Renewal of Director registration

Directors who are registered with CIMA in accordance with The Directors Registration and Licensing Law, 2014 (“DRLL”) in connection with being a Director of an entity that is registered with CIMA (e.g. registered Mutual Fund or an investment management or investment advisory entity that has “Excluded Person” status under the Securities Investment Business Law (2015 Revision)) (a “Covered Entity”) should by this time of the year have received a reminder from CIMA to renew registration via the CIMA portal https://gateway.cimaconnect.com/. A Director should renew his or her registration with CIMA if he or she will continue to be a Director of one or more Covered Entity that either (1) will carry on business for some or all of 2017, or (2) is in the process of winding down such business but the process will not cease prior to 31 December 2016.

Resignation from a Covered Entity

CIMA has stated[i] that if a Director no longer wishes to be registered or licensed as a Director of a Covered Entity, the Director must liaise with the Covered Entity’s registered office and ensure that CIMA receives written resolutions or an updated register of directors, stamped by the Registrar of Companies, to duly notify CIMA of the Director’s resignation from that Covered Entity.

Resignation of a Director from a Covered Entity will not automatically result in a surrender of the Director’s registration or licence under the DRLL.

Surrender of Director registration

CIMA has also stated[ii] that if a Director no longer wishes to be registered or licensed as a Director in accordance with the DRLL, he or she must first resign as a Director of all Covered Entities, then log into the CIMA portal, complete the requisite information under “Surrender”, and pay the relevant surrender fee (US$731.71).

Once the Director has paid the surrender fee, CIMA will check its records to confirm that the Director is no longer listed as a Director on any Covered Entity. If he or she remains as a Director on a Covered Entity, CIMA has stated that it will be unable to process the Director’s surrender application.

In addition to submitting the surrender fee, the Director is required to submit a formal letter which MUST contain the following information:

1. that he or she has resigned as a Director of all Covered Entities;

2. that he or she no longer plans to act as a Director on any Covered Entity; and

3. that if he or she would like to act on any other Covered Entity or wishes to resume directorship services after he or she has surrendered his or her registration or licence, he or she will re-apply under the DRLL.

The Director is responsible for updating his or her records accordingly and must complete the requirements to surrender his or her registration or licence before the 31st December in order to avoid accruing next year’s annual fees, as well as penalties calculated at 1/12th of the annual fee for every month or part of a month after the 15th of January in each year that the fee is not paid.

As stated above, Directors who will continue to provide directorship services and wish to remain current with their registration or licence status under the DRLL MUST, on or before the 15th of January in each calendar year, renew their registration or licence through the CIMA portal.

For specific advice on renewal or surrender under the DRLL or resignation from a Covered Entity, please contact any of:

E gary.smith@loebsmith.com
E yun.sheng@loebsmith.com

[i] CIMA’s Supervisory Issues & Information Circular– Second Edition issued in October 2016
[ii] CIMA’s Supervisory Issues & Information Circular– Second Edition issued in October 2016

In our previous publication Interim Payment Relief: New Developments Regarding Dissenters’ Rights under Cayman Merger Law, we discussed a new and significant development for minority shareholders in their quest to obtain the “fair value” for their shares in the context of a merger take-private carried out under the Cayman Islands statutory merger regime (the “Cayman Merger Law”).

In an interim judgement issued on 26th January 2017 in the matter of Blackwell Partners LLC et al v. Qihoo 360 Technology Co Ltd., the Court decided that interim payments pursuant to the Grand Court Rules (G.C.R.) could be requested by dissenting shareholders and granted by the Court during the judicial proceedings initiated under Section 238 of the Cayman Merger Law. Dissenters’ rights to interim payments now seem entrenched after a second decision was issued on 8th August 2017 in the matter of Qunar Cayman Islands Ltd.

Building upon the reasoning previously adopted by the Court in Qihoo 360 Technology Co Ltd., the recent ruling in Qunar Cayman Islands Ltd. provides further guidance on interim relief available as part of proceedings initiated under Section 238 of the Cayman Merger Law.

1. Availability of Interim Relief Confirmed: As expected, the recent judgment followed Qihoo 360 Technology Co Ltd. and confirmed that requests for interim payment can be made by dissenting shareholders as part of the Section 238 proceedings, and that the Court has jurisdiction to grant such payments, in an amount determined to be “just”. In the matter of Qunar Cayman Islands Ltd., the “just” payment was deemed to be equal to the amount of the merger consideration which had been offered generally to the shareholders by the company.

2. Evidence Needed for Interim Relief to be Granted: At this stage, it seems unlikely that any interim payments ordered as part of Section 238 proceedings will exceed the merger consideration as approved as part of the merger agreement, especially if, as was the case in Qunar Cayman Islands Ltd., the request for interim relief is made before any expert report is submitted on valuation issues. For the purposes of interim relief, however, the Court appears willing and able to rely entirely on the company’s affirmations that the merger price represented the fair value of shares, without requiring dissenters to present any additional “fair value” evidence.

