Commencing the voluntary winding-up of a mutual fund is deceptively easy but, as soon as it is contemplated, the Fund Manager’s role and responsibilities change in subtle but very important ways.

 

Some of these responsibilities have had a timely airing recently in the Cayman Islands’ Grand Court and Court of Appeal’ decision in Adamas Global Alternative Investment Management INC, et al [FSD 232 of 2018; FSD 72 of 2019; and Civil Appeal No. 27 of 2019] in respect of the voluntary liquidation of Adamas Asia Strategic Opportunity Fund Limited (the “Fund“) which arose out of deteriorating relations between the Fund’s investment manager (the “Manager“) and the Fund’s only investor, the Public Institution for Social Security for the State of Kuwait (the “Investor”).

 

Background to the Case

 

In December 2017 the Investor made a sizeable redemption request which the Manager acknowledged. However, in August 2018, before the redemption had been effected, the Investor was informed that the Fund’s directors had declared a suspension of redemption requests to take effect from 2 October 2018. It was hoped that a special redemption of 14% of the Fund’s issued share capital would be made in November 2018 but this was cancelled on the grounds that an emergency existed as a result of which a disposal of the Fund’s underlying investments was not practically feasible – the Fund was invested in underlying funds that were themselves locked-up for more than a year (until December 2019).

 

The Investor was unhappy with the explanations given for the delays. There were also arguments about the extent to which the Manager would agree to waive its fees during the suspen-sion of redemptions.

 

By 9 December 2018 the Investor requested that, within 7 days, the Manager pass a resolution to commence the voluntary winding-up of the Fund and irrevocably appoint a liquidator of the In-vestor’s choice. Discussions continued and, on 23 December 2018, the Investor wrote to the Manager with an ultimatum that, unless the Manager passed the resolutions to wind-up the Fund and appoint the Investor’s preferred choice of liquidator, the Investor would petition the Court to wind-up the Fund on just and equitable grounds.

 

Shortly thereafter a winding-up resolution was passed by the Manager, which held the management voting shares in the Fund. However the Manager had decided to appoint a cheaper liquidator rather than the Investor’s much preferred option. The two sides had very different perspectives on whether, as a matter of law, a Manager could ignore the wishes of the Investor in a voluntary winding-up.

 

The Articles of Association of the Fund were typical of Cayman Islands’ mutual funds and other Common Law offshore jurisdictions. In particular, the Investor held non-voting, redeemable, “Participating Shares” (which participate in the profits but not the running of the Fund) and the Manager held “Management Shares” (that, in contrast, don’t participate in the profits but entitle the Manager to, among other things, pass resolutions to voluntarily wind-up the Fund and to appoint a liquidator for that purpose).

 

The judgment of the Grand Court observed that “There was no previous case directly on point which made it obvious that the holder of management shares in a Cayman Islands fund company is required, in the context of a contemplated solvent liquidation, to defer to the wishes of the participating shareholders.”

 

The legal argument in the Grand Court, and later in the Court of Appeal, centred on section 131 of the Companies Law, which states that:

 

“When a resolution has been passed by a company to wind up voluntarily, the liquidator or any contributory or creditor may apply to the Court for an order for the continuation of the winding up under the supervision of the Court… on the grounds that:

 

(a) the company is or is likely to become insolvent; or

 

(b) the supervision of the Court will facilitate a more effective, economic or expeditious liquidation of the company in the interests of the contributors and creditors.”

 

In common with most mutual funds, the Fund’s “contributors and creditors” (to which section 131 refers) included the Investor and the Manager. The Investor’s redemption request had not been implemented (so the Investor was still a “contributor” rather than a “creditor”). The Manager, on the other hand, was owed a small management/performance fee and so it was both a creditor as well as a modest contributor (by virtue of holding Management Shares in the Fund).

 

The Court’s Decision

 

In its judgment the Court of Appeal held that:

 

“the relationship between those holding the Management Shares and those holding the Partici-pating Shares radically changes when the fund is contemplating the cessation of business and a voluntary winding up. The exclusive power conferred on the Manager to resolve to wind up the company is conferred not for their benefit but for the benefit of the Participating Shareholders who, under the Articles, have the predominant financial interest in the proposed winding up…”

 

The Court of Appeal did go out of its way to reassure Managers that: “If a supervised liquidation might significantly delay or otherwise prejudice settlement of the Manager’s claims as a creditor, the Manager will of course be entitled to argue against a supervised liquidation for that reason.”

 

And in the Grand Court the judge pointed out that “no right thinking person could properly infer that the making of a supervision order [the Court appointing an official liquidator] cast doubt on the bona fides [good standing] of the Manager.”

 

One of the key point of this is decision by the Cayman Islands courts is a reminder that under generally recognized rules of winding up law, the way in which a solvent or insolvent fund should be wound up should be determined by primary reference to the interests or wishes of the fund’s economic stakeholders (which in a solvent winding up will be its investors). In any event, once liq-uidation is contemplated, fund directors (working with the fund manager) need to pay particular attention to the fiduciary duties they owe to shareholders and creditors.

 

For specific advice on the winding-up of Cayman Funds, please contact your usual Loeb Smith attorney or any of:

 

E: gary.smith@loebsmith.com
E: elizabeth.kenny@loebsmith.com
E: vivian.huang@loebsmith.com
E: yun.sheng@loebsmith.com
E: faye.huang@loebsmith.com
E: santiago.carvajal@loebsmith.com

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1.   What is a mutual fund? 
The primary legislation regulating mutual funds in the Cayman Islands is the Mutual Funds Law (As Revised) (the “Funds Law”) and accompanying regulations, including the Retail Mutual Funds (Japan) Regulations (As Revised) which generally apply to investment funds licensed under the Funds Law (licensed funds) where the securities are marketed to the public in Japan. The term “mutual fund” applies for Cayman Islands law purposes to all open-ended investment funds irrespective of whether they are hedge funds or other fund with multiple strategies.

The Funds Law defines a “mutual fund” as follows (emphasis added):
“a company, unit trust or partnership that issues equity interests, the purpose or effect of which is the pooling of investor funds with the aim of spreading investment risks and enabling investors in the mutual fund to receive profits or gains from the acquisition, holding, management or disposal of investments but does not include a person licensed under the Banks and Trust Companies Law (2009 Revision) or the Insurance Law (2008 Revision), or a person registered under the Building Societies Law (2010 Revision) or the Friendly Societies Law (1998 Revision)”.

