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Corporate and Investment Funds

We provide advice on all matters of relevance to corporate clients with specialisation in hedge funds, private equity funds, international investment vehicles, mergers and reorganisations, joint ventures, partnerships and commercial trust arrangements.

 

We are committed to standards of excellence and we are able to provide high levels of service and advice to clients doing business in the Cayman Islands.

 

There are many practical advantages of structuring an investment fund under Cayman Islands law as described below:-

 

Taxation

 

There is no corporation or other direct taxation imposed by the Cayman tax authorities on investment funds formed in the Cayman Islands. Payments made by a Cayman Islands fund, whether of principal or interest, are not subject to withholding tax. Furthermore, stamp duty is only levied if the instrument being executed is signed in or physically brought into the Cayman Islands.

 

Ease of Formation

 

It is relatively easy, quick and inexpensive to register and maintain a Cayman Islands investment fund, as further described below.

 

Legal and Regulatory Framework

 

Minor legislative amendments, following the OECD and FATF initiatives, have cemented the efficient regulatory regime in the Cayman Islands, a regulatory regime which does not impose unnecessarily onerous restrictions while still providing an effective regulatory framework for all forms of investment fund transactions.

 

The Cayman Islands legal system is largely based on English common law although the Cayman authorities have created a specific legal environment to facilitate the formation and regulation of Cayman based investment funds.

 

Insolvency Law

 

Cayman Islands insolvency law is one of the most creditor-friendly regimes in the world and therefore enjoys the confidence of the major rating agencies. Benefits for creditors include (1) the express recognition of netting and set-off arrangements and contractual subordination (assuming in each case that they are contractually effective under the governing law of the contract), (2) the ability of secured creditors to enforce their security in the liquidation of a Cayman investment fund, (3) the absence under Cayman Islands law of the concept of “substance over form”, ensuring that heavily subordinated debt and participating debt will not be treated as equity, and (4) the absence of a corporate rehabilitation system mirroring U.S. Chapter 11 or English “administration” proceedings that would allow a debtor to effectively suspend the rights of creditors.

 

Professional Expertise

 

The depth of professional expertise in the Cayman Islands in relation to investment fund transactions is perhaps unmatched by any other offshore jurisdiction. There are a number of highly qualified and experienced administrators and trustees who provide administration, management, director and other corporate services to Cayman based investment funds. All of the major accounting firms are also located in the Cayman Islands to provide auditing and accounting services to Cayman investment funds.

 

Areas of Expertise

 

We have experience in advising on all aspects of corporate law including hedge funds, private equity funds and international investment vehicles, mergers and reorganisations, joint ventures, partnerships and commercial trust arrangements. We are able to advise administrators, promoters, investment managers and investors on the structuring, establishment and on-going operation of all forms of investment funds in the Cayman Islands.

 

The services that we offer includes the provision of advice in relation to the following types of funds, as well as the provision of general advice on the regulation of investment funds in the Cayman Islands.

 

  • Stand Alone (Single and Multi-Class) Corporate Funds
  • Segregated Portfolio Company Structures
  • Unit Trusts (Stand Alone and Umbrella)
  • Parallel or Side-by-Side Funds
  • Master/Feeder Structures
  • Limited Partnerships (including Private Equity Funds)
  • Hedge Funds
  • Registered, Administered and Licensed Funds

 

Our lawyers have an in-depth understanding of the structures commonly used in investment fund transactions. They are committed to providing quality advice, managing transactions professionally, reviewing and producing transaction documents efficiently and generally being responsive and available to service our clients’ needs.

 

Other relevant areas of expertise include advising on the insolvency and winding-up of Cayman Islands investment funds, and generally on the financial regulatory regime of the Cayman Islands, particularly on the impact of the recent initiatives of the Organisation of Economic Co-operation and Development (OECD) and the Financial Action Task Force (FATF).

