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The Cayman Islands Private Funds Law: A Pre-Summer Holiday Lender Checklist

With Q2 shortly coming to a close it’s almost time to think about summer holidays but, before powering down their computers and heading to the beach (or back garden!) lenders will want to keep in mind the 7 August 2020 registration deadline for private funds falling within the scope of the Cayman Islands Private Funds Law, 2020 (the “PF Law”) – if for nothing else so that they can enjoy an uninterrupted Piña Colada during the first week of August.

This note sets out some practical steps lenders can take in respect of existing Cayman counterparties in their portfolio in the run up to 7 August.

Cayman private funds that are party to pre-February 2020 credit agreements (which have not been recently amended)

The vast majority of each lender’s Cayman Islands counterparties will likely fall into this scenario. The fact that specific PF Law provisions have not been added to a credit agreement does not of course mean that the Cayman private fund need not comply with the PF Law.

Aside from the fact that it is in a sponsor’s interest that vehicles it manages or advises are fully in compliance with the applicable laws of the Cayman Islands, almost all credit agreements will already contain covenants requiring credit parties to comply with all applicable law (an “Applicable Law Covenant”).

While the terms of the Applicable Law Covenant will vary in each case, broadly speaking the requirement for Cayman private funds in this scenario will be to simply comply with the terms of the PF Law by 7 August 2020, most notably register with the Cayman Islands Monetary Authority (CIMA) by this date.

From a lender perspective, while this is not an ideal scenario (as a default caused by the failure of a Cayman private fund to register with CIMA could lead to an imperfect climate for enforcement post-7 August 2020, until such registration is obtained), lenders can take some comfort from the fact that Cayman Islands counsel will be actively encouraging each private fund they advise to register and comply with the PF Law as far ahead of 7 August as possible.

In terms of steps for lenders who wish to undertake diligence on their current books for prospective PF Law compliance, we would suggest the following steps:

  1. check the CIMA online database (which is searchable here: https://www.cima.ky/search-entities ) to determine if the applicable Cayman private fund is already registered with CIMA;
  2. if the Cayman private fund is not yet registered, make contact with the applicable borrower to obtain an update on progress towards PF Law compliance;
  3. request that evidence of the filing with CIMA by the Cayman private fund is provided upon the filing being made (see below for an explanation of what can be provided in this regard); and
  4. request that the CIMA Certificate of Registration (which is electronically generated by CIMA) is provided when obtained by the Cayman Islands legal counsel to the Cayman private fund.

 

To continue reading full articles in PDF format:
The Cayman Islands Private Funds Law: A Pre-Summer Holiday Lender Checklist

 


Derek Stenson
Partner

Cayman Islands   +1 345 814 7392


Michael O’Connor
Associate

Cayman Islands   +1 345 814 7395


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