Apr 2026
Cayman Islands exempted limited partnerships (ELPs) remain the dominant funds vehicle in the Cayman Islands and taking security over limited partnership interests (LP Interests) in such ELPs increasingly forms a key part of NAV transactions involving Cayman structures. In this briefing, we provide lenders with an overview of the key Cayman law considerations when taking security over LP Interests, including the procedural requirements under the Exempted Limited Partnership Act (the “ELP Act”), practical guidance on establishing priority and additional considerations that may arise in the context of such transactions.
Cayman Registers
The first step from a Cayman perspective is to verify the proposed LP Interest to be secured. This can be completed by examining the ELP’s register of limited partners to confirm that the proposed security provider holds the relevant LP Interest. Under the ELP Act, every ELP is required to maintain a register of limited partners which records the interest of each limited partner, together with the name and address of each limited partner, the date on which they became a limited partner and the date on which a person ceased to be a limited partner.
In addition, the ELP Act requires each ELP’s general partner to maintain a separate register of security interests, in which all security over LP Interests in respect of which a valid notice has been served on the ELP must be registered. As a matter of best practice, lender’s Cayman counsel should review the register of security interests at the outset of the transaction to confirm that no prior security exists over the relevant LP Interest.
LPA Review
It is a key diligence step that the terms of the exempted limited partnership agreement of the relevant ELP (the “LPA”) are reviewed in connection with the proposed security over LP Interests. In addition to reviewing any general partner consent provisions, the LPA should be reviewed closely to confirm that there are no provisions that could restrict a limited partner’s ability to create security over LP Interests or the secured party’s ability to enforce any such security.
Form of Security
A key question for lender’s Cayman counsel to address is whether security over LP Interests in an ELP needs to be governed by Cayman law. The short answer is no. On US-led transactions, we typically see the security documented by way of a US law governed security agreement, with appropriate Cayman provisions included. While the security over LP Interests may be governed by Cayman Islands law if commercially agreed, in practice, the most cost-effective and pragmatic approach is usually to incorporate the requisite Cayman law provisions into a US law governed document.
It is worth noting that, irrespective of the governing law of the security agreement itself, Cayman Islands law will govern the requirements for establishing priority of security over LP Interests. Lenders should therefore ensure that Cayman counsel is engaged at an early stage to advise on compliance with the ELP Act and other Cayman-specific requirements set out below.
Cayman Considerations
Cayman counsel’s primary focus is on the requirements imposed by the ELP Act and the applicable LPA. The key requirements are as follows:
General Partner Consent – Subject to the terms of the LPA, the ELP Act requires the written consent of the general partner of an ELP in respect of the granting of any security interest in, or transfer of, an LP Interest. This consent should cover both the grant of the security interest and any subsequent assignment or transfer on enforcement and must be given prior to, or simultaneously with, the grant of the security interest.
Notice of Security – Notice of the security interest must be served at the ELP’s registered office. The ELP Act is prescriptive in setting out the required contents of the notice, which must include: (i) the agreement pursuant to which the security interest is granted; (ii) the date of the agreement; the parties to the agreement; (iii) the grantor and grantee of the security interest and (iv) the partnership interest (or part thereof) that is subject to the security interest. The notice may be served by either the limited partner granting the security interest or the secured party.
Priority – Security over LP Interests has priority according to the time at which written notice is served at the ELP’s registered office. Accordingly, serving notice is typically a closing deliverable, with release of the notice occurring contemporaneously with the execution and delivery of all other finance documents at closing. Evidence of delivery of the notice is commonly required as a closing deliverable and lenders should ensure that appropriate confirmation (in the form of an acknowledgement from the general partner of the ELP) is obtained to evidence the timing of delivery. The updated register of security interests should also be provided to the secured party on closing or shortly after closing.
Undated Assignment – In addition, to assist the enforcement process, it is common for the limited partner providing security over its LP Interest to execute an undated Cayman law governed assignment of LP Interests in favour of the secured party as a closing deliverable. This facilitates a swift transfer of the LP Interest upon an enforcement event, without the need for further cooperation from the limited partner at that stage.
Conclusion
Taking security over LP Interests in a Cayman ELP is a well-established practice and an increasingly important feature of NAV lending. While the process is relatively straightforward, it requires careful attention to the procedural requirements under the ELP Act and the applicable LPA, particularly in relation to general partner consent, the service of notice at the ELP’s registered office and establishing priority of security as a matter of Cayman Islands law.