33(1) is not an absolute prohibition on a limited partner playing any part in proceedings by or against an ELP. Those words need to be read in the context of the overall scheme of the ELP Act.
• Taken overall, the ELP Act is designed to provide a framework through which sleeping partners may invest with the protection of limited liability, all dealings with the outside world being conducted by the general partner.
• Viewed in that light, section 33(1) is to be regarded as merely a feature of the separation of functions between limited partners and general partners; it is designed to prevent a limited partner from being sued in respect of liabilities for which, under the scheme of the ELP Act, only the general partner is liable, and to reinforce the principle set out in section 14 that a limited partner should not take part in the conduct of the ELP’s business and its dealings with the outside world.

On this basis, the CICA found that the Court had jurisdiction to join the respondents to the crossclaim and dismissed this ground of appeal. The CICA further noted that such joinder was permitted because:[9]

• Once proceedings have been commenced in compliance with the provisions of section 33(1), they come under the control of the Court in the normal way and nothing in the terms of section (1) is intended to limit the ordinary powers of the Court, including the power to join parties under GCR O.15, r.6.
• The appellants had pleaded a defence of set-off specifically as a defence to the respondents’ claims, the effect of which was to place the merits of the crossclaim in issue between the appellants and respondents, as well as between the appellants and the GP. This means that, although standing alone the crossclaim may properly be regarded as a separate lis, the defence of set-off makes it a facet of the existing proceedings which is not be regarded as falling within section 33(1).

Exercise of discretion

The CICA found that the Judge acted within his discretion in ordering the joinder of KPA and PIFSS notwithstanding that receivers had been appointed.

The CICA noted that the Judge was aware that the appointment of receivers meant that there would be officeholders in place capable of dealing with some aspects of the litigation, having taken the view that no officeholder would be in as good a position as the respondents to defend the crossclaim, that the defence of the crossclaim by officeholders would have to be funded by the respondents or (which in the circumstances is unlikely) the appellants, and that it was the respondents who had the knowledge necessary to defend the crossclaim and the economic interest in doing so.[10]

Accordingly, it could not be said that the Judge took into account any irrelevant consideration, or failed to have regard to any relevant one, or that his decision was perverse. This ground was therefore dismissed.

Comment

The CICA’s judgment is of considerable importance to the Cayman Islands’ investment regime, in which ELPs are common structures, particularly for private equity funds. This is the first time that the CICA has considered the joinder of a limited partner as a defendant to a claim against a general partner. In doing so, the CICA has provided guidance on the role of limited partners within an ELP and the scheme of the ELP Act more generally.

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Innovation in the industry

Despite a number of challenges in the market, IATA recently noted that total global passenger demand for May 2024, measured in revenue passenger kilometers (RPKs), was up 10.7 per cent compared to May 2023 and total capacity, measured in available seat kilometers (ASK), was up 8.5 per cent year-on-year.  Having faced significant headwinds over the last several years, the aviation industry has proved itself to be both resilient and innovative in its endurance. Underpinning this performance has been a combination of multiple factors including an expansion in the range of financing transactions and structures in which Cayman Islands entities are deployed.  That flexibility is attractive to participants at all levels from investors to operators.

6 answers to ‘Why Cayman?’

The Cayman Islands’ strength in financial services is borne out of its ability to provide institutionally focused services to a global network of clients and this has seen it mature into one of the largest international financial centres in the world. The global financial industry can rely on the Cayman Islands’ well developed and predictable company and partnership laws and put its trust in effective, cost-efficient and tax-neutral transaction structuring. We will focus on the key advantages here.

