Lending & Secured Finance 2023 – Financial Services

1. Overview

1.1 What are the main trends/significant developments in
the lending markets in your jurisdiction?

The Cayman Islands continues to be a jurisdiction of choice for
the establishment of investment funds, portfolio investment
companies and corporate vehicles, each of which utilise secured
lending arrangements in a variety of forms. The robust and
creditor-friendly legislation in the Cayman Islands provides
counterparties with significant comfort in secured lending
transactions, which continues to make the Cayman Islands the choice
of jurisdiction for many financial institutions.

We continue to see an increase in the use of hybrid and NAV
facilities in both the private equity and hedge fund space. In
addition to hybrid and NAV facilities, we have also seen a
significant uptick in the use of investment fund holding entities
structured as orphan vehicles, as lenders are looking to address US
bankruptcy and consolidation concerns. Exempted companies and
exempted limited partnerships are still the most popular entities
across all business areas, including in the context of orphan
vehicles, but we also see an increasing use of limited liability
companies (“LLC”) as a result of
advantageous hybrid features taken from both the company and
exempted limited partnership regimes. General Partner and manager
financing and employee loan programmes continue to be utilised in
the middle market space. These provide much needed leverage to the
sponsors and employees of the sponsors, but also provide the
smaller bank and lending intuitions the opportunity to break into
the competitive global market.

On 31 August 2022, the new restructuring officer regime came
into force. The new regime provides debtors the ability to
restructure their debt in the Cayman Islands and, more importantly,
implements the protection of a stay on unsecured creditor action.
The regime is intended to be a flexible tool that can be used in
conjunction with a Cayman Islands scheme of arrangement or a
restructuring proceeding in another jurisdiction. The regime has
been developed so as not to affect the enforcement rights of
secured creditors (whose rights to enforce their security are
exempt from the stay) and specific legislative provisions have been
included to ensure that the Cayman Islands remains a preeminent
jurisdiction for bankruptcy remote finance vehicles.

There has also been a recent uptick in private credit funds
lending in the middle market in place of traditional financial
intuitions. As in other markets, this provides greater pricing
certainty and accelerated accessibility to cash flow for sponsors.
Typically, private credit funds are non-Cayman Islands entities,
therefore, the Cayman Islands considerations do not differ from
that of a traditional lender in the market.

1.2 What are some significant lending transactions that
have taken place in your jurisdiction in recent years?

The most significant lending transactions continue to occur in
the investment funds space, especially to Cayman Islands domiciled
private equity funds. These transactions tend to be governed by New
York and English law finance documents with security taken over
Cayman Islands assets being governed by both Cayman Islands law and
non-Cayman Islands law.

The main types of security are, in the case of funds established
in the form of exempted limited partnerships, exempted companies
and LLC, security over capital calls (the right to call such
capital and the right to receive the proceeds of such calls) and,
more generally, security over Cayman Islands equity interests,
either in the form of registered shares or exempted limited
partnership interests. This is particularly common where there is a
“master-feeder” structure or underlying blocker
entities are used to hold assets and those structures are looking
to utilise subscription and hybrid facilities.

2. Guarantees

2.1 Can a company guarantee borrowings of one or more
other members of its corporate group (see below for questions
relating to fraudulent transfer/financial assistance)?

Yes, a company or LLC can grant a guarantee in these
circumstances assuming there is sufficient commercial rationale and
benefit to the company or LLC.

2.2 Are there enforceability or other concerns (such as
director liability) if only a disproportionately small (or no)
benefit to the guaranteeing/securing company can be
shown?