Accordingly, investment funds which are established for a sole investor and do not involve the pooling of investor funds fall outside the regulatory framework of the Funds Law. Nonetheless, a single investor fund can apply for voluntary registration to, among other things, benefit from the status of being a fund registered with and regulated by Cayman Islands Monetary Authority (the “Monetary Authority”).

Will the mutual fund issue “equity interests”?

As can be seen from the definition of “mutual fund” above, the Funds Law applies only to investment funds which issue “equity interests”. Equity interests are defined in the Funds Law as:

“a share, trust unit or partnership interest that-

(a) carries an entitlement to participate in the profits or gains of the company, unit trust or partnership; and

(b) is redeemable or repurchasable at the option of the investor… before the commencement of winding-up or the dissolution of the company, unit trust or partnership, but does not include debt,…”

Accordingly, private equity funds and other closed-ended funds (e.g. real estate funds) which do not give investors the right to redeem their shares, units or interests from the fund at the investor’s option do not fall within the scope of the provisions of the Funds Law. However, please see our Legal Update on the Private Funds Law. Cayman Islands Private Funds Law

The law as set out herein therefore applies only in respect of investment funds with any asset class which satisfies the definition of “equity interests” above. For present purposes we will refer to these funds as “Open-ended Funds”.

1.   Types of Open-ended Funds
According to the Funds Law, certain categories of Open-ended Funds are required to subject themselves to regulation by the Monetary Authority. The three types of Open-ended Funds which are regulated by the Monetary Authority are:

i. licensed mutual funds;
ii. administered mutual funds; and
iii. registered mutual funds.

Licensed mutual funds

Licensed mutual funds are covered under section 4(1)(a) of the Funds Law and must apply for and obtain a license from the Monetary Authority to undertake business. This is the least common type of regulated mutual fund owing in no small part to the burdensome approval process for a license.

Administered mutual funds

Administered mutual funds are covered under section 4(1)(b) of the Funds Law and must have appointed a licensed mutual fund administrator which is licensed with the Monetary Authority in the Cayman Islands. The licensed mutual fund administrator must also provide the Fund’s principal office in the Cayman Islands. This type of mutual fund is commonly referred to as a “retail fund” in that it allows an investment manager to establish a fund that permits each investor to have a minimum initial subscription that is lower than US$100,000. An administered mutual fund is the only type of regulated mutual fund which must appoint a mutual fund administrator based in the Cayman Islands. Licensed mutual funds (discussed above) and registered mutual funds (discussed below) may appoint an administrator based in any jurisdiction.

Registered mutual funds

Registered mutual funds are covered under section 4(3) of the Funds Law. This is the most common type of investment fund registered with the Monetary Authority. Registered mutual funds are exempt from the requirement to be licensed under section 4(1)(a) of the Funds Law or administered 4(1)(b) of the Funds Law on the basis that either (i) each investor must invest a minimum initial subscription of no lower than US$100,000 (or its equivalent in any other currency) or (ii) the equity interests of the fund are listed on a stock exchange recognised by the Monetary Authority.

Registration for Section 4(4) Funds

Under section 4(4) of the Funds Law, Open-ended Funds in which the “equity interests” are held by not more than fifteen (15) investors, a majority of whom are capable of appointing or removing the “operator” of the fund are now also required to be registered with the Monetary Authority. See our Legal Update on Section 4(4) Fund registration – Cayman exempted mutual funds now required to register with CIMA.

In the case of an investment fund structured as a company, the operator would be the fund’s Directors. In the case of an investment fund structured as a limited partnership, the operator would be the fund’s general partner(s). In the case of an investment fund structured as a unit trust, the operator would be the fund’s trustee(s).

As noted above, private equity funds and other closed-ended funds (e.g. real estate funds) which do not give investors the right to redeem their shares, units or interests from the fund at the investor’s option do not issue “equity interests” for the purposes of the Funds Law. However, a different registration regime applies to these types of investment funds. Please see our Legal Update on the Private Funds Law. Cayman Islands Private Funds Law

1.   What are the key disclosure or filing requirements (if any) that must be completed by the mutual fund?
The following procedures apply to mutual fund registration:

  1. If the minimum aggregate equity interest purchasable by a prospective investor is at least US$100,000 (or its equivalent in any other currency) or the equity interests are listed on a recognised stock exchange, including the Cayman Islands Stock Exchange, then the registration application requires filing of the following documents with the Monetary Authority: 
    1. a certified copy of the Certificate of Incorporation or Certificate of Registration (as applicable and depending on whether the fund is a company, limited partnership or trust);
    2. Form MF1 (this form includes certain prescribed details of the fund, such as the identity of the operators and service providers and the key terms regarding subscriptions and redemptions);
    3. a current offering document (for example, a private placement memorandum);
    4. a consent letter from the fund’s administrator and a consent letter from the Cayman Islands auditor, approved by the Monetary Authority;
    5. a registration fee, which is currently US$4,269 (approximately).
  2. In the case of an administered fund where the investment fund’s administrator provides the fund’s principal office in the Cayman Islands (this may apply in the case of an investment fund that agrees to accept minimum initial investments below the US$100,000 threshold) then the registration is applied for by filing the following documents with the Monetary Authority:
    1. Forms MF2 and MF2A, completed by the administrator and the investment fund (including similar particulars to the Form MF1) (see above);
    2. the same documents (except the Form MF1) and registration fee as above.

These are filing registration requirements. The Monetary Authority will not perform a substantive review of the filing. Generally, the mutual fund can accept subscription monies once the filing is made.

Fund’s offering document must:

  1. describe the equity interests in all material respects.
  2. contain such other information as is necessary to enable a prospective investor in the fund to make an informed decision about whether to subscribe for or purchase the equity interests.

The fund is required under the Funds Law to file its current offering document with the Monetary Authority within 21 days of becoming aware of any change that materially affects any information in the offering document filed with the Monetary Authority or in the prescribed details of the offering document filed with the Monetary Authority.

This Briefing Note is not intended to be a substitute for specific legal advice or a legal opinion. It deals in broad terms only and is intended to merely provide a brief overview and general guidance only. For more specific advice on the laws relating to Cayman Islands investment funds, please contact:
Gary Smith
Partner
E: gary.smith@loebsmith.com
www.loebsmith.com

Digital Assets: Certain Cayman Islands law issues to consider

 

Based on our experience of advising initial coin offerings (ICOs) and security token offerings (STOs) and of undertaking legal due diligence for institutional clients seeking to acquire tokens in ICOs and STOs, in this brief update, we discuss a few of the issues that should be considered when determining which offshore jurisdiction to incorporate a legal vehicle in order (i) to reduce your risk of contravening Cayman Islands law, (ii) to facilitate listing on crypto-exchanges, and (iii) to facilitate better relationships with other participants in the growing digital assets space (e.g. banks to open accounts, institutional investors and investment funds which will undertake due diligence as part of the process of acquiring tokens in an ICO or STO).