1. Sophisticated Legal System and Political Stability: The Cayman Islands is a self-governing British Overseas Territory with an independent legal and judicial system grounded in English common law with well-developed local legislation. This predictability and stability is attractive when combined with a widely known and accepted corporate governance framework.
2. Tax Neutrality: The Cayman Islands has no direct taxation and a structure involving a Cayman Islands entity has the advantage of minimising potential tax leakage. It is free from any form of income, capital gains or corporation tax and no Cayman Islands’ withholding tax is imposed on an entity’s cash flows. Certain Cayman Islands entities with exempted status may also apply for a government undertaking confirming that such entity will not be subject to any taxation in the Cayman Islands for a period of 20 to 50 years (depending on the type of entity). The tax transparency of Cayman Islands exempted companies and partnerships can enable efficient raising of capital.
3. Flexibility: The business in which a Cayman Islands entity can be involved is generally unrestricted provided it falls within what is permitted by law. Combined with the ability to incorporate a new entity within as little as 24 hours, the flexibility allows parties to move quickly and efficiently. The Cayman Islands remains a relatively inexpensive jurisdiction in comparison to its competitors with government fees being assessed on a scale linked to the authorised share capital of the SPV. There are no exchange control restrictions allowing money and securities in any currency to be freely transferred to and from the Cayman Islands.
4. Creditor Friendly: The Cayman Islands’ insolvency regime is recognised as creditor friendly. Contractual rights including subordination, netting and set-off are recognised by express statutory provisions. The effective use of bankruptcy remoteness structures is a key aspect of asset and structured financing in the Cayman Islands and recognised as robust by rating agencies and financiers.
5. Regulation: There is a well-established regulatory framework encompassing international standards around anti-money laundering and counter terrorism, data protection, economic substance and the Common Reporting Standard (to name a few). Regulatory and financial transparency are core values embodied by the Cayman Islands Monetary Authority which is an independent regulator charged with consistent application of regulatory requirements for financial institutions.
6. International Connectivity: It is well known that Ireland is a key global hub for the aviation industry not least due to its enviable treaty network. There is a well-established route for Cayman Islands entities to be established as Irish tax resident and that can be a powerful structuring tool in a variety of transactions.

Entity Types

One of the most commonly chosen entities for asset and structured finance deals is the exempted company incorporated with limited liability (an ‘SPV’). Exempted Companies have their registered offices in the Cayman Islands and carry on business outside of the Cayman Islands. SPVs are distinct from segregated portfolio companies (‘SPCs’) and limited liability companies (‘LLCs’) in the jurisdiction. At an investor level, an exempted limited partnership is likely to be the entity of choice and the Cayman Islands is the premier jurisdiction for investment funds with an estimated 80% of all new offshore funds domiciled in the country. Incorporation can be as quick as 24 hours.

Off-balance sheet financing

In an aviation context, an SPV is typically incorporated to act as a borrower and owner/lessor of an aircraft and its shares will be held on trust by a professional trust company such as Campbells Corporate Services Limited or its controlled subsidiary.  This effectively separates the legal and beneficial ownership of the SPV and creates the ‘orphan’ structure taking the SPV off the balance sheet of the relevant parties and isolating the underlying assets from the corporate credit(s) in the deal. The trust will generally be a charitable or purpose trust maintained for the life of the deal. The other key feature for an orphan SPV deal is that all documentation is entered into on a limited recourse and non-petition basis. This ring-fences the assets and preserves bankruptcy remoteness by limiting the chance of claims against the SPV.

Transactional Diversity

Aviation itself is a multi-billion dollar industry, from commercial passengers to freighters, private aircraft, the vast network of regulators and technical service providers, the manufacturers and the infrastructure required to support it all. It is no surprise then that there are so many ways to transact. We have already touched on some of the kinds of transactions we see but below is a (non-exhaustive) list of where the Cayman Islands can feature in deals.

Funds and investment – as we have mentioned, the Cayman Islands is the jurisdiction of choice for the formation of investment funds. In recent years we have seen new investors with capital to deploy becoming new entrants into the aviation sector.

Alternative lending, joint ventures, new leasing platforms – once the investment is identified, those funds need to be put to use and we have seen Cayman incorporated entities being used in the establishment of alternative lending platforms, joint ventures with established industry players and the founding\of new leasing platforms. The flexibility of Cayman entities is particularly attractive to alternative lenders who can deploy capital quickly and fulfill a need where traditional lenders have retreated.

Debt financing – traditional debt financing for new and used aircraft also favours the use of bankruptcy remote SPVs. From pre-delivery payment financing, to delivery financing at the point of delivery from the manufacturers (including export credit guarantee and insurance backed products), to warehouse financing of portfolios, all lend themselves to an SPV borrower. As production lines continue to ramp up, we also expect to see carbon-neutral and de-carbonisation projects increasingly highlighted across the industry. Improvement in fuel efficiency, innovations in aircraft technology and a growing focus on what ESG means for aviation financing will be put into practice in debt documentation and elsewhere as pre-delivery payments fall due and new aircraft are delivered.