The directors of the company or managers of the LLC providing a
guarantee must ensure that any proposed transaction is in the best
interests of the company or the LLC as a whole and approve the
entry into such arrangements by board/manager resolution or
otherwise in compliance with the company’s articles of
association or the LLC’s limited liability agreement.
Guarantee arrangements may be construed as not being in the best
interests of a company or LLC (and not for the company’s or
LLC’s corporate benefit) if the granting company receives no
commercial benefit from the underlying financing arrangements. In
those circumstances (1) the Cayman Islands court may, in certain
circumstances where the beneficiary of the guarantee is viewed as a
constructive trustee, hold that the guarantee be set aside as a
breach by the directors/managers of their fiduciary duty to act in
the best interests of the company or the LLC, or (2) a shareholder,
member, creditor or liquidator of the granting company can bring an
action against the company or the LLC to have the guarantee set
aside as a breach by the directors or the managers of their
fiduciary duty to act in the best interests of the company or the
LLC.

2.3 Is lack of corporate power an issue?

A lack of capacity of a company or LLC to grant a guarantee will
not affect the validity of the transaction, however, the
shareholders or members may issue proceedings prohibiting the
company or the LLC from performing its obligations under the
transaction (including disposing of any property) and proceedings
may be brought against present and past directors, managers or
officers of the company or the LLC for loss or damage. 

2.4 Are any governmental or other consents or filings,
or other formalities (such as shareholder approval),
required?

Subject to any licensing or residency restrictions that may
apply to a regulated entity, no authorisations or consents are
required by law from any governmental authorities or agencies or
other official bodies in the Cayman Islands in connection with the
grant of a guarantee. In addition, it is not necessary to ensure
legality, validity, enforceability or admissibility in evidence of
a guarantee that any document be filed, recorded or enrolled with
any governmental authority or agency or any official body in the
Cayman Islands. 

The directors of the company or managers of the LLC giving the
guarantee should approve the terms and execution of the guarantee
by way of board/manager resolution in accordance with the
company’s articles of association or the LLC’s limited
liability agreement. If there is any question of lack of corporate
benefit or a potential breach of director’s/manager’s
duties, secured parties usually seek the approval of the
company’s shareholders or LLC’s members before entering
into the transaction. This should avoid the validity of the
transaction subsequently being challenged by a shareholder.
However, this may not eliminate the risk of challenge by other
parties, or in the event that the company or the LLC is insolvent
or threatened by insolvency.

2.5 Are net worth, solvency or similar limitations
imposed on the amount of a guarantee?

There are no legislative restrictions imposed on the amount of
any guarantee due to net worth or the solvency of a company or the
LLC. However, the directors of a company or managers of a LLC
should, as part of fulfilling their fiduciary duties, consider the
terms of any guarantee, particularly in the context of the
company’s/LLC’s asset base.

2.6 Are there any exchange control or similar obstacles
to enforcement of a guarantee?

There are no exchange control regulations imposed under Cayman
Islands law that would act as an obstacle to enforcement of a
guarantee.

3. Collateral Security

3.1 What types of collateral are available to secure
lending obligations?

There are no legislative restrictions on the form of collateral
and, accordingly, all property of a company or LLC is potentially
available as security for lending obligations.

3.2 Is it possible to give asset security by means of a
general security agreement or is an agreement required in relation
to each type of asset? Briefly, what is the procedure?

A security interest may be granted by a general security
agreement, such as a debenture, over a range of asset types. The
main types of security under Cayman Islands law are mortgages
(legal and equitable), charges (fixed and floating), liens and
assignments of rights by way of security (albeit that this is
deemed to be a form of mortgage). Formalities and perfection of
such security interests will depend upon the nature of the
underlying collateral and the applicable lex situs of such
collateral. 

Special regimes apply to the taking of security over certain
assets, such as ships, aircraft and land if registered in the
Cayman Islands.

3.3 Can collateral security be taken over real property
(land), plant, machinery and equipment? Briefly, what is the
procedure?

Security over land is usually granted by way of legal or
equitable mortgage and by way of fixed charge over plant, machinery
and equipment. In relation to chattels, security can also be
created by a conditional bill of sale, which must be recorded in
accordance with the Bills of Sale Act (As Revised). 