1. Tax

The Cayman Islands is a tax neutral jurisdiction. There is no direct taxation of any kind on Cayman entities. Structuring issues will largely be driven by business needs and onshore tax considerations, and onshore regulatory issues. There is no income, corporation, capital gains or withholding taxes or death duties. It is possible for all types of Cayman legal structures (exempted company, LLCs, foundation companies, unit trust, and limited partnerships) to apply to the Cayman Islands government for a tax undertaking that the legal structure will not be subject to direct taxation, for a minimum period, which in the case of a company is 20 years, and in the case of an LLC, unit trust and an ELP is 50 years.

2. Cayman Islands laws and regulations governing digital asset offerings, formation and operation of cryptocurrency exchanges, etc.

There is no specific existing legislation or regulation regarding cryptocurrency offerings (e.g. ICOs and STOs), cryptocurrency exchanges or investment vehicles investing in cryptocurrency. There are no restrictions or licensing requirements that specifically govern the holding, management or trading of digital assets, whether in a personal capacity or doing so as a manager, trustee or advisor for the account of others. The application of existing laws needs to be considered in relation to this developing digital assets space. It is worth noting that the Cayman Islands Government has published a consultation paper in which it seeks commentary on its proposals for a regulatory framework for virtual asset service providers in order to regulate token offerings and ICOs/ITOs. The consultation paper discusses registration being imposed on issuers prior to the sale, and minimum notice requirements – like a prospectus. Issuances above a certain threshold would have to be undertaken via a licensed or regulated trading platform. Custodial services and trading platforms would be subject to licensing requirements. The regulatory framework would also cover a sandbox license to test out new technologies, which Fintech service providers may apply for.

Until a regulatory framework for virtual asset service providers is introduced, the following existing laws may be applicable in the digital asset space and should be carefully considered by promoters, investors and their advisors:

i. The Cayman Islands Securities Investment Business Law (As Revised) (“SIBL”) defines securities by reference to a list of instruments, including shares and stock of any kind in the share capital of a company, debentures and any other instruments creating or acknowledging indebtedness other than certain exceptions specified, instruments giving entitlements to securities, certificates conferring rights with respect to securities, etc.

The term “instrument” refers to any record and specifically includes an electronic record as defined in the Electronic Transactions Law (2003 Revision), i.e. a record processed and maintained by electronic means.

Accordingly, CIMA may qualify coins/tokens issued on blockchain as stock or debt if the rights attached to the coins/tokens (as represented in the White Paper or the token sale documentation) resemble rights normally attached to equity interests or debt.

ii. In certain circumstances, a registration with or a license from CIMA may be required:

(a) under the Cayman Islands Money Services Law (As Revised), if the coins/tokens issued could give access to money transmission or currency exchange services;

(b) under SIBL, if the coins/tokens may qualify as securities, for all persons engaging, “in the course of business”, in securities investment business, i.e. among other things buying, selling, subscribing for or underwriting securities as agent or principal, arranging deals, managing securities, or advising an investor on buying, selling, underwriting, subscribing for or exercising any right in securities;

(c) under the Cayman Islands Mutual Funds Law (As Revised) if the issuer of the coins/tokens is essentially a collective investment scheme and the coins/tokens are attached to redemption rights for investors; and/or

(d) under the Cayman Islands Private Funds Law, 2020, if the issuer of the coins/tokens is essentially a collective investment scheme and the coins/tokens carry an entitlement to participate in the profits or gains.

The following Cayman Islands statutes and regulations should be considered when structuring a digital asset business through the Cayman Islands:

the Securities Investment Business Law (SIBL);

the Proceeds of Crime Law (PCL), the Anti-Money Laundering Regulations (the AML Regulations) and existing guidance notes, and the Terrorism Law;

the International Tax Co-operation (Economic Substance) Law (the Economic Substance Law).

the Money Services Law (MSL);

the Mutual Funds Law (MFL);

the Private Funds Law (PFL);

the Stock Exchange Companies Law;

the US Foreign Account Tax Compliance Act (FATCA) and the OECD Common Reporting Standard (CRS);

the beneficial ownership regime in the Companies Law and various other statutes; and

the Bank and Trust Companies Law.

This publication is not intended to be a substitute for specific legal advice or a legal opinion. For specific advice, please contact either:

E: gary.smith@loebsmith.com

E: ramona.tudorancea@loebsmith.com

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Cayman Exempted Mutual Funds now required to register with the Cayman Islands Monetary Authority

Further to our earlier legal update on Section 4(4) Funds registration with CIMA, Cayman Islands’ mutual funds which are currently exempted from registration with the Cayman Islands Monetary Authority (“CIMA”) under Section 4(4) of the Mutual Funds Law (2020 Revision) on the basis that (i) the shares or interests are held by not more than fifteen investors, (ii) a majority of whom are capable of appointing or removing the operator of the fund (“Section 4(4) Funds“) are now required under the Mutual Funds (Amendment) Law, 2020 (the “Law“) which came into force on 7th February 2020, to register with CIMA and fall within CIMA’s regulatory purview.

Timing for Registration with CIMA

Existing Funds: Section 4(4) Funds which launched prior to 7th February 2020 have a six (6) months’ period until 7th August 2020 to register with CIMA.

New Funds: Section 4(4) Funds which are launched after 7th February 2020 will need to register with CIMA immediately upon launch.

Registration Requirements
In connection with its registration with CIMA, each Section 4(4) Fund will be required to do the following.

  1. File a certified copy of an extract of its constitutional documents with CIMA showing that a majority in number of its investors are capable of appointing or removing the operator of the Fund.
  2. File with CIMA such other information as may be required in a prescribed Form.
  3. Pay an annual fee to CIMA.

In common with all other CIMA regulated entities, each Section 4(4) Fund that is a company will be required to have at least two Directors appointed who will need to be registered with CIMA under the Directors Registration and Licensing Law.