3. Costs of the Interim Relief Application: At this stage and taking account that interim payments in the context of judicial proceedings initiated under Section 238 of the Cayman Merger Law are a new development, the Court decided not to grant the dissenters’ request that the company bear the costs of the application. However, in the future, it cannot be excluded that such request for costs be granted by the Court.

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

Gary Smith

E gary.smith@loebsmith.com

Ramona Tudorancea

E ramona.tudorancea@loebsmith.com

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Cayman: Laws relating to IP in the Cayman Islands are administered by the Cayman Islands Intellectual Property Office (CIIPO).

BVI: Laws relating to IP in the BVI are administered by the BVI Office of the Registrar of Trade Marks, Patents & Copyright within the Registry of Corporate Affairs.

Trademarks

Cayman Islands: Until 31 July 2017, the Cayman Islands offered trademark protection by way of extension of an existing UK trademark registration and also by the extension of an EU trademark registration; however, direct national filings in the Cayman Islands were not an option. For businesses (both local and foreign) whose interests were principally located in the Americas and the Caribbean, this resulted in increased trademark prosecution costs since they had to first secure protection in a foreign jurisdiction before they could apply in the Cayman Islands. In many cases such businesses would have had no bona fide intention to use the relevant mark in the first filing jurisdictions, thereby falling short of one of the requirements for UK trademark filings and calling into question the validity of the resulting registration of any extensions filed.

BVI: Until 31 August 2015, the BVI offered a dual trademark filing system under which trademark protection could be secured for goods and services on application to extend a UK trade mark registration to the BVI and/or, for goods only, on the filing of a trade mark application directly in the BVI.

Both jurisdictions modernized their trademark laws in 2015 (BVI) and 2017 (Cayman Islands) and as of 1 September 2015 (BVI) and 1 August 2017 (Cayman Islands) it is no longer possible to extend existing foreign trademark registrations to either jurisdiction. All existing trademark registrations were transferred over to the new registers. Since the implementation of the respective changes in law only the direct registration of trademarks in each jurisdiction is permitted.

Each jurisdiction now offers direct registration systems with some key common characteristics, including:

1. the Nice Classification system as a mode of classifying goods and services under a trademark;
2. multi-class filings;
3. similar prosecution processes and formalities: filing, examination, acceptance, publication, registration;
4. similar criteria for assessing the registrability of a trademark on both absolute and relative grounds;
5. disclaimer and limitation practices as a condition to registration in certain cases;
6. similar trademark opposition periods (three (3) months in the BVI and sixty (60) days in the Cayman Islands);
7. provisions for the registration of certification and collective trademarks;
8. an initial 10-year duration and renewal term.

1. Neither the BVI nor the Cayman Islands is party to the Convention for the Protection of Industrial Property signed in Paris on 20 March 1883, as revised or amended from time to time (Paris Convention). But BVI laws allow for the filing of priority-based applications where there is an earlier application in a Paris Convention country and the BVI application is filed within six (6) months of the filing date of the priority application. The BVI also allows for priority-based applications on the basis of an earlier application in a World Trade Organisation member country within the same six-month window.
2. The BVI allows for cases of trademark infringement to be brought on the basis of a trademark entitled to protection under the Paris Convention as a well-known trademark; the defensive registration of well-known trademarks is also allowed.
3. Whilst both the Cayman Islands and the BVI follow the Nice Classification when examining specifications of goods and services, office actions based on specification queries are more commonly issued in the Cayman Islands where terms from WIPO’s Nice Classification database and the Harmonised List of the EUIPO TMclass database are not used (terms from these lists are automatically accepted). Class headings are also accepted in the Cayman Islands subject to certain general indications as outlined in Practice Note 02/2017 issued by the CIIPO.
4. Trademarks which are not put to genuine use in the BVI within three (3) years of the date of registration are subject to revocation where there is no valid reason for non-use. There is no procedure to revoke a trademark registration in the Cayman Islands on grounds of non-use, although revocation actions may be brought on other grounds (for example, where a particular trademark no longer functions as a trade mark on its becoming common in the trade).
5. Series marks registered under the repealed trademarks law in the Cayman Islands must be divided into individual trade mark registrations on or before the next renewal date. The current trademarks law does not allow for the filing of series marks. However, the BVI legislation does allow for the registration of series marks.
6. Annual fees fall due every 1 January in the Cayman Islands for the life of a trademark registration. Where annual fees are unpaid by 31 March of each year, the rights protected by the registration are in abeyance until annual fees and late penalty fees are paid up to date. This means that registered rights cannot be enforced against third parties until all annual fees and late fees are paid up to date as registered rights are not considered to be in good standing. The BVI does not have an annual fees regime for trademarks.

Proprietors of UK-registered designs enjoy the same rights and privileges in the BVI as they do in the UK without any need to re-register. Designs registered in the UK automatically extend to the BVI for the life of the UK registration. Local publication of the design in the BVI is nevertheless advisable to put the public on notice of rights in and to the registered design.

