Loeb Smith ranked by Lexology as Legal Influencers Q1 2025 for Private client – Central and South America for  Cayman Islands law and BVI law related topics! 🥳🎉

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We are very pleased to share that our law firm has been ranked again as one of the HONG KONG FIRMS TO WATCH (2025) by Asian Legal Business.

Visit ALB to read the announcement:

https://www.legalbusinessonline.com/features/rankings-alb-hong-kong-firms-watch-2025

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We are excited to be shortlisted once again in the “Best offshore law firm” and “Best offshore law firm – client service” categories for the With Intelligence HFM Asia Services Awards 2025!

Last year we won the “Best offshore law firm – client service” award and had a fantastic time celebrating with friends and other professionals at the With Intelligence HFM Asia Services Awards evening.

It is a pleasure working with clients and professional parties in #HongKong, mainland #China #SouthKorea #Japan and other parts of Asia to advise on investment funds employing varying strategies to invest in all asset classes.

Being shortlisted in 2025 is industry recognition of our expertise in the investment funds sector and our long-term commitment to delivering outstanding client service.

With offices in Hong Kong, British Virgin Islands and Cayman Islands, our integrated business model combined with our far-reaching approach to innovation and client service, enables us to meet the ever-evolving needs of clients and grow alongside them through sustainable partnerships.

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Overview

Juliette was admitted as a solicitor in 2016 to the Supreme Court of New South Wales, Australia and has since gained experience as an in-house and private practice financial services lawyer.  She joined Loeb Smith’s Grand Cayman office in 2025 as a Senior Associate Corporate and Investment Funds team. Juliette’s practice areas include corporate and commercial, investment funds, financial services regulation with a particular focus on alternative investments (e.g. hedge funds, private equity and digital assets). Juliette regularly advises clients throughout fund lifecycle including formation and launch of both Cayman funds and Australian funds of all asset types and regulatory compliance matters.

Latest Updates and News

INSIGHTS | 15 May 2026

Enforcement of Foreign Judgments and Arbitration Awards in the British Virgin Islands

Learn about the enforcement of foreign judgments and arbitration awards in the British Virgin Islands, including procedures for monetary and non-monetary judgments, as well as the recognition and enforcement of Convention and non-Convention arbitral awards.
INSIGHTS | 14 May 2026

Key issues in series financing transactions from a BVI and a Cayman Islands law perspective

Explore key issues in series financing transactions from a BVI and Cayman Islands law perspective, including the legal advantages, common due diligence processes, and the specific features that make these jurisdictions attractive for startups and early-stage companies.
INSIGHTS | 11 May 2026

Cayman Islands – The latest position regarding tokenised funds

The Cayman Islands’ Mutual Funds (Amendment) Act, 2026 and the Cayman Islands’ Private Funds (Amendment) Act, 2026 both came into force as of March 24, 2026.
INSIGHTS | 23 April 2026

Key factors for launching a virtual assets business in the BVI

Learn the key factors for launching a virtual assets business in the BVI, including registration under the VASP Act, advantages of the jurisdiction, and the types of services regulated as virtual assets services, from exchanges to custody services.
INSIGHTS | 22 April 2026

Artificial Intelligence and Intellectual Property in the Cayman Islands and the BVI

The rapid advancement of artificial intelligence (AI) continues to raise complex questions about the applicability of intellectual property (IP) laws to AI and AI-generated works.

Cryptoasset trading

Fiat currency transactions
What rules and restrictions govern the exchange of fiat currency and cryptoassets?

Assuming the subject cryptoassets fall within the definition of virtual assets under the Virtual Asset (Service Providers) Act (As Revised) (VASP Act), the exchange of fiat currency and cryptoassets will likely constitute a virtual asset service under the VASP Act and hence any person providing the service of exchange of fiat currency and cryptoassets in the course of their business will be a virtual asset service provider regulated by the VASP Act.