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For further guidance and assistance with registering your Section 4(4) Fund with CIMA, please contact your usual Loeb Smith attorney or any of:

E: gary.smith@loebsmith.com
E: ramona.tudorancea@loebsmith.com
E: vivian.huang@loebsmith.com
E: yun.sheng@loebsmith.com
E: elizabeth.kenny@loebsmith.com
E: santiago.carvajal@loebsmith.com

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The Private Funds Law, 2020 (the “Law“) came into force on 7th February 2020 and introduces, among other things, a requirement for the registration of closed-ended funds (typically, investment funds which do not grant investors with a right or entitlement to withdraw or redeem their shares or interests from the fund upon notice) with the Cayman Islands Monetary Authority (“CIMA“). The Law refers to these closed-ended funds as “Private Funds”. Mutual funds (e.g. open-ended funds) are not caught by the Law and continue to be regulated by the Mutual Funds Law (2020 Revision) as amended. Accordingly, there is now a regulatory regime in the Cayman Islands for all mutual funds and a separate regulatory regime for “private funds” covered by the Law.

What is a “Private Fund”?

A “Private Fund” means a company, unit trust or partnership whose principal business is the offering and issuing of its investment interests, the purpose or effect of which is the pooling of investor funds with the aim of spreading investment risks and enabling investors to receive profits or gains from such entity’s acquisition, holding, management or disposal of investments, where:

  1. the holders of investment interests do not have day-to-day control over the acquisition, holding, management or disposal of the investments; and
  2. the investments are managed as a whole by or on behalf of the operator of the private fund, directly or indirectly, for reward based on the assets, profits or gains of the company, unit trust or partnership.

A list of “non-fund arrangements” including (i) securitisation special purpose vehicles, (ii) joint ventures, (iii) proprietary vehicles, (iv) holding vehicles, (v) preferred equity financing vehicles, (vi) sovereign wealth funds, (vii) structured finance vehicles, and (viii) single family offices are listed in the Schedule to the Law and are excluded from the scope of the Law.

Single investor Private Funds will be outside the scope of the Law as there would be no pooling of investor funds in this case.

Which Funds will fall within the scope of the Private Funds Law?

The Law applies to private equity funds, real estate funds, and other types of closed-ended funds set up as Cayman Islands limited partnerships, companies (including SPCs), unit trusts and limited liability companies.

The Law will also apply to non-Cayman Islands private funds carrying on business or attempting to carry on business in or from the Cayman Islands. As stated above, there is a separate registration regime for mutual funds under the Mutual Funds Law (2020 Revision) as amended and the Law will not apply to a regulated mutual fund or a regulated EU Connected Fund.

Restricted Scope Private Fund

The Law creates a category of Private Funds called a “restricted scope private fund” and this defined as (i) an exempted limited partnership; (ii) that is managed or advised by a person who is licensed or registered by CIMA or authorised or registered by a recognised overseas regulatory authority; and (iii) in which all of the investors are non-retail in nature, being either high net worth persons or sophisticated persons. The Law does not state what the consequences will be for registering with CIMA as a “restricted scope private fund” (e.g. the prescribed details to be filed with CIMA might be less in nature and scope and/or the fees payable to CIMA might be different).

Registration Process – What documentation is required to register with CIMA?

Section 5 of the Law states that a Private Fund is required to:

  1. submit an application for registration to CIMA within twenty-one (21) days after its acceptance of capital commitments from investors for the purposes of investments;
  2. file prescribed details in respect to the Private Fund with CIMA;
  3. pay a prescribed annual registration fee to CIMA in respect of the Private Fund;
  4. comply with any conditions of its registration imposed by CIMA; and
  5. comply with the provisions of the Law.

In terms of documentation to be filed with CIMA, the Law refers to the filing of “prescribed details” in respect of the Private Fund but there is no requirement to file an offering memorandum or any other offering document. There are also no requirements in the Law on the contents of a Private Fund’s offering document, if any. Regulations stipulating the exact nature of the “prescribed details” to be filed have not yet been published.

Timing of Registration

Section 5 of the Law indicates that a new Private Fund falling within the scope of the Law will be required to:

  1. submit its registration application to CIMA within 21 days after its acceptance of capital commitments from investors for the purposes of investments; and
  2. be registered by CIMA before it accepts capital contributions from investors in respect of investments.

Accordingly, the timing of registration with CIMA will be somewhat different from that applicable to mutual funds.

New Funds: A Private Fund that begins to carry on business in or from Cayman at any time during the period of six (6) months beginning on 7th February 2020 may continue to carry on business in or from Cayman without registering with CIMA until 7th August 2020 or such further period as may be specified by CIMA.

Existing Funds: A Private Fund that immediately before 7th February 2020 was carrying on business in or from Cayman may continue to carry on business in or from Cayman without registering with CIMA until 7th August 2020 or such further period as may be specified by CIMA.

Neither the CIMA REEFS portal nor CIMA forms have as yet been configured or published to deal with the registration of new or existing Private Funds’ registration.

Requirement to register changes with CIMA

A Private Fund is required under the Law to notify CIMA:

(a) of any change that materially affects any information submitted to CIMA;

(b) of any change of its registered office or the location of its principal office.

The Private Fund will have twenty-one (21) days after making the change or becoming aware of the change to file details of the change with CIMA.

Fees

Regulations stipulating the fees payable to CIMA in respect of registration of Private Funds have not been published.

Regulatory Requirements for Private Funds

The Law requires that Private Funds that are subject to the Law have in place certain mechanisms and safeguards relating to audit, valuation of assets, safekeeping of fund assets, cash monitoring, and identification of securities.

Audit

Each Private Fund is required to (i) have its accounts audited annually by a firm of auditors on the CIMA approved list of auditors and (ii) file such audited accounts with CIMA within six (6) months of the end of each financial year of the Private Fund (along with an Financial Annual Return in CIMA’s prescribed form).

Audited accounts will be required to be prepared in accordance with the International Financial Reporting Standards or the generally accepted accounting principles of the United States of America, Japan or Switzerland or any non-high risk jurisdiction. The Law defines a “non-high risk jurisdiction” as any jurisdiction that is not on the list of high risk jurisdictions issued by the Financial Action Task Force.

CIMA may, in relation to the whole or part of any financial year of a Private Fund, grant an exemption to the Private Fund from the requirement to submit audited accounts to CIMA either absolutely or subject to such conditions as CIMA may deem appropriate. The circumstances in which such an audit exemption may be granted have not yet been published by CIMA but might be the same as, or similar to, the circumstances currently applicable to regulated mutual funds.

Valuation of assets

The Law requires a Private Fund to have appropriate and consistent procedures for the purposes of proper valuations of its assets, which ensures that valuations are conducted in accordance with the requirements in the Law. Valuations of the assets of a Private Fund are required to be carried out at a frequency that is appropriate to the assets held by the Private Fund and, in any case, on at least an annual basis.