A legal mortgage is granted by execution of a mortgage agreement
between the mortgagor and the secured creditor. The terms of the
mortgage will vary, but essentially a mortgage (i) requires
transfer of legal title in the land to the secured creditor,
subject to a requirement to re-transfer the land upon satisfaction
of the underlying secured obligations, and (ii) grants the secured
creditor certain powers to deal with the land upon a default.

An equitable mortgage can be created by (i) the execution of an
equitable mortgage, (ii) an agreement to create a legal mortgage,
(iii) a transfer of land which is not perfected by registering the
secured creditor in the Land Registry in accordance with the
Registered Lands Law, and (iv) the deposit of the relevant title
deeds by way of security. 

Fixed and floating charges are usually evidenced by an agreement
between the parties reflecting the grant of the security interest
and setting out the commercial terms. 

A company must make an entry in its register of mortgages and
charges in respect of any security interest created by it in order
to comply with Section 54 of the Companies Act (As Revised). A LLC
must make an entry on its register of mortgages and charges in a
similar manner to an exempted company incorporated or referenced
under the Companies Law, in accordance with Section 62(1) of the
Limited Liability Companies Act (As Revised). However, failure to
comply with these requirements does not invalidate the security
interests created by either a company or LLC.

3.4 Can collateral security be taken over receivables?
Briefly, what is the procedure? Are debtors required to be notified
of the security?

Receivables arising under contract are examples of “choses
in action”, being a right which can only be asserted by
bringing an action and not by taking possession of a physical
thing. Receivables can be mortgaged or charged where that mortgage
or charge takes the form of an assignment with an express or
implied provision for reassignment on redemption. If a chose in
action is charged, the charge can be either fixed or floating.

An assignment can be either legal or equitable, depending on the
circumstances. The key requirements of a legal assignment are that
it is: (i) an absolute assignment of the whole of a present (not
future) chose in action; and (ii) the assignment must be both in
writing and signed by the assignor and notified in writing to the
debtor. An equitable assignment generally only relates to part of a
chose in action and/or does not involve the notification of the
debtor.

A company and LLC must make an entry in its register of
mortgages and charges in respect of any security interest created
by it. See question 3.3.

3.5 Can collateral security be taken over cash deposited
in bank accounts? Briefly, what is the procedure?

A security interest over cash deposits is most commonly created
by either a fixed or floating charge, depending on the commercial
intention of the parties and the level of control maintained over
such cash deposits. The secured creditor should ensure that there
is an agreement (usually a deed). Cash deposits are classified as
choses in action. Accordingly, the analysis in question 3.4
applies.

In accordance with Cayman Islands conflict of law rules, the
appropriate law to govern any security over cash deposited with a
bank will be the law applicable where the bank is located (or the
location of the bank branch with which the deposit is made).

3.6 Can collateral security be taken over shares in
companies incorporated in your jurisdiction? Are the shares in
certificated form? Can such security validly be granted under a New
York or English law-governed document? Briefly, what is the
procedure?

Security over shares in a Cayman Islands exempted company where
the register of members is maintained in the Cayman Islands, is
usually taken in the form of a legal or equitable mortgage,
depending on whether the secured party wishes to take legal title
to the shares prior to a default of the secured obligation.
Different rules may apply if the register of members is maintained
outside of the Cayman Islands or if the shares are in bearer
form. 

In accordance with Cayman Islands conflict of law rules, the
appropriate law to govern any security over registered shares in a
Cayman Islands company is determined according to the law
applicable to the location of the register of members. Whilst it is
possible to grant security over shares as a matter of other laws,
enforcement of such security may prove problematic or
difficult.

It is not possible to pledge registered shares under Cayman
Islands law because title to the shares cannot be transferred by
physical delivery. Any grant of security over registered shares
that is called a “pledge” will typically fall into one
of the mortgage categories, depending on its terms, or it may be
entirely ineffective.

3.7 Can security be taken over inventory? Briefly, what
is the procedure?

Security can be taken over inventory or stock by way of a fixed
or floating charge. A floating charge is more common given the
changing nature of inventory in the usual course of a
grantor’s business.