Prior to 1 August 2017 there was no protection for designs in the Cayman Islands. On 1 August 2017, the Cayman Islands introduced an indirect registration process. The Design Rights Registration Act, 2016 enables proprietors of UK and EU Registered Design Rights to extend their Registered Design Rights to the Cayman Islands and renew such rights for so long as they are renewed and valid in the UK or EU respectively. There is no substantive examination, and no opposition or invalidation procedure. However, there is a requirement to pay annual fees every 1 January for the life of the registration and, where unpaid for more than 12 months, registrations are liable to cancellation by the Registrar.

Most recently, the Designs Rights Act, 2019 was passed in the Cayman Islands to allow for the direct registration of designs. Designs are defined therein as “the design of the shape or configuration (whether internal or external) of the whole or part of an article”. This legislation is not yet in practical effect.

Both the BVI and the Cayman Islands allow for the indirect registration of patents. Once a UK or EP(UK) patent is granted, an application can be made in either jurisdiction to extend the scope of protection. In the Cayman Islands, there is no deadline for the filing of the application to extend rights, whereas in the BVI, rights must be extended within three (3) years from the date of issue of the UK patent. The length of protection in each jurisdiction once rights are extended or re-registered is dependent on that of the underlying UK or EP(UK) patent. If the underlying patent expires or becomes invalidated, so does the corresponding patent in each jurisdiction.

In the Cayman Islands, an annual fee must be paid for the life of the patent in order to keep registered rights in good standing. A default in the payment of the annual fee causes registered rights to be held in abeyance until all annual fees and, including any penalties for late payment, are paid up to date. Furthermore, default in the payment of the annual fees and penalties for more than 12 months may result in registered rights being cancelled by the Registrar. In the BVI, each time an annuity or renewal fee is paid in the UK in respect of a patent that has been extended to the BVI, certified proof of same should be provided to the BVI Registry along with payment of the corresponding local renewal fee.

The Cayman Islands legislation also includes some anti-patent trolling provisions to prevent abuse by patent trolls (otherwise called Patent Assertion Entities). A patent troll is a person or entity which holds and enforces patents in an aggressive and opportunistic manner, often with no intention of marketing or promoting the subject of the patent. In other jurisdictions, particularly in the U.S.A., the activities of patent trolls have imposed considerable economic burdens on the creative pursuits of others involved in development and commercial exploitation of IP. The experience in those jurisdictions is that software patents are particularly prone to such abuse. The anti-patent trolling provisions of the Cayman Islands’ patent legislation are designed to limit persons from making assertions of patent infringement in bad faith. In addition to the general prohibition on such bad-faith assertions, the legislation includes a statutory remedy for those aggrieved by the actions of patent trolls. Furthermore, the Cayman courts will not recognise or enforce a foreign judgment to the extent the claim is based on an assertion of patent infringement made in bad faith.

Notably, the BVI also has a Patents Act (Revised 2020) that allows for the direct registration of patents. However, applications for such patents are not currently accepted by the Registry in practice and this is unlikely to change in the near future.

An amended version of the UK’s Copyright Act of 1956 was extended to the BVI under The Copyright (Virgin Islands) Order 1962 and continues to be in effect today. Until 30 June 2016, copyright protection in the Cayman Islands was also by way of extension of the UK’s 1956 Act via the Copyright (Cayman Islands) Order 1965 (the 1965 Order). However, on 30 June 2016, Part 1 of the UK’s Copyright, Designs and Patents Act 1988, subject to certain exclusions and modifications, was extended to the Cayman Islands. This was a significant development for the Cayman Islands, and the first step in the Cayman Islands’ Government’s plans to reform and modernize intellectual property laws generally.

In keeping with the approach taken by the UK and many other countries around the world, no copyright registration procedure is in place in either jurisdiction. Instead, protection arises automatically once the work is recorded, in writing or otherwise.

The recent development of IP laws in the Cayman Islands and the BVI has significantly increased the ability of businesses, entrepreneurs and developers of new technology (for example, with respect to Blockchain technology) to protect, exploit and enforce their IP rights.

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This publication is not intended to be a substitute for specific legal advice or a legal opinion. If you require further advice relating to the matters discussed in this Legal Insight, please contact us. We would be delighted to assist.

E: gary.smith@loebsmith.com
E: robert.farrell@loebsmith.com
E: ivy.wong@loebsmith.com
E: edmond.fung@loebsmith.com
E: elizabeth.kenny@loebsmith.com
E: cesare.bandini@loebsmith.com
E: vivian.huang@loebsmith.com
E: faye.huang@loebsmith.com
E: yun.sheng@loebsmith.com

In certain circumstances the official liquidator of a Cayman company may be able to take action to recover assets which have been transferred in the run up to the company’s insolvency. It is important for those concerned with the affairs of a Cayman company in the twilight of insolvency to be aware of the statutory powers available to the official liquidator and the Grand Court in the Cayman Islands.

Voidable preferences

Section 145(1) of the Companies Law (2016 Revision) (the “Law”) provides that every conveyance or transfer of property, or charge thereon, and every payment obligation and judicial proceeding, made, incurred, taken or suffered by any company in favour of any creditor at a time when the company is unable to pay its debts within the meaning of section 93 with a view to giving such creditor a preference over other creditors shall be invalid if made, incurred, taken or suffered within six (6) months immediately preceding the commencement of a liquidation.