Capital markets – a Cayman incorporated but Irish tax resident issuer is a tried and tested structure in aircraft asset backed securitisations (‘ABS’). Where we also see the use of Cayman entities in capital markets and rated deals are in connection with note of bond issuances (secured or unsecured) and in non-US enhanced equipment trust certificate (‘EETC’) transactions. At the time of writing access to the ABS market is heavily restricted due to, among other things, interest rate volatility and the disconnect between lease rates and cost of funds.  With this said, there have recently been two major aircraft ABS transactions in 2024 with one of these being structured through a Cayman issuer.

Loyalty financing – these highly structured hybrid capital market/securitisation type transactions entered into by several major US airlines following the deep impact of the global pandemic is an excellent example of the innovative approach the industry takes to self-preservation. The valuation of frequent flyer programmes has long been a closely guarded secret (and protected asset) but the first of-its-kind United Mileage Plus financing changed that.  The bankruptcy remoteness protections afforded to the financiers and investors by using Cayman Islands SPVs were integral to the highly structured nature of these transactions.  We have seen continued interest in this transaction structure.

 Listing services – many of the transactions already described are likely to have a requirement for notes to be listed. The Cayman Islands Stock Exchange (‘CSX’) was the first offshore stock exchange to be granted approved organisation status by the London Stock Exchange. In addition, the UK HMRC also recognises the CSX under section 1005 of the Income Tax Act (ITA) 2007 regards the CSX as a ‘recognised stock exchange’. The CSX is a specialised exchange which prides itself on being user friendly and offering an efficient and competitively priced
listing service.  A CSX listing is commonly utilised by entities (whether Cayman incorporated or otherwise) for the purpose of the “Quoted Eurobond Exemption” on withholding tax.  Notes issued pursuant to structured finance transactions are sometimes listed with the CSX but also intra-group debt is commonly CSX listed.

 Aircraft registration – a summary of the involvement of the Cayman Islands in aviation is not complete without a word on the Cayman Islands Civil Aviation Authority (’CAACI’). The aircraft registry maintained by the CAACI is an internationally respected registry with strategic values and a desire to strengthen the reputation of the jurisdiction as a safe, effective and innovative registry of choice. It is predominantly a private aircraft register but can also handle commercial aircraft (including those of the national flag carrier, Cayman Airways). It has an Article 83b Agreement in accordance with the International Civil Aviation Organisation (‘ICAO’) with the Kingdom of Saudi Arabia and, in more recent times, a transitional register for commercial aircraft. The transitional registration programme developed significantly throughout 2020 with an increase in demand from the commercial aviation community for reliable registry services resulting from the effects of the global pandemic. It should also be noted that the Cayman Islands benefits from the Convention on International Interest in Mobile Equipment (the ‘Cape Town Convention’) following the United Kingdom’s ratification. It affords entities structuring their asset financing transactions with a Cayman Islands SPV the added protection, certainty and uniformity that the Cape Town Convention and its Protocols afford.

Management and professional services

Regardless of the type of transaction, a Cayman Islands SPV still requires directors. Cayman Islands fiduciary service providers such as Campbells Corporate Services Limited can be engaged to provide administration and management services for SPVs and other kinds of Cayman entities including the provision of directors and officers, and importantly ensuring provision is made to assist the SPV meets its regulatory obligations. Ongoing monitoring and testing can be implemented to maintain required compliance procedures and ensure that the relevant entities remain in good standing with the appropriate authorities including the Registrar of Companies CIMA and the Department for International Tax Cooperation.

Looking to the future

The present macro-economic headwinds resulting from a number of factors including the continuing conflict within Ukraine has not dampened optimism.  Further, with interest rates beginning to plateau and indications of potential rate cuts have been positive.  There is an inherent industry cycle within the asset and structured finance space but with ABS transactions back underway continued softening of the market in the short term seems possible.  The fundamentals remain strong in respect of both the industry itself, and the reasons why the Cayman Islands is an effective jurisdiction to support it.

Campbells

The Cayman Islands is a leading offshore financial centre and Campbells LLP and Campbells Corporate Services Limited are right at its heart. The Campbells team provides innovative solutions, unmatched flexibility and the strength to deliver results on all types of asset and structured finance transactions. For further information or advice, please reach out to the authors or your usual Campbells contact.

This article was first published in International Aviation Financing Leasing Review 2024-25.

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Click the following link to access the full guide: Cayman Islands – Restructuring & Insolvency – Legal 500 – 2024

This was first published in Legal 500.