Furthermore, if the exchange of fiat currency and cryptoassets falls within one of the relevant financial businesses under the Proceeds of Crime Act, the relevant service provider will be required to comply with the AML and KYC requirements under the AML Regulations, which include, among other things, implementing client identification and verification, record-keeping, and internal reporting and control procedures.

Exchanges and secondary markets
Where are investors allowed to trade cryptoassets? How are exchanges, alternative trading systems and secondary markets for cryptoassets regulated?

There are generally no legal requirements or restrictions on where investors are allowed to trade cryptoassets in the Cayman Islands, so investors are usually free to trade cryptoassets wherever they desire.

Assuming the subject cryptoassets that are traded on the exchanges, alternative trading systems and secondary markets qualify as virtual assets under the VASP Act, such exchanges, alternative trading systems and secondary markets will have to apply for a licence with the Cayman Islands Monetary Authority (CIMA) if either of them qualifies as a virtual asset trading platform under the VASP Act, which is defined as:

“a centralised or decentralised digital platform — (a) which facilitates the exchange of virtual assets for fiat currency or other virtual assets on behalf of third parties for a fee, commission, spread or other benefit; and (b) which — (i) holds custody of or controls virtual assets on behalf of its clients to facilitate an exchange; or (ii) purchases virtual assets from a seller when transactions or bids and offers are matched in order to sell them to a buyer, and includes its owner or operator, but does not include a platform that only provides a forum where sellers and buyers may post bids and offers and a forum where the parties trade in a separate platform or in a peer-to-peer manner.”

If the exchanges, alternative trading systems or secondary markets are licensed with CIMA as virtual asset trading platforms, each of them would be subject to various restrictions and obligations stipulated, among other things, under section 11 of the VASP Act, such as being restricted from providing financing to its clients for the purchase of virtual assets unless disclosures are made to clients regarding the terms of, and the risk of, the financing, and being obligated to carry out reasonable due diligence procedures on virtual assets and their issuers that are listed on the platform.

Alternatively, the exchanges, alternative trading systems and secondary markets for cryptoassets may otherwise have to be registered or licensed with CIMA if its business activity constitutes any virtual asset service under the VASP Act.

At the same time, the exchanges, alternative trading systems and secondary markets for cryptoassets may be regulated by the Securities Investment Business Act (SIBA) if the subject cryptoassets fall within the definition of securities under the SIBA, and if they are engaged in certain securities investment business, which would mandate the registration or licensing with CIMA.

Furthermore, if the business of exchanges, alternative trading systems and secondary markets for cryptoassets falls within one of the relevant financial businesses under the Proceeds of Crime Act, they will be required to comply with the AML and KYC requirements under the AML Regulations, which include, among other things, implementing client identification and verification, record-keeping, and internal reporting and control procedures.

Custody
How are cryptoasset custodians regulated?

Assuming the cryptoassets that are the subject of the custody service of the relevant cryptoasset custodians qualify as virtual assets under the VASP Act, such custodians will have to apply for a licence with CIMA if either of them provides virtual asset custody service under the VASP Act, which is defined as ‘the business of safekeeping or administration of virtual assets or the instruments that enable the holder to exercise control over virtual assets’. If the custodians are licensed with CIMA to provide virtual asset custody service, each of them would be subject to various restrictions and obligations stipulated, inter alia, under section 10 of the VASP Act, such as being obligated to:

  • maintain best technology practices relating to virtual assets held in custody;
  • not encumber or cause any virtual asset to be encumbered, unless specifically agreed to by the beneficial owners of the virtual assets;
  • ensure that all proceeds relating to virtual assets held in custody shall accrue for the benefit of the owner, unless otherwise agreed in writing;
  • take such steps as may be necessary to safeguard the virtual assets held;
  • have adequate safeguards against theft and loss; and
  • enter into a custodial arrangement with the owner of a virtual asset, which includes the prescribed details set out in the VASP Act.

Furthermore, if the business of such cryptoasset custodians falls within one of the ‘relevant financial businesses’ under the Proceeds of Crime Act, they will be required to comply with the AML and KYC requirements under the AML Regulations, which include, among other things, implementing client identification and verification, record-keeping and internal reporting and control procedures.