Section 93 provides that a company shall be deemed to be unable to pay its debts if:

(a) it fails to comply with a statutory demand;

(b) the company fails to satisfy a judgment debt; or

(c) it is proven to the satisfaction of the Court that the company is unable to pay its debts.

Pursuant to section 100 of the Law, the compulsory winding up of a company is deemed to commence at the time of the presentation of the petition for the winding up or, in the case of a voluntary liquidation, at the time of the resolution or expiry of the relevant period or occurrence of an event provided by the company’s Articles of Association upon which the company is to be wound up.

It is important to note that a payment to a related party of a company shall be deemed to have been made with a view to giving a creditor a preference if made within the preceding period of six (6) months. Section 145(3) provides that a creditor shall be treated as a “related party” if it has the ability to control the company or exercises significant influence over the company in making financial and operating decisions.

Dispositions at an undervalue

Section 146(2) of the Law provides that every disposition of property made at an undervalue by or on behalf of a company with intent to defraud its creditors shall be voidable at the instance of its official liquidator. The official liquidator bears the burden of establishing an intent to defraud and no action may be brought under this section after six years following the date of the relevant disposition. A number of important definitions are set out in section 146(1):

(a) “disposition” has the meaning ascribed in Part VI of the Trusts Law (As Revised);

(b) “intent to defraud” means an intention to willfully defeat an obligation owed to a creditor;

(c) “obligation” means an obligation or liability (which includes a contingent liability) which existed on or prior to the date of the relevant disposition;

(d) “transferee” means the person to whom a relevant disposition is made and shall include any successor in title; and

(e) “undervalue” in relation to a disposition of a company’s property means:

(i) the provision of no consideration for the disposition; or

(ii) a consideration for the disposition the value of which in money or monies worth is significantly less than the value of the property which is the subject of the disposition.

However, the rights of the transferee are subject to some protection. Pursuant to section 145(5) of the Law in the event that any disposition is set aside under this section and the Court is subsequently satisfied that the transferee has not acted in bad faith:

(a) the transferee shall have a first and paramount charge over the property which is the subject of the disposition, of an amount equal to the entire costs properly incurred by the transferee in the defence of the action or proceedings; and

(b) the relevant disposition shall be set aside subject to the proper fees, costs, pre-existing rights, claims and interests of the transferee (and of any predecessor transferee who has not acted in bad faith).

Fraudulent Trading

Pursuant to section 147, if in the course of a winding up of a Cayman company it appears that any business of the company has been carried on with intent to defraud creditors of the company or creditors of any other person or for any fraudulent purpose the liquidator may apply to the Court for a declaration that any persons who were knowingly parties to the carrying on of the business in such a manner are liable to make such contributions, if any, to the company’s assets as the Court thinks proper.

This Briefing Note is not intended to be a substitute for specific legal advice or a legal opinion. For more specific advice on setting aside of antecedent transactions in the Cayman Islands, please contact:

Gary Smith

E gary.smith@loebsmith.com

Ramona Tudorancea

E ramona.tudorancea@loebsmith.com

In line with the transparency and compliance efforts that made the Cayman Islands one of the early adopters of the Common Reporting Standard (CRS) and FATCA, the Cayman Islands introduced, with effect from 1st July 2017, a beneficial ownership regime (the “BO Regime”) which requires each company and limited liability company (LLC) to maintain a register of beneficial owners holding more than 25% of the interests in the company or LLC. The rules are set out in Part XVIIA (Beneficial Ownership Registers) of the Companies Law (2018 Revision) (the “Companies Law”). All companies and LLCs incorporated or registered by way of continuation in the Cayman Islands are collectively referred to herein as “Companies”.

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In summary, a register is required to be created for Companies covered by the BO Regime, to be maintained at each company’s registered office in the Cayman Islands, in which beneficial ownership information is required to be kept current (the “BO Register”). Entries from the BO Register have to be periodically uploaded onto a centralized search platform (the “Beneficial Ownership Platform”) which is maintained by the Cayman Islands government authorities and accessible under certain conditions.

An individual is a “beneficial owner”[i] of a company or LLC if he/she holds, directly or indirectly:

(a) more than 25% of the shares in the company or interests in the LLC; or
(b) more than 25% of the voting rights in the company or LLC; or
(c) the right to appoint or remove a majority of the board of directors of the company or managers of the LLC.

If no person meets the conditions of (a), (b) or (c) above, then a person who has the absolute and unconditional legal right to exercise, or actually exercises, significant influence or control over the company or LLC (through the ownership structure or otherwise), other than solely in the capacity of a director, professional advisor or professional manager[ii], will be deemed a beneficial owner.

Companies required to maintain a BO Register are mainly those that are not already subject to some form of direct regulatory oversight (e.g. subject to regulatory oversight in the Cayman Islands, U.S.A., China, U.K., E.U.) or indirect regulatory oversight (e.g. subject to regulatory oversight by a competent authority in an equivalent jurisdiction). In any case, limited partnerships and foreign companies will not be subject to the BO Regime.