Valuations of the Private Fund’s assets can be performed by:

(a) an independent third party that is appropriately professionally qualified to conduct valuations in a non-high risk jurisdiction;

(b) the manager or operator of the Private Fund, or a person who has a control relationship with the manager of the Private Fund, provided that:

i. the valuation function is independent from the portfolio management function; or

ii. potential conflicts of interest are properly identified and disclosed to the investors of the private fund; or

(c) an administrator not falling under paragraph (a) above who is appointed by the Private Fund.

Where the valuation of the Private Fund’s assets is not performed by an independent third party professionally qualified to conduct valuations in a non-high risk jurisdiction, CIMA may require the Private Fund to have its valuations verified by an auditor or independent third party.

The Law empowers CIMA to waive the valuation requirements, either absolutely or subject to such conditions as CIMA deems appropriate.

Safekeeping of fund assets

The Law requires a custodian (i) to hold the Private Fund’s assets which are capable of physical delivery or capable of registration in a custodial account except where that is neither practical nor proportionate given the nature of the Private Fund and the type of assets held; and (ii) to verify title to, and maintain records of, fund assets.

Where having a custodian is neither practical nor proportionate given the nature of the Private Fund and the type of assets held, title verification can be carried out by any of (i) the manager or operator of the Private Fund (subject to functional independence or conflicts management requirements), (ii) an independent administrator, or (iii) another independent third party.

Where the title verification is not performed by a custodian, an administrator or another independent third party appointed, CIMA may require the Private Fund to have its title verification verified by an appropriately professionally qualified independent third party.

Cash monitoring

The Law requires a Private Fund to appoint an administrator, custodian or another independent third party (or the manager or operator of the Private Fund) to:

• monitor the cash flows of the Private Fund;

• ensure that all cash has been booked in cash accounts opened in the name, or for the account, of the Private Fund; and

• ensure that all payments made by investors in respect of investment interests have been received.

When the cash monitoring function is not performed by an administrator, custodian or another independent third party, the cash management function established by the manager or operator of the Private Fund is required to be independent of the portfolio management function or the potential conflicts of interest must be properly identified and disclosed to investors.

Identification of securities

A Private Fund that regularly trades securities or holds them on a consistent basis must maintain a record of the identification codes (e.g. ISIN codes or CUSIP codes) of the securities that it trades and holds and make this available to CIMA upon request.

Penalty for Non-Compliance

The penalty for failing to comply with Section 5 of the Law (registration with CIMA) is liability on conviction to a fine of CI$100,000 (approximately US$122,000). The “operator” (e.g. the board of directors where the Private Fund is structured as a company or a general partner where the Private Fund is structured as a limited partnership) of a Private Fund will be responsible for securing the compliance by that Private Fund with the Law. The operator of a Private Fund that fails to discharge its responsibility for securing the Private Fund’s compliance with the Law commits an offence and is liable on conviction to a fine of CI$20,000 (approximately US$24,400).

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This publication is not intended to be a substitute for specific legal advice or a legal opinion. For specific advice on the new registration requirements for Cayman closed-ended funds and compliance generally with the Private Funds Law, 2020, please contact your usual Loeb Smith attorney or any of:

E: gary.smith@loebsmith.com
E: ramona.tudorancea@loebsmith.com
E: vivian.huang@loebsmith.com
E: yun.sheng@loebsmith.com
E: elizabeth.kenny@loebsmith.com
E: santiago.carvajal@loebsmith.com

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Cayman Islands’ mutual funds which are currently exempted from registration with the Cayman Islands Monetary Authority (“CIMA”) under Section 4(4) of the Mutual Funds Law (2020 Revision) on the basis that (i) the shares or interests are held by not more than fifteen investors, (ii) a majority of whom are capable of appointing or removing the operator of the fund (“Section 4(4) Funds“) will be required, once the Mutual Funds (Amendment) Bill, 2020 (the “Bill”) becomes law, to register with CIMA and fall within CIMA’s regulatory purview.

The Bill does not propose a prescribed minimum initial investment amount and Section 4(4) Funds will not be required to file an offering document (or any amendments) with CIMA. Certain regulatory powers of CIMA which already apply to existing CIMA regulated mutual funds will also apply to Section 4(4) Funds once the Bill becomes law.
In connection with their registration with CIMA, each Section 4(4) Fund will be required to do the following.

  1. Pay an annual fee to CIMA.
  2. File a certified copy of an extract of its constitutional documents with CIMA showing that a majority in number of its investors are capable of appointing or removing the operator of the Fund.
  3. File with CIMA such other information as may be required in the prescribed form.

New Audit Requirement

Each Section 4(4) Fund will also be required to have its accounts audited annually by a firm of auditors on the CIMA approved list of auditors and file such audited accounts with CIMA within six (6) months of the end of each financial year of that Fund (along with an Financial Annual Return in CIMA’s prescribed form).
Audited accounts will be required to be prepared in accordance with the International Financial Reporting Standards or the generally accepted accounting principles of the United States of America, Japan or Switzerland or any non-high risk jurisdiction. The Bill defines a “non-high risk jurisdiction” as any jurisdiction that is not on the list of high risk jurisdictions issued by the Financial Action Task Force.

Timing for Registration for Existing Section 4(4) Funds

The Bill proposes that existing Section 4(4) Funds will have six (6) months from the date on which the Bill becomes law to register with CIMA and to comply with the new requirements.

An existing Section 4(4) Fund that registers with CIMA in 2020 will not be required to file its audited accounts in respect of any prior financial year.

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This publication is not intended to be a substitute for specific legal advice or a legal opinion. For specific advice on the registration requirements for Cayman exempted mutual funds, please contact your usual Loeb Smith attorney or any of:

E: gary.smith@loebsmith.com
E: ramona.tudorancea@loebsmith.com
E: vivian.huang@loebsmith.com
E: yun.sheng@loebsmith.com
E: elizabeth.kenny@loebsmith.com
E: santiago.carvajal@loebsmith.com

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Voluntary liquidation or Strike-off?

Alternatives to voluntarily achieving the conclusion of operations and dissolution of Cayman companies

There are two principal routes to voluntarily dissolving a Cayman Islands company after the conclusion of its operations. Dissolution can be achieved either through (i) voluntary liquidation or (ii) a strike-off. The dissolution will mean that the company is removed from the Register maintained by the Registrar of Companies in the Cayman Islands and cease to exist ultimately. If the company has entered into any agreements with clients, customers and suppliers and/or undertaken any trading activities since its incorporation, the more common and appropriate choice is to undertake a formal liquidation of the company by way of a shareholders’ voluntary liquidation. If the company has not entered into any agreements and/or undertaken any trading activities since its incorporation then it might consider a strike-off. However, a strike- off is only suitable as an alternative to a voluntary liquidation for companies that have never actually traded or have not traded for a long period of time because any shareholder or creditor, during the period of two years (see further details below) of the strike-off, can apply to have the company restored to the Register maintained by the Registrar of Companies in the Cayman Islands.