Broker-dealers
How are cryptoasset broker-dealers regulated?

Assuming the broker-dealer business of the relevant cryptoasset broker-dealers involves cryptoassets that qualify as virtual assets under the VASP Act, it is likely that such broker-dealers will have to be registered with CIMA and be regulated accordingly because such broker-dealer business typically involves either one or a combination of the following virtual asset services: transfer of virtual assets, virtual asset custody service, or participation in and provision of financial services related to a virtual asset issuance or the sale of a virtual asset.

At the same time, the cryptoasset broker-dealers may be regulated by the SIBA if the subject cryptoassets fall within the definition of securities under the SIBA, and if they are engaged in certain securities investment business (which would be likely in terms of dealing in securities and/or arranging deals in securities), which would mandate the registration or licensing with CIMA.

Furthermore, if the business of such cryptoasset broker-dealers falls within one of the relevant financial businesses under the Proceeds of Crime Act, they will be required to comply with the AML and KYC requirements under the AML Regulations, which include, among other things, implementing client identification and verification, record-keeping and internal reporting and control procedures.

Decentralised exchanges
What is the legal status of decentralised cryptoasset exchanges?

Since the definition of ‘virtual asset trading platform’ under the VASP Act also covers those trading platforms with a decentralised nature, certain pieces of legislation and regulations, such as the VASP Act, the SIBA and the AML Regulations, may similarly apply to decentralised cryptoasset exchanges so long as the subject cryptoasset and business activities fall within the corresponding scopes.

Peer-to-peer exchanges
What is the legal status of peer-to-peer (person-to-person) transfers of cryptoassets?

Assuming the cryptoassets that are the subject of the peer-to-peer transfers qualify as virtual assets under the VASP Act, if such peer-to-peer transfers are conducted in the course of the relevant party’s business, such peer-to-peer transfers may constitute a virtual asset service with respect to transfer of virtual assets under the VASP Act, which renders the need to be registered with CIMA.

Similarly, a party of peer-to-peer transfers of cryptoassets may be regulated by the SIBA if the subject cryptoassets fall within the definition of securities under the SIBA, and if that party is engaged in certain ‘securities investment business’ (which would be likely in terms of dealing in securities), which would mandate the registration or licensing with CIMA.

Furthermore, if such peer-to-peer transfers fall within one of the relevant financial businesses under the Proceeds of Crime Act, the relevant party will be required to comply with the AML and KYC requirements under the AML Regulations, which include, among other things, implementing client identification and verification, record-keeping, and internal reporting and control procedures.

Trading with anonymous parties
Does the law permit trading cryptoassets with anonymous parties?

In general, there are no legal restrictions on trading cryptoassets with anonymous parties, unless such trades are considered to be conducted in the course of business of the relevant party and the relevant party is considered to be providing the services of transfer of virtual asset under the VASP Act, and/or carrying out the relevant financial business under the AML Regulations, in which the relevant party will then be subject to certain due diligence requirements of the transaction parties and/or customers, hence making it difficult for a party to keep itself anonymous.

Foreign exchanges
Are foreign cryptocurrency exchanges subject to your jurisdiction’s laws and regulations governing cryptoasset exchanges?

In general, the location of domicile of a foreign cryptocurrency exchange does not affect whether Cayman Islands’ laws and regulations may govern such exchange.

For the VASP Act, what matters is whether any virtual asset service is provided in or from within the Cayman Islands in the course of business, the affirmation of which will render the foreign cryptocurrency exchange to register or be licensed with CIMA.

In addition, the SIBA also does not differentiate between the treatment for varying locations of domicile of a foreign cryptocurrency, and what matters is the actual business activity conducted by the relevant exchanges and whether it is being conducted in or from within the Cayman Islands.

Under what circumstances may a citizen of your jurisdiction lawfully exchange cryptoassets on a foreign exchange?
From the perspective of Cayman Islands laws, there is generally no legal restriction or requirement on how a citizen of the Cayman Islands is required to exchange cryptoassets on a foreign exchange.