Effectively Companies which are structured as Cayman Islands investment funds, whether hedge funds or private equity funds, and general partners of private equity funds, real estate funds, or other investment funds, will not have to maintain a BO Register provided they fall within one of several exemptions contained in the Companies Law (e.g. the investment fund (i) is listed on a recognized stock exchange or (ii) has appointed a fund administrator that is licensed and regulated either in the Cayman Islands or in an equivalent legislation jurisdiction, or (iii) appointed an in-vestment manager that is licensed, registered and regulated either in the Cayman Islands or in an equivalent legislation jurisdiction, or (iv) appointed a sponsor that is licensed and regulated either in the Cayman Islands or in an equivalent legislation jurisdiction.
However Companies which are exempted are nonetheless required to file details outlining the ba-sis for their exemption from the requirement to file details of beneficial owners.

1. 1. keep its beneficial ownership register at the company’s registered office;
   2. take reasonable steps to identify any individual who is a beneficial owner of the company;
   3. take reasonable steps to identify all relevant legal entities that exist in relation to the company.

A “relevant legal entity” is a legal entity that (a) is incorporated, formed or registered (including by way of continuation or as a foreign company) in the Cayman Islands; and (b) would be a beneficial owner of the company if it were an individual[iii].

Where a “registrable person” (i.e. any beneficial owner and any relevant legal entity) knows that he or she is a beneficial owner of a Cayman company or a relevant legal entity and (i) has no reason to believe that the person’s required particulars are stated in the company’s beneficial ownership register, and (ii) the registrable person has not received a notice from the company in respect of its beneficial ownership obligations, the person shall:

(i) notify the company of the person’s status as a registrable person in relation to the company;

(ii) state the date, to the best of the person’s knowledge, on which the person acquired that status; and

(iii) give the company the required particulars.

A company or LLC that knowingly and wilfully contravenes its obligations with respect to the BO Register will be liable:

(i) in the case of a first offence, to a fine of CI $25,000 (circa US $30,500); or

(ii) in the case of a second or subsequent offence, to a fine of CI $100,000 (circa US $122,000); and

(iii) Where a company is convicted of a third offence, the Cayman court may order that the company be struck off the register by the Registrar of Companies.

Directors and officers may be guilty of the same offence and liable to the same penalty if non-compliance happens with their consent or connivance, or is attributable to their wilful default.

Sanctions also apply to “registrable persons” that knowingly and wilfully fail to comply with the notice received from the company or LLC, or that knowingly and wilfully make a statement that they know to be false in a material particular, or recklessly make a statement that is false in a material particular. In this case, the sanctions are:

(i) on conviction on indictment:

(a) in the case of a first offence, to a fine of CI $25,000 (circa US $30,500); or

(b) in the case of a second or subsequent offence, to a fine of CI $50,000 (circa US $74,500) or to imprisonment for a term of two years, or to both;

(ii) on summary conviction, imprisonment for twelve months or a fine of CI$5,000 (circa US $6,100), or both.

If the company or LLC does not receive the information from the registrable persons within a month of requesting them, a restrictions notice¹ may be issued to the registrable persons whose particulars are missing, with a copy to the competent authority². If the company or LLC has sent a restrictions notice³, then until it is withdrawn:

(i) any transfer or agreement to transfer the interest held by the person having received the restrictions notice, or to transfer a right to be issued with any shares, or a right to receive payment of any sums due from the company, is void (other than in a liquidation);

(ii) no rights are exercisable in respect of the interest (including the right to vote or appoint a proxy), no shares may be issued and, except in a liquidation, no payments may be made of sums due from the company, whether in respect of capital or otherwise; and

(iii) the BO Register will state ““restrictions notice issued” and the date of issue of the notice⁴.

Restrictions may be withdrawn by the company or LLC, if the company or LLC is satisfied with information and/or explanations received, or if the rights of a third party are being unfairly affected by the restrictions notice⁵. The restrictions may also be removed by the Court upon application by an interested party. Finally, a company or LLC may apply to the Court that interests subject to restrictions be sold, with the proceeds to be paid into the Court for the benefit of the beneficial owners⁶.

Information regarding beneficial owners is protected under the Confidential Information Disclosure Law, 2016⁷. The Beneficial Ownership Platform is accessible, however, by the Cayman Islands Government Minister with responsibility for Financial Services⁸ upon formal request by the Financial Intelligence Unit, the Financial Reporting Authority, the Cayman Islands Monetary Authority, the Tax Information Authority, or another body monitoring compliance with money laundering regulations⁹, or by the Financial Crime Unit of the Royal Cayman Islands Police Service in response to a request from a jurisdiction that has entered into an agreement with the Cayman Islands respecting the sharing of beneficial ownership information.