3.8 Can a company grant a security interest in order to
secure its obligations (i) as a borrower under a credit facility,
and (ii) as a guarantor of the obligations of other borrowers
and/or guarantors of obligations under a credit facility (see below
for questions relating to the giving of guarantees and financial
assistance)?

A company and a LLC can grant a security interest in order to
secure its obligations as a borrower under a credit facility or as
a guarantor of the obligations of other parties (see section 2 of
this chapter). Usual fiduciary duties applicable to
directors’ actions will apply in each case.

3.9 What are the notarisation, registration, stamp duty
and other fees (whether related to property value or otherwise) in
relation to security over different types of assets?

No stamp duties or other similar taxes are payable, unless the
applicable security document is executed in or brought into the
Cayman Islands. The amount of any applicable stamp duty will vary
depending on the type of security document and the identity of the
assets subject to the security interest. Unless the document needs
to be executed in the Cayman Islands, it is common practice to
execute documents outside of the Cayman Islands so that stamp duty
is not levied. Court fees (of a nominal value) will fall due as
part of any enforcement process.

3.10 Do the filing, notification or registration
requirements in relation to security over different types of assets
involve a significant amount of time or expense?

A company or LLC must make an entry in its register of mortgages
and charges in respect of any security interest created over its
property, however, failure to comply does not invalidate the
security interests created. The registration is completed, within a
short timeframe, by the company’s or LLC’s registered
office service provider in the Cayman Islands which maintains such
register. 

Security interests granted over certain assets, such as land,
intellectual property rights, ships and aircraft, need to be
registered at other specialist registries related to the asset in
question.

3.11 Are any regulatory or similar consents required
with respect to the creation of security?

Subject to any licensing or residency restrictions that may
apply to a regulated entity, no authorisations or consents are
required by law from any governmental authorities or agencies or
other official bodies in the Cayman Islands in connection with the
grant of a security interest. In addition, it is not necessary to
ensure legality, validity, enforceability or admissibility in
evidence of a guarantee that any document be filed, recorded or
enrolled with any governmental authority or agency or any official
body in the Cayman Islands. 

The directors of the company or managers of the LLC granting the
security interest should approve the terms and execution of the
security interest by way of board/manager resolution in accordance
with the company’s articles of association or the LLC’s
limited liability agreement. If there is any question of lack of
corporate benefit or a potential breach of
director’s/manager’s duties, secured parties usually
seek the approval of the company’s shareholders or
LLC’s members before entering into the transaction. This
should avoid the validity of the transaction subsequently being
challenged by a shareholder. However, this may not eliminate the
risk of challenge by other parties, or in the event that the
company or LLC is insolvent or threatened by insolvency.

3.12 If the borrowings to be secured are under a
revolving credit facility, are there any special priority or other
concerns?

There are no special priority concerns regarding a revolving
credit facility.

3.13 Are there particular documentary or execution
requirements (notarisation, execution under power of attorney,
counterparts, deeds)?

A number of key documentation issues exist, each of which depend
on the form of the security document, whether the document contains
a power of attorney and if the document is to be executed by way of
deed. The key issues of note are: (i) an agreement to create a
legal mortgage over land should be executed and delivered as a
deed; (ii) a legal assignment must be in writing and signed by both
parties; (iii) any power of attorney or security document
containing a power of attorney must be executed by way of a deed to
ensure compliance with the Powers of Attorney Law (As Revised); and
(iv) where a deed is required, the relevant execution formalities
are set out in the Companies Act (As Revised) or the Limited
Liability Companies Act (As Revised), as applicable.

4. Financial Assistance

4.1 Are there prohibitions or restrictions on the
ability of a company to guarantee and/or give security to support
borrowings incurred to finance or refinance the direct or indirect
acquisition of: (a) shares of the company; (b) shares of any
company that directly or indirectly owns shares in the company; or
(c) shares in a sister subsidiary?