Taxes
Do any tax liabilities arise in the exchange of cryptoassets (for both other cryptoassets and fiat currencies)?

There is generally no Cayman Islands tax liability for the exchange of cryptoassets.

This article was first published in Lexology First-step analysis: cryptoasset trading in Cayman Islands – Lexology

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Hong Kong April 2, 2025 Loeb Smith Attorneys, one of the leading offshore corporate law firms with a strong growing presence in the APAC region, is pleased to announce that it has advised Hong Kong listed company, CTF Services Limited (formerly known as NWS Holdings Limited) (00659.HK) (“CTF”), in its series of direct and indirect acquisitions of shares in uSmart Inlet Group Ltd (“uSmart”), the Cayman holding company of a leading technology group (with more than 20 global subsidiaries) specialising in the financial industry, dedicated to providing professional one-stop financial and wealth management services and solutions primarily in Hong Kong and Singapore to both retail and institutional clients, for a total consideration of approximately US$130 million. Loeb Smith Attorneys acted as the Cayman and BVI legal counsel to CTF.

CTF’s indirect wholly owned BVI subsidiary has entered into conditional sale and purchase agreements and relevant share charge arrangements in its favour (the “Acquisitions”) on March 18, 2025. The completion of the Acquisitions is subject to satisfaction or waiver of certain conditions precedent.

The Loeb Smith team included Kate Sun and Max Lee in Hong Kong. Partner and Head of the firm’s Corporate and Investment Funds Group, Gary Smith, commented, “It is very encouraging to see that our firm has a growing presence and is building strong momentum in the APAC market, where our clients are entrusting us with a wide variety of transactional work and important projects. We are thrilled to be working with reputable and well-established listed companies in Hong Kong like CTF, that allow us to advise in such large-scale acquisitions and achieve the necessary milestones together with other professional parties in support of our clients. Mergers and acquisitions, along with capital markets and litigation practices, are other key focus areas of our practice in Asia, and as a young and vibrant firm, we still see continued growth opportunities in this space.”

***

About Loeb Smith Attorneys

Loeb Smith Attorneys is one of the leading offshore corporate law firms considered one of the most active and knowledgeable firms for advising on offshore investment funds formation and launch of all asset classes including public securities, private equity, venture capital, real estate, and virtual assets. Other areas of strength and growth are advising on M&A, Finance, Corporate Restructurings, Capital Markets, Regulatory Compliance, Investments, Logistics, Shipping and Aviation.

Considered a leading law firm in the Fintech and Blockchain Technology space, Loeb Smith also advises on token issuances, application for VASP licences for Web 3.0 businesses, Metaverse infrastructure and other virtual asset service providers, and utilising Cayman and BVI structures to develop virtual asset platforms for DAOs. Loeb Smith’s clients are investment managers, financial institutions, onshore counsels, and HNWIs who the firm advises on day-to-day legal issues and complex, strategic matters.

Some of our firm’s recent accolades are: winning Leading Firm in Client Satisfaction 2024 award by Legal 500; ranked in Investment Funds category and listed as one of the Firms To Watch for Corporate & Commercial by Legal 500 in 2024; named as Recommended Firm by IFLR 1000 from 2021 to 2024; named in Offshore Client Choice List by Asian Legal Business from 2021 to 2023; ranked amongst Top 30 Asia’s Fastest Growing Law Firms by Asian Legal Business in 2023 and 2024; ranked in The A-List: Top Offshore Lawyers by Asia Business Law Journal in 2022 and 2024; named as one of the ALB Hong Kong Firms to Watch 2024; winning Best Law Firm – Fund Domicile at Hedgeweek US Emerging Manager Awards 2023 and 2024; winning Best Law Firm – Fund Domicile at Private Equity Wire US Emerging Manager Awards 2023 and 2024; winning Best Law Firm – Fund Domicile at Private Equity Wire US Awards 2023; and winning The Best Offshore Law Firm – Client Service at With Intelligence HFM Asia Services Awards 2024.