Assessment

1. The main advantage of seeking dissolution of the company via the strike-off route is that this would be a simpler legal process (even though not necessarily a simpler process for the company’s Directors as they have to deal with paying, settling and discharging all liabilities and distributing any remaining company assets prior to a strike-off) and is normally quicker than a shareholders’ voluntary liquidation of the company.

2. There are risks associated with achieving a dissolution via the strike-off route, including:

i. the strike-off process is more suited to companies which have never traded because it does not deal with the company’s liabilities to creditors and is not suitable for companies with extensive trading operations or valuable assets;

ii. in cases where there are any dissatisfied creditors or shareholders of the company, they can apply to the Cayman Islands Court at any time within a period of up to 2 years (this period may be extended by the Governor of the Cayman Islands for up to 10 years from the strike-off date) after the strike-off to have the company restored to the Companies’ Register. The Court will normally order a restoration if it feels that the company was at the time of the strike-off, carrying on business, or was in operation, and it is “just” to restore it – for example, in cases where the Court feels that creditors should be allowed to take proceedings to recover assets. If the company is restored to the Register it is deemed to have continued in existence as if its name had not been struck off but the Court can also make other orders as seem “just” for placing the company and all other persons in the same position as nearly as may be as if the name of the company had not been subject to a strike-off;

iii. unless the company has properly distributed all residual assets prior to strike-off, any assets held by the company at the time of strike-off will pass to the Financial Secretary of the Cayman Islands government (and will be subject to being disposed of by the Governor of the Cayman Islands or being retained for the benefit of the Cayman Islands) upon dissolution;

iv. the strike-off process, therefore, does not cut off creditors’ options in the way that a properly executed voluntary liquidation process would, and the creditors who wish to challenge distributions made to the shareholders prior to a strike-off, for example, may be able to apply to the Court to have the company restored and raise claims well after the strike-off and dissolution.

3. Unlike the strike-off process, the ability to restore the company is not available to creditors or shareholders after the conclusion of a properly executed voluntary liquidation.

4. In determining whether to (i) seek a voluntary liquidation or (ii) a strike-off, the directors of a Cayman Islands company should assess, among other things:

i. the nature and extent of the assets and liabilities of the company and deal with these accordingly (i.e. discharge any and all creditors and transfer out all assets);

ii. whether or not there is a real risk of, for example, a shareholder or creditor seeking a restoration of the company in the future if the company is dissolved by strike-off.

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Assessment

1. The main advantage of seeking dissolution of the company via the strike-off route is that this would be a simpler legal process (even though not necessarily a simpler process for the company’s Directors as they have to deal with paying, settling and discharging all liabilities and distributing any remaining company assets prior to a strike-off) and is normally quicker than a shareholders’ voluntary liquidation of the company.

2. There are risks associated with achieving a dissolution via the strike-off route, including:

    • the strike-off process is more suited to companies which have never traded because it does not deal with the company’s liabilities to creditors and is not suitable for companies with extensive trading operations or valuable assets;
    • in cases where there are any dissatisfied creditors or shareholders of the company, they can apply to the Cayman Islands Court at any time within a period of up to 2 years (this period may be extended by the Governor of the Cayman Islands for up to 10 years from the strike-off date) after the strike-off to have the company restored to the Companies’ Register. The Court will normally order a restoration if it feels that the company was at the time of the strike-off, carrying on business, or was in operation, and it is “just” to restore it – for example, in cases where the Court feels that creditors should be allowed to take proceedings to recover assets. If the company is restored to the Register it is deemed to have continued in existence as if its name had not been struck off but the Court can also make other orders as seem “just” for placing the company and all other persons in the same position as nearly as may be as if the name of the company had not been subject to a strike-off;
    • unless the company has properly distributed all residual assets prior to strike-off, any assets held by the company at the time of strike-off will pass to the Financial Secretary of the Cayman Islands government (and will be subject to being disposed of by the Governor of the Cayman Islands or being retained for the benefit of the Cayman Islands) upon dissolution;
    • the strike-off process, therefore, does not cut off creditors’ options in the way that a properly executed voluntary liquidation process would, and the creditors who wish to challenge distributions made to the shareholders prior to a strike-off, for example, may be able to apply to the Court to have the company restored and raise claims well after the strike-off and dissolution.

3. Unlike the strike-off process, the ability to restore the company is not available to creditors or shareholders after the conclusion of a properly executed voluntary liquidation.

4. In determining whether to (i) seek a voluntary liquidation or (ii) a strike-off, the directors of a Cayman Islands company should assess, among other things:

  • the nature and extent of the assets and liabilities of the company and deal with these accordingly (i.e. discharge any and all creditors and transfer out all assets);
  • whether or not there is a real risk of, for example, a shareholder or creditor seeking a restoration of the company in the future if the company is dissolved by strike-off.

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The Cayman Islands (Cayman) has been the leading offshore jurisdiction for merger and acquisition (M&A) activity over the last three (3) years. In 2015, Cayman-incorporated companies were the target of 863 transactions worth a combined value of USD116.41bn. The value was more than twice the amount of the British Virgin Islands with USD49.62bn (with 387 M&A transactions) and well in excess of Bermuda with 498 M&A transactions with a combined value of USD67.57bni. In 2016, Cayman-incorporated companies again led the way in terms of offshore M&A activity and were the target of transactions worth a combined USD68.85bn followed by the British Virgin Islands with USD41.65bn and Bermuda with USD41.25bnii. By way of comparison, Hong Kong incorporated companies were the target of transactions worth a combined USD33.19bn in 2016iii. Cayman-incorporated companies were the target of transactions worth a total USD80bn in 2017 and USD60bn in the first half of 2018.

 

The Cayman Merger Law regime is attractive for both companies and investors, due to the process being relatively straightforward and simpler than either a takeover offer (tender offer) under section 88 of the Cayman Islands Companies Law or a court-approved scheme of arrangement under section 86 or 87 of the Cayman Islands Companies Law. Set out below are the basic steps in the process of effecting a merger under Part XVI of the Cayman Islands Companies Law (As Revised).