No, there are no legislative prohibitions or restrictions under
Cayman Islands law equivalent to the English law financial
assistance rule.

5. Syndicated
Lending/Agency/Trustee/Transfers

5.1 Will your jurisdiction recognise the role of an
agent or trustee and allow the agent or trustee (rather than each
lender acting separately) to enforce the loan documentation and
collateral security and to apply the proceeds from the collateral
to the claims of all the lenders?

Cayman Islands law recognises the role of an agent or trustee,
acting on behalf of all lenders, assuming the transaction documents
provide for the relevant trust mechanics and the trust is properly
constituted.

5.2 If an agent or trustee is not recognised in your
jurisdiction, is an alternative mechanism available to achieve the
effect referred to above, which would allow one party to enforce
claims on behalf of all the lenders so that individual lenders do
not need to enforce their security separately?

This is not applicable.

5.3 Assume a loan is made to a company organised under
the laws of your jurisdiction and guaranteed by a guarantor
organised under the laws of your jurisdiction. If such loan is
transferred by Lender A to Lender B, are there any special
requirements necessary to make the loan and guarantee enforceable
by Lender B?

There are no special requirements under Cayman Islands law to
make the loan and guarantee enforceable by Lender B, provided that
the novation/transfer mechanics in the applicable facility
agreement are adhered to as a matter of the applicable governing
law.

6. Withholding, Stamp and Other Taxes; Notarial and
Other Costs

6.1 Are there any requirements to deduct or withhold tax
from (a) interest payable on loans made to domestic or foreign
lenders, or (b) the proceeds of a claim under a guarantee or the
proceeds of enforcing security?

The Cayman Islands currently have no form of income, corporate
or capital gains tax and no estate duty, inheritance tax or gift
tax. Accordingly, no taxes, fees or charges (other than stamp duty)
are payable either by direct assessment or withholding to the
government or another taxing authority in the Cayman Islands under
Cayman Islands law.

6.2 What tax incentives or other incentives are provided
preferentially to foreign lenders? What taxes apply to foreign
lenders with respect to their loans, mortgages or other security
documents, either for the purposes of effectiveness or
registration?

As noted above, there are no tax incentives or other incentives
under Cayman Islands law. 

6.3 Will any income of a foreign lender become taxable
in your jurisdiction solely because of a loan to, or guarantee
and/or grant of, security from a company in your
jurisdiction?

As noted above, there is no form of income tax applicable to a
lender in the Cayman Islands.

6.4 Will there be any other significant costs that would
be incurred by foreign lenders in the grant of such
loan/guarantee/security, such as notarial fees, etc.?

No stamp duties or other similar taxes are payable, unless the
applicable transaction document is executed in or brought into the
Cayman Islands. The amount of any applicable stamp duty will vary
depending on the type of document and, in relation to security
documents, the identity of the assets subject to the guarantee or
security interest. Court fees (of a nominal value) will fall due as
part of any enforcement process.

6.5 Are there any adverse consequences for a company
that is a borrower (such as under thin capitalisation principles)
if some or all of the lenders are organised under the laws of a
jurisdiction other than your own? Please disregard withholding tax
concerns for the purposes of this question.

Assuming that the lenders are not connected to the borrower, in
principle there are no adverse consequences if the lenders are
organised in a jurisdiction other than the Cayman Islands.

7. Judicial Enforcement

7.1 Will the courts in your jurisdiction recognise a
governing law in a contract that is the law of another jurisdiction
(a “foreign governing law”)? Will courts in your
jurisdiction enforce a contract that has a foreign governing
law?

The courts of the Cayman Islands will observe and give effect to
the choice of the applicable governing law of a contract assuming
that the choice of such law has been made in good faith and would
be regarded as a valid and binding selection which will be upheld
by the courts of that jurisdiction and any other relevant
jurisdiction as a matter of the relevant law.