View Full PDF

www.loebsmith.com
BRITISH VIRGIN ISLANDS   |  CAYMAN ISLANDS  |  HONG KONG

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The British Virgin Islands and Cayman Islands companies remain key players in series financing transactions in Asia and beyond, offering a flexible, cost-competitive and well-tested means of deal structuring.

Q: What is a series financing transaction?

A series financing transaction is a type of equity investment deal in which an investor injects cash into a business in exchange for preferred shares. The issuance of preferred shares is typically documented by a share subscription agreement between the investor and the company. A shareholders’ agreement (SHA) is also entered into between the investor and the company to govern the parties’ rights and responsibilities. The company’s memorandum of association and articles of association (M&AA) are amended and restated to incorporate relevant provisions of the SHA. This is to ensure that there are no inconsistencies between the agreement’s contractual provisions and the company’s constitution.

Q: What makes the BVI and Cayman law attractive to startups and early-stage companies?

Cost-effective and quick to incorporate. The British Virgin Islands (BVI) and Cayman Islands companies are not expensive to incorporate and maintain. BVI companies are typically incorporated within one to two business days, while Cayman companies are incorporated within five to seven business days, or on a same-day express basis for an additional fee.

Corporate governance is efficient. Non-regulated entities may have a sole shareholder and a sole director, who may be the same person. There are no nationality and/or residency requirements for these roles.

Flexibility. There is flexibility in tailoring the M&AA of the company to accommodate the issuance of different classes of shares, and the rights and restrictions attached to them.

Tax neutrality. There is no corporation tax, capital gains tax, income tax, profits tax and/or share transfer tax under BVI and Cayman law.

Investor familiarity. Investors are familiar with the BVI and Cayman as jurisdictions that help facilitate investment decisions.

Secured creditor friendly. The BVI and Cayman are widely recognised as creditor-friendly jurisdictions, which help in facilitating debt financing that an early-stage company may require.

What due diligence is typically undertaken on behalf of a key investor?

Basic corporate information, M&AA, directors and shareholders. For Cayman companies, access to date of incorporation, company name and registered address is publicly available. Access to constitutional documents and statutory registers is not public and can only be obtained with the company’s consent, authorising its registered office service provider to disclose them.

The M&AA of a BVI and a Cayman company may reveal important information, such as whether:

    1. Any third-party consents are required to implement a series financing, or whether certain conditions need to be met prior to its consummation;
    2. There is an existing SHA in relation to the company (which could impose certain consent requirements on the parties with respect to the series financing);
    3. A series financing falls within the scope of any existing board and/or shareholder reserved matters; and
    4. There are any most-favoured-nation provisions in favour of an existing investor.

Outstanding charges. The register of charges (if maintained) of a BVI company and the register of mortgages and charges of a Cayman company are matters of private record. The register of registered charges of a BVI company is publicly searchable.

Good standing. In the BVI, a company is in good standing if it is on the register of companies, has paid all fees, annual fees and penalties due, has filed a complete register of directors with the BVI registrar, and has filed its annual return.

A Cayman company, meanwhile, is deemed to be in good standing if all fees and penalties have been paid, and the registrar of companies has no knowledge that the company is in default.

Litigation. In the BVI, a search may be conducted to verify whether there are or have been any actions against a company in the courts. In the Cayman Islands, a search may be conducted to verify whether there are or have been any actions against a company in a Cayman court at the time of the search.

Certificate of incumbency. It is prudent to review an up-to-date certificate of incumbency issued by the company’s registered agent.

Books and records. Every BVI and Cayman company must maintain books and records showing that company’s transactions, assets and liabilities, and enable the financial position of the company to be determined with reasonable accuracy.