 

  1. Forming MergerCo. The most straightforward structure used for a merger take-private is that a new company (“MergerCo”) is formed in the Cayman Islands by the investors adhering to the takeover group (often involving the founders/managers of the listed company, its parent and/or several private equity (PE) investors acting as sponsors for the purposes of the take-private transaction) (the “Buyout Group”) to take on finance and to be ultimately merged with the company which is the target of the take-private (“Target”).
  2. Take-Private Offer. After obtaining legal and financial advice, the Buyout Group agrees on the terms of the proposed merger take-private and the consideration which would be offered to the shareholders of the Target and makes an offer to the Board of the Target (the “Initial Take-Private Offer”). Since most of the take-private transactions are initiated by or with involvement of the management or certain shareholders represented at Board level, the merger process requires that a special committee formed of independent directors (the “Special Committee”) be designated to review the take-private offer and negotiate on behalf of the Target with the Buyout Group. This is both to ensure that the Board is in compliance with the fiduciary duties it owes the Target, and to avoid any accusation of self-dealing.
  3. Negotiations. The Special Committee reviews and negotiates the offer with the help of its own independent legal and financial advice, which may lengthen the process. Overall, the typical mission of the Special Committee is to: (i) investigate and evaluate the Initial Take-Private Offer, (ii) discuss and negotiate any terms of the merger agreement (the “Merger Agreement”), (iii) explore and pursue any alternatives to the Initial Take-Private Offer as the Special Committee deems appropriate, including maintaining the public listing of Target or finding an alternative buyer, (iv) negotiate definitive agreements with respect to the take-private or any other transaction, and (v) report to the Board the recommendations and conclusions of the Special Committee with respect to the Initial Take-Private Offer.
  4. Board Approval. The directors of each company participating in a merger (MergerCo and Target) are required to approve the terms and conditions of the proposed merger (the “Plan of Merger”), including, among other things:
    1. how shares in each participating company will convert into shares in the surviving company or other property (e.g. cash payable to shareholders);
    2. what rights and restrictions will attach to the shares in the surviving company;
    3. how the Memorandum and Articles of Association of the surviving company are amended; and
    4. what are the amounts or benefits paid or payable to any director consequent upon the merger.
  5. Shareholder Approval. For each constituent company (MergerCo and Target), the Plan of Merger is required to be authorized by a special resolution of the shareholders who have the right to receive notice of, attend and vote at the general shareholders’ meeting (“EGM”), voting as one class with at least two-thirds majorityiv.
  6. Consents. Each participating company must also obtain the consent of (i) each creditor holding a fixed or floating security interestv, and (ii) any other relevant consents or filings with relevant regulatory authorities, such as the Cayman Islands Monetary Authority or authorities in the overseas jurisdiction where the Target is registered and/or operates.
  7. Filing and Registration. After obtaining all necessary authorizations and consents, the Plan of Merger is required to be signed by a director on behalf of each participating company and filed with the Cayman Islands Registrar of Companies, who will register the Plan of Merger and issue a certificate of merger.
  8. Effective Date. The merger will be effective on the date that the Plan of Merger is registered by the Registrar of Companies unless the Plan of Merger provides for a later specified date or eventvi. Upon the effective date, all rights and assets of each of the participating companies shall immediately vest in the surviving company and, subject to any specific arrangements, the surviving company shall inherit all assets and liabilities of each of the participating companies (MergerCo and Target).
  9. Shareholder Dissent. Any shareholder of a company participating in the merger is entitled to payment of fair value of its shares upon dissenting from the merger under Section 238 of the Cayman Islands Companies Law. Fair value can either be agreed between the parties or determined by the Cayman Court.

 

i Figures from the M&A Latin America and Global Review published by Bureau van Dijk (Zephyr) for the year 2016.
ii Ibid.
iii Figures from the M&A Greater China Review published by Bureau van Dijk (Zephyr) for the year 2016.
iv Or such higher threshold as may be specified in the Memorandum and Articles of Association.
v Or, if the secured creditor fails to grant such consent, the company may apply to the court for a waiver.
vi If date or event is not more than 90 days after the Plan of Merger is registered by the Registrar of Companies.

LEGAL UPDATE

 

Undertaking Voluntary Liquidations of Cayman Islands’ Entities prior to 31 December 2019.

 

Voluntary liquidations generally

 

As the conclusion of 2019 approaches, clients should give some thought to whether or not they have Cayman entities which they are no longer using and wish to liquidate prior to the end of 2019 in order to, among other things, avoid annual government registration fees due in January 2020. A voluntary liquidator of a Cayman company or exempted limited partnership (ELP) is required to hold the final general meeting for that company or file the final dissolution notice for that ELP on or before 31 January 2020.

 

Voluntary liquidations – Funds registered with CIMA

 

Investment Funds which are registered with the Cayman Islands Monetary Authority (CIMA) should commence voluntary liquidation and submit documents to CIMA in order to have those Funds’ status change from “active” to “license under liquidation” by Tuesday, 31 December 2019 if they are to avoid their annual fees payable to CIMA for 2020. It is also important for investment funds registered with CIMA to give some thought to CIMA’s requirement for a final “stub” audit for the period of 2019 in respect of which the Fund operated before going into liquidation. CIMA may be reluctant to grant a partial year audit waiver for a liquidating Fund.

 

As an alternative to voluntary liquidation, some investment fund managers might be considering a wind down of one or more CIMA registered funds prior to the end 2019 and wish to de-register from CIMA or at least go into the status of “licence under termination” with CIMA in order to avoid or reduce annual registration fees payable to CIMA for 2020. If not already started, we recommend that action be taken now to begin this process.

 

For specific advice on voluntary liquidations of Cayman Islands’ entities or winding down investment funds before 31 December 2019, please contact any of:

 

E: gary.smith@loebsmith.com
E: ramona.tudorancea@loebsmith.com
E: vivian.huang@loebsmith.com
E: yun.sheng@loebsmith.com
E: elizabeth.kenny@loebsmith.com
E: santiago.carvajal@loebsmith.com

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The Cayman Islands Data Protection Law, 2017 (“DPL”) which will regulate the future processing of all personal data in the Cayman Islands or by any entity established in the Cayman Islands will come into effect on 30 September 20191. Cayman Islands’ entities that handle any individual’s personal information will have certain obligations with respect to that information, including ensuring that any such individual is formally notified as to what any of their personal data is being used for, and by whom. The DPL will have significant implications for investment funds, investment managers and fund administrators, either based in the Cayman Islands or dealing with personal data collected or processed by Cayman Islands entities.