If you would like to discuss the application of the Beneficial Ownership regime 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

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[i] Section 247 of the Companies Law
[ii] Section 247(4) of the Companies Law
[iii] Section 248 of the Companies Law
1 Section 256(3) of the Companies Law
2 According to Section 246(1) of the Companies law, the competent authority is the Minister charged with responsibility for Financial Services.
3 Section 266(1) of the Companies Law
4 Section 7(2) of the Beneficial Ownership (Companies) Regulations, 2017
5 Section 273 of the Companies Law; in this case, the BO Register will state “restrictions notice withdrawn”.
6 Sections 271(1) and 272(1) of the Companies Law
7 Section 264 of the Companies Law
8 Section 260(1) of the Companies Law
9 Section 262(1) of the Companies Law

In line with the transparency and compliance efforts that made the Cayman Islands one of the early adopters of the Common Reporting Standard (CRS) and FATCA, and which contributed to the continued success of the Cayman Islands as one of the premier offshore financial centres, an enhanced beneficial ownership regime will be implemented starting with 1st July 2017¹. The new rules are set out in a new Part XVIIA (Beneficial Ownership Registers) of the Companies Law (2016 Revision) (the “Companies Law”). The same rules also apply for limited liability companies (LLCs)². All companies and LLCs incorporated or registered by way of continuation in the Cayman Islands are collectively referred to herein as “Companies”.

In summary, an additional corporate registry will be created for Companies covered by the new regime, to be maintained at each company’s registered office in the Cayman Islands³, in which beneficial ownership information will be required to be kept current (the “BO Register”). Entries from the BO Register will have to be periodically uploaded onto a centralized search platform (the “Beneficial Ownership Platform”) which will be maintained by the Cayman Islands government authorities and accessible under certain conditions. The following is a summary of the new regime, including some useful insights for our clients and partners.

Companies required to maintain a BO Register will mainly be those that are not already subject to some form of direct regulatory oversight (e.g. subject to regulatory oversight in the Cayman Islands) or indirect regulatory oversight (e.g. subject to regulatory oversight by a competent authority in a Schedule 3 country). In any case, limited partnerships and foreign companies will not be subject to the new regime.

Investment Funds – Effectively Companies which are structured as Cayman Islands investment funds, whether hedge funds or private equity funds, and general partners of private equity funds, real estate funds, or other investment funds, will not have to maintain a BO Register provided they fall within one of several exemptions contained in the Companies Law.

Exemptions from the new BO Register regime – All Companies will be concerned⁴, except for those Companies which:

(a) are listed on the Cayman Islands Stock Exchange (CSX) or an “approved stock exchange”⁵;

(b) are registered or holding a licence under a “regulatory law”⁶ (regulatory law includes the Mutual Funds Law);

(c) are managed, arranged, administered, operated or promoted by an approved person as a special purpose vehicle, private equity fund, collective investment scheme or investment fund;

(d) are a general partner of a vehicle, fund or scheme referred to in paragraph (c) that is managed, arranged, administered, operated or promoted by an approved person; or

(e) are exempted by the Beneficial Ownership (Companies) Regulations, 2017.

In this context, “approved person” means a person or a subsidiary of a person that is regulated, registered or holding a licence in the Cayman Islands under a “regulatory law” or regulated in a jurisdiction listed in Schedule 3 of the Money Laundering Regulations (2015 Revision), or listed on the CSX or an “approved stock exchange”.

All exempted companies, ordinary non-resident companies and companies registered as special economic zone companies (SEZC) under the Special Economic Zones Law, 2011, are required to engage a corporate services provider (CSP) to assist them to establish and maintain their BO Registers⁷. Ordinary resident companies may either engage a CSP or the Registrar of Companies of the Cayman Islands may assist them⁸.

In practice, Cayman registered agents and other corporate services providers (CSPs) will be contacting and informing the Companies concerned of the new reporting obligations prior to 1st July 2017. For the investment funds industry, the Cayman Islands counsel may need to be involved in order to determine whether a fund, a general partner of a fund or an investment manager are subject to the requirement to keep a BO Register.

Companies required to maintain a BO Register will need to take reasonable steps to identify the individuals and the legal entities which fall under the definitions of beneficial owners and relevant legal entities.

In connection with the BO Register, Companies concerned are required to take “reasonable steps” to identify (i) any individual who is a beneficial owner of the company or LLC, and (ii) all relevant legal entities that exist in relation to the company or LLC. Together, (i) and (ii) are defined as “registrable persons”.

A person is a “beneficial owner”⁹ of a company or LLC if he/she holds, directly or indirectly:

(a) more than 25% of the shares in the company or interests in the LLC; or

(b) more than 25% of the voting rights in the company or LLC; or

(c) the right to appoint or remove a majority of the board of directors of the company or managers of the LLC.

If no person meets the conditions (a), (b) or (c) above, then a person who has the absolute and unconditional legal right to exercise, or actually exercises, significant influence or control over the company or LLC (through the ownership structure or otherwise), other than solely in the capacity of a director, professional advisor or professional manager¹⁰, will be deemed a beneficial owner.

A “relevant legal entity” is a legal entity that (a) is incorporated, formed or registered (including by way of continuation or as a foreign company) in the Cayman Islands; and (b) would be a beneficial owner of the company if it were an individual¹¹. Foreign legal entities are therefore not registrable persons.