This article was first published in the Asia Business Law Journal https://law.asia/key-issues-series-financing-bvi-cayman-islands-law/

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Hong Kong (14 March 2025) Further to the announcement on 22 November 2024, Loeb Smith Attorneys is pleased to announce its role as legal advisor in the successful completion of the going private merger transaction of First High-School Education Group Co., Ltd. (the “Company”), an education service provider primarily focusing on high schools in Western China. This significant transaction, effective 10 March 2025, transforms the Company to a private company and the American depositary shares of the Company are no longer quoted on the OTC market and the Company’s ADS program was terminated. The Company intends to file with the U.S. Securities and Exchange Commission (the “SEC”) a Form 15 suspending the Company’s reporting obligations under the Securities Exchange Act of 1934. The Company’s obligations to file with or furnish to the SEC certain reports and forms, including Form 20-F and Form 6-K, will be suspended immediately as of the filing date of the Form 15 and will terminate once the deregistration becomes effective.

Loeb Smith Attorneys served as the Cayman Islands legal counsel to the Special Committee and the Loeb Smith team of lawyers advising on the closing of the transaction was led by Partner, Gary Smith and included team members Kate Sun and Frost Wu in Hong Kong.

Loeb Smith Attorneys looks forward to delivering more insightful and strategic advice and legal support to clients on a diverse range of M&A transactions in the APAC region.

First High-School Education Group Announces Completion of Going Private Transaction | Morningstar

***

About Loeb Smith Attorneys

Loeb Smith Attorneys is one of the leading offshore corporate law firms considered one of the most active and knowledgeable firms for advising on offshore investment funds formation and launch of all asset classes including public securities, private equity, venture capital, real estate, and virtual assets. Other areas of strength and growth are advising on M&A, Finance, Corporate Restructurings, Capital Markets, Regulatory Compliance, Investments, Logistics, Shipping and Aviation.

Considered a leading law firm in the Fintech and Blockchain Technology space, Loeb Smith also advises on token issuances, application for VASP licences for Web 3.0 businesses, Metaverse infrastructure and other virtual asset service providers, and utilising Cayman and BVI structures to develop virtual asset platforms for DAOs. Loeb Smith’s clients are investment managers, financial institutions, onshore counsels, and HNWIs who the firm advises on day-to-day legal issues and complex, strategic matters.

Some of our firm’s recent accolades are: rankings in IFLR1000, Legal 500; winning Best Law Firm – Fund Domicile at Hedgeweek US Emerging Manager Awards 2023 and 2024; winning Best Law Firm – Fund Domicile at Private Equity Wire US Emerging Manager Awards 2023 and 2024; winning Best Law Firm – Fund Domicile at Private Equity Wire US Awards 2023; recognised amongst Top 30 Asia’s Fastest Growing Law Firms in 2023 by Asian Legal Business; ranked in The A-List: Top Offshore Lawyers by Asia Business Law Journal in 2022 and 2024; winning The Best Offshore Law Firm – Client Service at With Intelligence HFM Asia Services Awards 2024; ranked in ALB Hong Kong Firms to Watch 2024 list.

www.loebsmith.com
BRITISH VIRGIN ISLANDS   |  CAYMAN ISLANDS  |  HONG KONG

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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

The Companies Act (As Revised) (the “Act”) provides that “[e]very 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 the other creditors shall be voidable upon the application of the company’s liquidator if made, incurred, taken or suffered within six months immediately preceding the commencement of a liquidation.”

 

It is important to note that a payment to a “related party” of the Cayman company shall be deemed to have been made with a view to giving a creditor a preference and therefore would be voidable upon the application of the company’s liquidator if made, incurred, taken or suffered within six (6) months immediately preceding the commencement of a liquidation.

 

A creditor shall be treated as a “related party” if it has the ability to control the Cayman company or exercises significant influence over the company in making financial and operating decisions.

 

When is a company unable to pay its debts?

A Cayman company is deemed to be unable to pay its debts if:

  • it fails to comply with a statutory demand;
  • the company fails to satisfy a judgment debt; or
  • it is proven to the satisfaction of the Court that the company is unable to pay its debts.

 

Commencement of a liquidation

Under Cayman Islands 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, or in the case where a restructuring officer has been appointed pursuant to section 91B or 91C of the Act and the order appointing the restructuring officer has not been discharged, at the time on the date of the presentation of the petition to appoint a restructuring officer pursuant to section 91B of the Act.

