SEPTEMBER 2014
Legal Focus
59
The Exempted Limited Partnership Law, 2014
Taking a further look at The Exempted Limited Partnership Law, 2014, we speak to Ian Gobin, a partner in the Corporate & Commercial department and Global Head of Funds and Investments Services Team and Simon Raftopoulos, a Partner and Group Head at Appleby.
Please can you explain The Exempted Limited Partnership Law enacted on July 2nd?
The Exempted Limited Partnership Law, 2014 (the New Law) took effect on July 2, 2014 and is a comprehensive revision of the Cayman Islands exempted limited partnership law. The New Law was enacted in response to industry needs, and it generally updates the old law to give greater freedom to the general partner (GP) and limited partners (LPs) to determine how the partnership is to operate. The changes also align Cayman Islands law more closely with Delaware law, allowing GPs to offer their US and offshore investor base a harmonised product. It has been very well received by the market and leaves competing offshore jurisdictions playing ‘catch-up’.
What are the key changes introduced by the new law?
Requirement of a GP to act in the interests of the Exempted Limited Partnership (ELP) The old law provided that a GP had an absolute obligation to act in good faith and in the interests of the ELP and that this duty could not be varied by the limited partnership agreement (LPA). Under the New Law and in line with Delaware law, provided the GP is acting in good faith, the obligation to act in the interests of the ELP may be varied by the terms of the limited partnership agreement. The incorporation of a term varying the obligation of a GP to act in the interests of the ELP will go some way towards removing conflicts of interests considerations for GP’s considering investment opportunities where they act as GP’s for multiple funds.
Foreign partnerships acting as GP Under the old law, a partnership established outside the Cayman Islands could not act as a GP of an ELP. The New Law allows a foreign limited partnership, defined as a limited partnership or limited liability partnership established in a recognised jurisdiction outside the Cayman Islands, to be the GP of an ELP. Recognised jurisdictions have now been prescribed by regulations made under the ELP Law. This change simplifies structuring possibilities for fund
www.lawyer-monthly.com
managers by allowing the same partnership to act as GP of both an onshore partnership and the ELP.
Widening safe harbours for LPs serving on advisory boards and rights to indemnity/exculpation A limited partner of an ELP risks losing its limited liability status if it takes part in the conduct or management of the business of an ELP. Under the New Law, the non-exhaustive list of safe harbours for activities that an LP may carry out in relation to the business of the ELP without losing such status has been extended specifically to include serving on advisory boards or on the board of directors of a company in which the ELP has an interest (such as investment portfolio companies).
Further, the ELP Law provides that, unless otherwise indicated in the LPA, any provisions in the LPA governing the establishment and regulation of boards or committees, including any indemnity and exculpation provisions which are expressed to be in favour of those persons serving in the capacities mentioned above, will not fail purely because those persons are not party to the LPA. This will give comfort to those who serve in these roles as, previously, those persons could not rely on or enforce such provisions in the LPA solely by reason of the provisions being contained in the LPA.
Security The New Law expressly confirms that choses in action (rights to procure the payment of a sum of money, including the right to make capital calls and to receive the proceeds thereof), vested in the GP or the ELP shall be held by the GP as an asset of the ELP.
The New Law also expressly confirms that the assets of an ELP may be the subject of a floating charge whether or not the partners of the ELP are companies, overseas companies or bodies corporate.
Finally, the New Law also expressly confirms that a creditor who has security over the whole or part of the assets of the ELP is entitled to enforce the security without leave of the court and without reference to the GP and/or any liquidator.
www.lawyer-monthly.com
What should parties that work with Cayman Islands exempted limited partnerships do now?
As outlined above, parties will need to conduct a careful review of the provisions of their LPA’s with their service providers in the Cayman Islands.
In addition, GP’s will need to be vigilant in ensuring that the ELP’s statutory registers and records contain all information prescribed by statute.
Further, GP’s will need to ensure that, if the Register of LP Interests and Record of Contributions of an ELP are not maintained in the Cayman Islands, the registered office is provided with a record of the address where the Register and Record are maintained and that it is notified within 21 days of the date of any change in their location, as any default in complying with such requirements results in the commission of an offence.
Is there anything else you would like to add?
We very much welcome this recent overhaul of the partnership law and are looking forward to continuing to evoke the structuring options for PE investors and funds going forward. LM
Contact: Ian Gobin T +1 345 814 2002 E
igobin@applebyglobal.com
Simon Raftopoulos T +1 345 814 2748
E
sraftopoulos@applebyglobal.com
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68 |
Page 69 |
Page 70 |
Page 71 |
Page 72 |
Page 73 |
Page 74 |
Page 75 |
Page 76 |
Page 77 |
Page 78