 

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As part of the subscription process in a Cayman Islands investment fund, investors are required to provide a government-issued photo ID, information relating to source of funds and wealth, contact details, payment details, and tax residence information, and sometimes certain additional information about employment, dependents, income and investment objectives (the “Investor Personal Data”), which are processed and stored by or on behalf of the investment fund (the “Fund”) and/or by one or more of the service providers to the Fund. Some of the processing may be done in various jurisdictions.

 

Generally, the Fund, the administrator of the Fund, any transfer agent or distributor, and the investment manager of a Fund may fall within the definition of a Data Controller or Data Processor under the DPL. For purposes of ensuring compliance, the distinction between a Data Controller and a Data Processor is important, since there is no specific liability under the DPL for Data Processors. Data Controllers will instead be held liable for how the Investor Personal Data is processed.

 

The Fund’s Board of Directors should review the contractual arrangements with the Data Processors and update them as needed to ensure compliance with the DPL; based on the number of investors in the Fund, a Data Protection Officer may need to be appointed, although this is not a formal requirement under the DPL. The Fund’s Board of Directors may also request that the current administrator and investment manager of the Fund, if they are not based in the Cayman Islands, document and confirm compliance with the DPL or a similar data protection legislation.

 

As a reminder, the Board of Directors of the Fund is required to supervise third party service providers and ensure that there are sufficient measures in place to protect Investor Personal Data. Privacy Notices in the Fund’s offering documents and in the subscription application should be updated to ensure that investors are fully aware of where their Personal Data is being processed, by whom, and for what purpose.

Main Provisions of the Data Protection Law 2

Personal Data

Any information relating to an individual who can be identified, directly or indirectly, from that data (including online identifiers such as IP addresses and cookies may qualify as personal data if they are capable of being linked back to the individual).

Data Controller

A Data Controller is a person who, alone or jointly with others determines the purposes, conditions and manner in which any personal data are, or are to be, processed. The DPL applies to any Data Controller if (a) the Data Controller is established in the Cayman Islands3 and the personal data are processed in the context of that establishment; or (b) the Data Controller is not established in the Cayman Islands but the personal data are processed in the Cayman Islands otherwise than for the purposes of transit4. In this case, Art. 6(2) of the DPL requires the appointment of a local representative which shall be considered a Data Controller.

Privacy Notice

At the time of collection of the data, individuals must be informed of the purposes and details behind the processing, the details of transfers of data and any security and technical safeguards in place. This information is generally provided in a separate privacy notice.

Right to Access

Individuals have the right to obtain confirmation that their Personal Data is processed and to have access to it. Data Controllers must respond within a month of the access request. The DPL permits a reasonable fee to be charged in certain cases.

Retention Period

If there is no compelling reason for a Data Controller to retain Personal Data, a data subject can request its secure deletion.

Right to Erase

Should the individual subsequently wish to have his/her data removed and the Personal Data is no longer required for the reasons for which it was collected, then it must be erased. Data Controllers must notify third party processors or sub-contractors of such requests.

Transfers

International transfers of Personal Data are permitted to third party processors or between members of the same group.

Data Security

Appropriate technical and organisational measures must be taken to prevent unauthorised or unlawful processing of Personal Data and against accidental loss or destruction of, or damage to, Personal Data5.

Data Processors

A Data Processor is any person who processes Personal Data on behalf of a Data Controller (but does not include the employees of the Data Controller). There is no liability for processors under the DPL. However, they may be held liable based on contract or tort law.

Data Breach

In the event of a Personal Data breach, the Data Controller must, “without undue delay” but no longer than five (5) days after the Data Controller should have been aware of that breach, notify the Cayman Ombudsman and any affected individuals6.

Breach Notice

The notification should describe the nature of the breach, its consequences, the measures proposed or taken by the Data Controller to address the breach, and the measures recommended by the Data Controller to the individual concerned to mitigate the possible adverse effects of the breach.

Right to be Forgotten

The DPL contains a similar right, although this is expressed as a general right of “erasure”. Under the UK’s Data Protection Act, the right is limited to processing that causes unwarranted and substantial damage or distress. Under the DPL this threshold is not present. If there is no compelling reason for a Data Controller to retain Personal Data, a data subject can request its secure deletion.

Right to Object

An individual has the right at any time to require a Data Controller to stop processing his/her Personal Data for the purposes of direct marketing. There are no exemptions or grounds to refuse. A Data Controller must deal with an objection to processing for direct marketing at any time and free of charge.

Direct Marketing and Consent

Including an unsubscribe facility in each marketing communication is recommended best practice. If an individual continues to accept the services of the Data Controller without objection, consent can be implied.

Data Processors

Best practice would always be to put in place a contract between a controller and processor. Essentially, the contract should require the Data Processor to level-up its policies and procedures for handling personal data to ensure compliance with the DPL. Use of sub-contractors by the service provider should be prohibited without the prior approval of the Data Controller7.

Data Protection Officer

The DPL does not require the appointment of a Data Protection Officer, although this is recommended best practice.

Penalties

Refusal to comply or failure to comply with an order issued by the Cayman Ombudsman is an offence. Penalties are also included for unlawful obtaining or disclosing Personal Data8. Directors may be held liable under certain conditions9.

The Data Controller is liable on conviction to a fine up to CI$100,000 (circa US$122,000) or imprisonment for a term of 5 years or both. Monetary penalty orders of an amount up to CI$250,000 (circa US$304,878) may also be issued against a Data Controller.

 

If you would like to discuss the application of the DPL to your particular Cayman Islands entity, please contact your usual Loeb Smith attorney or any of:

 

E: gary.smith@loebsmith.com
E: ramona.tudorancea@loebsmith.com
E: vivian.huang@loebsmith.com
E: yun.sheng@loebsmith.com
E: elizabeth.kenny@loebsmith.com
E: santiago.carvajal@loebsmith.com

 

View Full PDF

 

1. The Data Protection Law, 2017 (Commencement) Order, 2019
2. This is not a comprehensive analysis of the DPL.
3. Other than residents, fall under this category companies incorporated or registered as a foreign company in the Cayman Islands, partnerships and associations formed in the Cayman Islands, as well as any persons who maintain in the Cayman Islands an office, branch or agency, or a regular practice.
4. See Art. 6 of DPL
5. See Schedule 1 of DPL
6. See Art. 16 of DPL
7. Under DPL, the Data Controller is liable for breaches and non-compliance, whereas processors may not be. It is therefore very im-portant for a Fund’s Board of Directors to ensure that adequate contractual protections are in place.
8. See Arts. 53-54 of DPL
9. See Art. 58 of DPL

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