 

Formation of a Cayman Islands Fund

 

The Mutual Funds Law and the Cayman Islands Monetary Authority

 

The law governing investment funds formed, administered or managed in the Cayman Islands is the Mutual Funds Law (Revised) (the “Law”).  The Law does not extend to closed-ended investment funds (i.e., where the equity interests may not be redeemed or repurchased at the option of the investor), or to funds which issue only debt instruments. Under the Law, all open-ended funds are regulated by the Cayman Islands Monetary Authority (“CIMA”) with one exception. The exception is for a fund in which the equity interests are held by not more than 15 investors, the majority of whom have the ability to appoint or remove the operators of the fund.

 

A mutual fund may not carry on or attempt to carry on business in or from the Cayman Islands unless it is a regulated mutual fund or is exempt from regulation under the Law as referred to above.

 

Form

 

There are three forms of regulated mutual funds under the Law: Licensed Mutual Funds, Administered Mutual Funds and Registered Mutual Funds.

 

Registered Mutual Funds are the most common and straightforward form of regulated mutual fund. For a mutual fund to qualify as a Registered Mutual Fund, one of two requirements must be met: (a) the fund’s minimum subscription per investor must be at least U.S.$100,000 (or its equivalent in any other currency),  or (b) the fund must have its equity interests listed on a stock exchange approved by CIMA.

 

Legal Structure

 

Under Cayman Islands law, three main legal structures are available for the formation of a mutual fund – a company, limited partnership and unit trust. The structure of a mutual fund is usually driven in large measure by the investors’ tax requirements.

 

The Cayman Islands exempted company is the most common vehicle used for mutual funds.

 

Equity Structure

 

Investor requirements also usually drive the equity structure of a mutual fund. The main types of structures are stand-alone, master-feeder, parallel (or side-by-side) and umbrella/multi-series. Segregated portfolio companies are a newer type of structure that has become available as a result of recent statutory enactments.

 

Stand-alone structures are the simplest structure and consist of a single entity issuing a single type of security. In contrast, umbrella/multi-series mutual funds provide for the issuance of multiple classes of securities; in some cases, multiple classes of securities with different rights will be issued in respect of a single investment portfolio; in others, each class of securities is attributable to a different investment portfolio.

 

A segregated portfolio company is a single corporate legal entity with the benefit of statutory segregation of assets and liabilities between segregated portfolios established within the company. Cayman Islands law provides that assets and liabilities of each segregated portfolio are legally separate from those of other segregated portfolios. Creditors of a segregated portfolio have recourse to the assets of the segregated portfolio with which they contract and to any general assets of the Company to the extent that the segregated portfolio assets attributable to such portfolio are insufficient, the segregated portfolio general assets exceed any minimum capital amounts required by any regulatory body in the Cayman Islands and recourse to the general assets has not been prohibited in the Company’s Articles of Association.

 

Master/feeder and side-by-side structures permit both US and offshore investors to purchase securities in the same investment portfolio. In a master/feeder structure, a master fund is usually established in the Cayman Islands, and feeder funds are usually established in the US and the Cayman Islands. Each feeder fund invests solely in the master fund, which holds the investment portfolio. In a side-by-side structure, separate US and Cayman Island funds are established, each of which invest in the same investment pool managed by the same investment manager.

 

Our affiliated entity Circumference FS (Cayman) Ltd. is a fully licenced trust company in the Cayman Islands.


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Litigation and Restructuring

We provide advice and assistance on complex general commercial litigation including the enforcement of foreign judgments, tracing claims, banking litigation, claims in conversion, injunctions including mareva injunctions contractual disputes, shareholder disputes, professional negligence claims and judicial review proceedings (i.e. proceedings involving the review of government or administrative decisions).

Capital Markets and Structured Finance

The Cayman Islands have long been the destination of choice for many of the world's most prestigious financial institutions who seek a high quality of service and advice from service providers based in a mature offshore jurisdiction. Cayman is a preferred offshore jurisdiction for structured finance and capital markets transactions. This is a result of the many advantages of structuring such transactions under Cayman Islands law as described below.