Dispositions at an undervalue

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 (i.e. the liquidator of a Cayman company which is being wound up by order of the court or under the supervision of the court and includes a provisional liquidator). The official liquidator bears the burden of establishing an “intent to defraud” (i.e. the official liquidator must establish that there was an intention to wilfully defeat an obligation owed to a creditor). The intention to defeat a creditor needs only be “a” purpose and not the sole or dominant purpose. No legal proceedings may be brought by the official liquidator under after six years following the date of the relevant disposition or transaction.

 

The term “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. In the event that any disposition is set aside and the Court is subsequently satisfied that the transferee has not acted in bad faith: (i) 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 (ii) 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 and Liability to contribute

 If in the course of the 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 (i.e. official liquidator or voluntary liquidator) may apply to the Court for a declaration that any persons who were knowingly parties to the carrying on of the business with intent to defraud creditors of the company or creditors of any other person or for any fraudulent purpose are liable to make such contributions, if any, to the company’s assets as the Court thinks proper. Directors of a Cayman company are potentially liable when managing a company’s business if that business is carried on fraudulently. There is no applicable limitation period for fraudulent trading.

Fiduciary Duties of Directors of Companies facing Insolvency

In addition to Cayman companies, Cayman Islands law as stated above may also apply to limited liability companies (LLCs) and exempted limited partnerships (ELPs). Accordingly, the Directors of a Cayman company, the General Partner of an ELP and the Manager of an LLC should exercise caution and seek legal advice from Cayman legal counsel where there is any uncertainty about the solvency (on a cashflow basis) of the applicable Cayman entity which they are managing. These situations might, for example, arise within the context of an investment fund with severe liquidity issues.  Directors should consider carefully the point at which creditors’ interests take priority over shareholders’ interests and how those interests are best served (e.g. appointment of a liquidator or a restructuring officer). Failure to seek urgent advice on their duties could increase the Directors’ exposure to risk of personal liability.

 

The fiduciary duty of directors is to act in good faith in the interests of a Cayman company. The interests of the company have until recent times been treated as being the interests of its members as a whole. However in the UK Supreme Court’s decision given on 5 October 2022 in BTI 2014 LLC (Appellant) v Sequana SA and others (Respondents), which is persuasive authority in the Cayman Islands, it was re-affirmed that directors of financially distressed companies are required to consider, as one of the relevant factors, the interests of creditors. The Supreme Court concluded that the weight to be given to the interests of creditors will increase as the company’s financial difficulties become increasingly serious. Creditors’ interests will take precedence over the interests of the company’s shareholders at the point where insolvent liquidation or administration is inevitable.

Transactions which are void ab initio

Official liquidation

 

When a winding up order has been made, any disposition of the company’s property and any transfer of shares or alteration in the status of the company’s members made after the commencement of the winding up is, unless the Court otherwise orders, void.

 

The commencement of a winding-up is the date a petition is presented to the Court (or, if the company was first placed into voluntary liquidation, the passing of that resolution) rather than the date when the Court grants a winding-up order. Accordingly, any transaction during the period between the presentation of a winding-up petition and its resolution before the Court, will be avoided if a winding-up order is ultimately granted, unless the Court validates the transaction.

 

The presentation of a winding-up petition can have a material adverse effect on a company’s business, due to the uncertainty during the period between the presentation of a winding-up petition and its resolution before the Court. A validation order takes away that uncertainty and enables companies to continue to operate in the ordinary course of their business prior to the hearing of the petition.

 

Voluntary liquidation

Any transfer of shares, not being a transfer with the sanction of the liquidator, and any alteration in the status of the company’s members made after the commencement of a voluntary winding up is void. Unlike a compulsory liquidation, a transfer of the company’s property is not automatically void. There is not normally the same uncertainty with voluntary liquidations because upon the appointment of a voluntary liquidator, all of the powers of the directors cease and are displaced by the voluntary liquidator (except so far as the company in a general meeting or the voluntary liquidator sanctions their continuance). Accordingly, the transfer of property is not automatically void but any transfer of property effected by the company after the appointment of a voluntary liquidator should be authorized by the liquidator.