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Cayman Islands

1. Updates on the Beneficial Ownership Regime
2. Anti-Money Laundering (Amendment) Regulations, 2024
3. Proceeds of Crime (Amendment) Act, 2023
4. Insolvency Practitioners (Amendment) Regulations, 2024
5. Cayman Islands Monetary Authority Updates
6. Perpetuities (Amendment) Bill, 2024
7. New Reporting Requirements of the FRA under the Russia Sanctions Regime
8. CRS Reportable Jurisdictions

British Virgin Islands

1. Consultation on amendments to the BVI Business Companies Act
2. Changes to Economic Substance Rules
3. 2024 Regulatory Calendar

Click here to access the Update: Caribbean Regulatory Update Q2 2024

Campbells advises both local and international banks, insurers, company managers, trust companies, investment managers, administrators and directors on regulatory and compliance matters. For further information please get in touch with your usual Campbells contact or one of the contacts below.

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Hong Kong based Corporate and Finance attorneys Robert Searle, Paul Trewartha and James McKeon led the deal on behalf of Campbells. “We are pleased to enable a productive partnership and synergy between the two companies, and continually look forward to creating significant value for our clients,” said Robert Searle, Partner.

ADM Capital is a leading private credit fund manager, focused on providing flexible, tailored credit solutions to mid-market corporates and entrepreneurs across Asia-Pacific.  Seviora Group is a Singapore-headquartered independent asset management group with US$52 billion in assets under management, wholly owned by Temasek.

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Background

A STAR trust is a statutory trust established under the Special Trusts Alternative Regime (STAR) in Part VIII of the Trusts Act (2021 Revision) (“Trusts Act”). A STAR trust can be established to hold assets:

There is no requirement for the trust’s purposes to be charitable in nature.

A beneficiary of a STAR trust has no enforceable right to the trust property nor the ability to take steps to enforce the trust. The right to receive information and institute proceedings in relation to a STAR trust is vested in an enforcer who is typically appointed pursuant to the terms of the trust deed. An enforcer has a fiduciary duty to act in the best interests of a STAR trust.

In January 2024, the enforcer of the A Trust, a purpose trust (a kind of trust that has no beneficiaries, instead existing for a specific purpose) established under the STAR regime, sought the Cayman Court’s approval to exercise his power to direct the trustee to exercise rights attaching to shares held by the trustee. The exercise of those rights was central to the purpose of the trust.

An enforcer’s standing

Section 48 of the Trusts Act confers the Cayman Court with supervisory jurisdiction over trusts in respect of applications made by a “trustee or personal representative”.

The provisions of the STAR regime expressly confirm that an enforcer of a STAR trust has the same rights as a trustee of an ordinary trust including, among other things, to make applications to the Court for an opinion, advice or direction.

Reading Section 48 with the provisions of the STAR regime, the Cayman Court readily concluded that an enforcer has standing to invoke the Court’s supervisory jurisdiction to bless a momentous decision in relation to a STAR trust.

The Court’s blessing

The questions that the Cayman Court will typically consider in deciding whether to bless a momentous decision are:

Question 3, which primarily concerns the rationality of the decision, is central to the Court’s decision (see In the matter of Standard Chartered Trust (Singapore) Limited as trustee of the Emerging Markets Diversified Fund Trust FSD 82 of 2022 (DDJ)). The onus is on the decision maker to put all relevant facts before the Court and to demonstrate that the decision is being made for a proper purpose. The benefit of obtaining the Court’s blessing is that the decision maker is deemed to have discharged its duties in respect of the subject matter of the decision, but this indemnity falls away if the decision maker fails to make full and frank disclosure to the Court.

In this case, the Cayman Court was satisfied that the enforcer had the power to direct the trustee in the manner proposed and that the suggested instruction furthered the purposes for which the trust was established. The decision met the essential rationality standard, having been arrived at following careful deliberation and the receipt of legal advice. The enforcer had also properly identified all potential conflicts of interest in discharging its duty to the Court.

Conclusion

This decision makes clear that enforcers of STAR trusts can seek the assistance of the Cayman Court when tasked with making difficult decisions in relation to the trust. It underscores the critical role that enforcers play in ensuring that a STAR trust is administered properly in furtherance of the purposes for which it was created and/or in the best interests of any beneficiaries of the trust.

This article was first published in Chambers and Partners. 

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