Further guidance is provided to help a company to identify its beneficial owners as follows:

Direct interest: To directly own shares, voting rights, or the right to appoint or remove any member of the board of directors, the right to exercise significant influence or control directly over the company, or to actually exercise significant influence, or the right to exercise, or to actually exercise, significant influence or control directly over the activities of a trust, partnership or other entity the trustees or members of which hold an interest in a company directly¹².

Indirect interest: To have a majority stake in a legal entity which holds the shares or right directly or as part of a chain of other legal entities, with a “majority stake” defined as: (i) holding a simple majority of voting rights; or (ii) as a member, having the right to appoint or remove a simple majority of the board of directors; or (iii) as a member, controlling alone a simple majority of voting rights pursuant to a joint agreement with other shareholders or members; or (iv) having the right to exercise or exercising dominant direct influence or control¹³.

Joint Interest: If two or more persons each hold a share or right jointly, each of them is treated as holding that share or right. If shares or rights held by a person and shares or rights held by another person are the subject of a joint arrangement between those persons, each of them is treated as holding the combined shares or rights of both of them¹⁴.

Concerned Companies will need, starting with 1st July 2017, to maintain a BO Register. A specific step-by-step process of how companies should (i) identify (starting with the register of members but often looking beyond it), (ii) confirm, and (iii) record beneficial owners is detailed in the Companies Law and related Regulations. Specific instructions as to what the BO Register should include are also provided.

a. At first, it is expected that concerned Companies will be working on identifying any registrable persons. During this period of time, the BO Register should state “enquiries pending”.

b. If from the outset or following investigation, the company or LLC knows or has reasonable cause to believe that there is no registrable person, then the BO Register should state “no registrable person identified”.

c. Once the potential registrable persons are identified, the concerned company or LLC is required to give them notice¹⁵ in writing, asking them, within one month of the date of receipt of the notice:

(a) to confirm whether or not they are registrable persons; and

(b) if they are registrable persons, to confirm or correct any required particulars that are included in the notice and supply any required particulars that are missing.

During this period of time, the BO Register should state “confirmations pending”.

(a) to state whether or not they know the identity of a registrable person or any person likely to have that knowledge; and

(b) if so, within one month of receipt of the notice, to supply, at the expense of the company, any required particulars respecting such registrable persons that are within the addressee’s knowledge, and to state whether the particulars are being supplied with or without the knowledge of the person concerned.

Finally, a company is not required to give a notice if:

(a) the company knows that the individual or entity is not a registrable person; or

(b) the company has already been informed of the individual’s or entity’s status as a registrable person in relation to it, and has received all the required particulars.

d. Particulars are deemed confirmed and the notices process stops²⁰ when the company has reasonable grounds to believe that:

(i) the particulars were supplied or confirmed by the individual or entity to whom the particulars relate; or

(ii) if another person supplied or confirmed the particulars, this was done with the knowledge of the individual or entity to whom the particulars relate; or

(iii) if the particulars were included in a statement of initial significant control delivered to the Registrar by subscribers wishing to form a company.

In general, it is accepted that a company will be entitled to rely, without further enquiry, on the response of a person to a notice in writing sent in good faith by the company, unless the company has reason to believe that the response is misleading or false²¹.

e. If a company or LLC becomes aware of a relevant change, with respect to a registrable person or its particulars, which would cause the company’s BO Register to be materially incorrect or incomplete, then the company is required to give notice to the registrable person requesting confirmation of the change²². If the change is confirmed, the BO Registrar will need to be updated accordingly.

It should be noted that details of a previous registrable person can only be deleted from the BO Register after the expiration of five years from the date on which the person ceases to be a registrable person²³.

f. If a mistake is made, any person listed as a registrable person in relation to the company may apply to the Grand Court²⁴ for rectification of the company’s BO Register.

Concerned Companies will have a one year “grace period” commencing on 1st July 2017 during which they are required to work with the relevant Cayman registered agent in order to identify registrable persons and create the BO Register before sanctions are applicable.

Reminder: If the Companies fail to comply with its obligations without reasonable excuse or makes a statement that is false, deceptive or misleading in respect of a material particular in the BO Register, the CSP helping the company or LLC to maintain the BO Register is required to give notice to the company or LLC²⁵, and the company or LLC is then required to provide the missing particulars, as well as a justification or correction of any statements identified as false, deceptive or misleading.

Sanctions: After 1st July 2018²⁶, a company or LLC that knowingly and wilfully contravenes its obligations with respect to the BO Register will be liable to a fine of CI$25,000 (US$30,487.80), plus CI$500 (US$609.76) for each day during which the offence continues, up to a maximum of CI$25,000 (US$30,487.80)²⁷. Directors and officers may be guilty of the same offence and liable to the same penalty if non-compliance happens with their consent or connivance, or is attributable to their wilful default²⁸. Sanctions also apply to registrable persons that knowingly and wilfully fail to comply with the notice received from the company or LLC, or that knowingly and wilfully make a statement that they know to be false in a material particular, or recklessly make a statement that is false in a material particular. In this case, the sanctions are imprisonment for two years or a fine of CI$10,000 (US$12,195.12), or both (or, on summary conviction, imprisonment for twelve months or a fine of CI$5,000 (US$6,097.56), or both)²⁹.