Further Assistance

This publication is not intended to be a substitute for specific legal advice or a legal opinion. For specific advice on the matters covered above, please contact your usual Loeb Smith attorney or any of the following: 

 

E: gary.smith@loebsmith.com

E: robert.farrell@loebsmith.com

E: elizabeth.kenny@loebsmith.com

E: vanisha.harjani@loebsmith.com

E: edmond.fung@loebsmith.com

E: vivian.huang@loebsmith.com

E: faye.huang@loebsmith.com

E: yun.sheng@loebsmith.com

Question: What are the key features of a Cayman LLC?

Answer: The key features are:

  • A Cayman Islands Limited Liability Company (“LLC”) is a corporate entity with separate legal personality to its members.
  • The LLC is formed under the Limited Liabilities Companies Act (as Revised) (the “LLC Act”) and is similar in structure to the Delaware LLC as the LLC Act is broadly based on the Limited Liability Company Act in the State of Delaware, U.S.A. However, the LLC Act has also preserved the broad legal principles applicable to Cayman Islands companies and the rules of equity and common law.
  • Formation of an LLC is straightforward. It requires the filing of a registration statement with the Companies Registry and payment of the requisite Government fee.
  • An LLC must have at least one member. It can be member managed (by some or all of its members) or the LLC agreement can provide for the appointment of persons (who need not be members) to manage and operate the LLC.
  • The LLC must have a written LLC agreement or operating agreement of the member/members of the LLC which sets out the internal governing terms for dealing with the affairs of the LLC. The LLC agreement is not required to be filed with the Companies Registry.
  • The liability of an LLC’s members is limited. This means that each member’s liability is limited to the amount that the member has agreed to contribute to the assets of the LLC, whether in the LLC agreement or otherwise, and such other liabilities and/or obligations that is set out in the LLC agreement.
  • Members can have capital accounts and can agree amongst themselves (in the LLC agreement) how the profits and losses of the LLC are to be allocated and how and when distributions are to be made (similar to a Cayman Islands exempted limited partnership).
  • An LLC may be formed for any lawful business, purpose or activity and it has full power to carry on its business or affairs unless its LLC agreement provides otherwise.
  • The following statutory registers are required to be maintained for an LLC but, similarly to the requirement for a Cayman Islands exempted company, only an LLC’s register of managers is required to be filed with the Companies Registry:
    1. a register of members;
    2. a register of managers; and
    3. a register of mortgages and charges.
  • The register of managers and register of mortgages and charges are required to be maintained in a manner similar to the register of directors and register of mortgages and charges for a Cayman Islands exempted company.
  • Subject to any express provisions of an LLC agreement to the contrary, a manager of the LLC will not owe any duty (fiduciary or otherwise) to the LLC or any member or other person in respect of the LLC other than a duty to act in good faith in respect of the rights, authorities or obligations which are exercised or performed or to which such manager is subject in connection with the management of the LLC provided that such duty of good faith may be expanded or restricted by the express provisions of the LLC agreement.

Question: For what purposes are Cayman LLCs being used?

Answer: LLCs are being used as private equity funds and venture capital funds because they have the combined features of separate corporate personality (like an exempted company) with the ability to deal with the allocation of profits and losses in manner similar to a partnership.

They are also being used as (i) general partner vehicles in GP/LP investment fund structures, (ii) joint venture companies, (iii) investment vehicles in private equity transactions, and (iv) operating vehicles in certain digital asset transactions.

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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 matters covered above, please contact your usual Loeb Smith attorney or any of the following:

E: gary.smith@loebsmith.com
E: robert.farrell@loebsmith.com
E. elizabeth.kenny@loebsmith.com
E: vanisha.harjani@loebsmith.com
E: edmond.fung@loebsmith.com
E: vivian.huang@loebsmith.com
E: faye.huang@loebsmith.com
E: yun.sheng@loebsmith.com

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