Dealing with Non-Cooperative Shareholders: If the company or LLC does not receive the information from the registrable persons within a month of requesting them, a restrictions notice³⁰ may be issued to the registrable persons whose particulars are missing, with a copy to the competent authority³¹. If the company or LLC has sent a restrictions notice³², then until it is withdrawn:

(i) any transfer or agreement to transfer the interest held by the person having received the restrictions notice, or to transfer a right to be issued with any shares, or a right to receive payment of any sums due from the company, is void (other than in a liquidation);

(ii) no rights are exercisable in respect of the interest (including the right to vote or appoint a proxy), no shares may be issued and, except in a liquidation, no payments may be made of sums due from the company, whether in respect of capital or otherwise; and

(iii) the BO Register will state “restrictions notice issued” and the date of issue of the notice³³.

Restrictions may be withdrawn by the company or LLC, if the company or LLC is satisfied with information and/or explanations received, or if the rights of a third party are being unfairly affected by the restrictions notice³⁴. The restrictions may also be removed by the Court upon application by an interested party. Finally, a company or LLC may apply to the Court that interests subject to restrictions be sold, with the proceeds to be paid into the Court for the benefit of the beneficial owners³⁵.

Information regarding beneficial owners is protected under the Confidential Information Disclosure Law, 2016³⁶. The Beneficial Ownership Platform will be accessible, however, by the Cayman Islands Government Minister with responsibility for Financial Services³⁷ upon formal request by the Financial Intelligence Unit, the Financial Reporting Authority, the Cayman Islands Monetary Authority, the Tax Information Authority, or another body monitoring compliance with money laundering regulations³⁸, or by the Financial Crime Unit of the Royal Cayman Islands Police Service in response to a request from a jurisdiction that has entered into an agreement with the Cayman Islands respecting the sharing of beneficial ownership information. Currently, only the UK is deemed to be such a jurisdiction.

This is not intended to be a substitute for specific legal advice or a legal opinion.

1. The Beneficial Ownership (Companies) Regulations, 2017, the Companies (Amendment) Law, 2017, the Companies Management (Amendment) Law, 2017, Limited Liability Companies (Amendment) Law, 2017, Beneficial Ownership (Limited Liability Companies) Regulations, 2017, are scheduled to become effective on 1st July 2017.
2. Limited Liability Companies (Amendment) Law, 2017, Beneficial Ownership (Limited Liability Companies) Regulations, 2017, the provisions of which are fairly similar.
3. Section 252(1) of the Companies Law
4. Section 245 of the Companies Law
5. As listed in Schedule 4 of the Companies Law
6.Section 2 of the Monetary Authority Law (2016 Revision), which refers to (i) Banks and Trust Companies Law (2013 Revision); (ii) Building Societies Law (2014 Revision); (iii) Companies Management Law (2003 Revision); (iv) Cooperative Societies Law (2001 Revision); (v) Insurance Law, 2010; (vi) Money Services Law (2010 Revision); (vii) Mutual Funds Law (2015 Revision); and (viii) Securities Investment Business Law (2015 Revision).
7. Section 252(2) of the Companies Law
8. Section 252(3) of the Companies Law
9. Section 247 of the Companies Law
10. Section 247(4) of the Companies Law
11. Section 248 of the Companies Law
12. Section 11 of the Beneficial Ownership (Companies) Regulations, 2017
13. Sections 12-13 of the Beneficial Ownership (Companies) Regulations, 2017
14. Section 15 of the Beneficial Ownership (Companies) Regulations, 2017
15. Section 249(1) of the Companies Law
16. Section 254(1) of the Companies Law
17. According to Section 244(2) of the Companies Law, such entities should be treated as an individual for the purposes of determining if they are a beneficial owner.
18. Section 254(3) of the Companies Law
19. Section 249(3) of the Companies Law
20. Section 254(4) of the Companies Law
21. Sections 247(2) and 248(2) of the Companies Law
22. Section 255(1) of the Companies Law
23. Section 258 of the Companies Law
24. Section 259 of the Companies Law
25. Section 256(1) of the Companies Law
26. Section 5 of the Companies (Amendment) Law, 2017
27. Section 274 of the Companies Law
28. Section 278 of the Companies Law
29. Sections 275 and 276 of the Companies Law
30. Section 256(3) of the Companies Law
31. According to Section 246(1) of the Companies law, the competent authority is the Minister charged with responsibility for Financial Services.
32. Section 266(1) of the Companies Law
33. Section 7(2) of the Beneficial Ownership (Companies) Regulations, 2017
34. Section 273 of the Companies Law; in this case, the BO Register will state “restrictions notice withdrawn”.
35. Sections 271(1) and 272(1) of the Companies Law
36. Section 264 of the Companies Law
37. Section 260(1) of the Companies Law
38. Section 262(1) of the Companies Law