7.2 Will the courts in your jurisdiction recognise and
enforce a judgment given against a company in New York courts or
English courts (a “foreign judgment”) without
re-examination of the merits of the case?

Assuming the above (question 7.1), there is no statutory
enforcement in the Cayman Islands of judgments obtained in the
courts of governing jurisdiction, a judgment obtained in such
jurisdiction will be recognised and enforced in the courts of the
Cayman Islands at common law, without any re-examination of the
merits of the underlying dispute, by an action commenced on the
foreign judgment debt in the Grand Court of the Cayman Islands,
provided such judgment is given by a foreign court of competent
jurisdiction and is final, for a liquidated sum, not in respect of
taxes or a fine or a penalty, and was not obtained in a manner, and
is not of a kind, the enforcement of which is contrary to the
public policy of the Cayman Islands.

7.3 Assuming a company is in payment default under a
loan agreement or a guarantee agreement and has no legal defence to
payment, approximately how long would it take for a foreign lender
to (a) assuming the answer to question 7.1 is yes, file a suit
against the company in a court in your jurisdiction, obtain a
judgment, and enforce the judgment against the assets of the
company, and (b) assuming the answer to question 7.2 is yes,
enforce a foreign judgment in a court in your jurisdiction against
the assets of the company?

Timing of any litigation will inevitably be dependent on a large
number of variable factors (such as location of the defendant,
defences raised, complexity of the proceedings and resistance to
enforcement). Assuming the defendant is in the Cayman Islands and
the matter is straightforward and uncontested, it is possible to
obtain default or summary judgment within a short time period.
Assuming there is no resistance to enforcement, it may be possible
to complete the process in six months. If the defendant is outside
the jurisdiction, the process may take substantially longer. The
timing for enforcement of a judgment is also dependent on a number
of variable factors. It may be possible to complete the process in
two to three months, but it could take substantially longer.

7.4 With respect to enforcing collateral security, are
there any significant restrictions that may impact the timing and
value of enforcement, such as (a) a requirement for a public
auction, or (b) regulatory consents?

While there are no legislative requirements for a public auction
or similar process in the Cayman Islands, liquidators owe fiduciary
duties to the creditors and shareholders of a company or members of
a LLC to recover the best price possible (usually market value) for
all assets of a company or LLC upon a liquidation. Receivers owe
their primary duty to the secured party and will seek to recover
sufficient funds to repay the debt due; however, they also have a
duty to the obligor to recover the best price reasonably obtainable
on a sale of the secured assets. Accordingly, public auction or a
similar process may be appropriate in certain circumstances.
Certain consents may also be required from the Cayman Islands
Monetary Authority if the obligor is a regulated entity.

7.5 Do restrictions apply to foreign lenders in the
event of (a) filing suit against a company in your jurisdiction, or
(b) foreclosure on collateral security?

There are no legislative restrictions on foreign lenders filing
suit against a company or LLC in the Cayman Islands, assuming that
they can establish that the Cayman Islands courts has jurisdiction
over the suit. There are no legislative restrictions applicable to
foreclosure on collateral security.

7.6 Do the bankruptcy, reorganisation or similar laws in
your jurisdiction provide for any kind of moratorium on enforcement
of lender claims? If so, does the moratorium apply to the
enforcement of collateral security?

Each of a company or LLC can be subject to voluntary or
involuntary winding up proceedings under the Companies Act (As
Revised), although it is possible for a court to appoint a
provisional liquidator after the presentation of a petition for the
winding up of a company or LLC but before an order for the winding
up of the company is made where, for example, there is an immediate
need to take actions to safeguard assets for creditors. 

The new restructuring officer regime that came into force on 31
August 2022 enables debtors to file for the appointment of
restructuring officers and obtain an immediate stay on unsecured
creditor action, without the need to file a winding-up petition.
This stay arises automatically on the filing of an application with
the Cayman Islands courts and does not require any subsequent
hearing or the appointment of restructuring officers to take
effect. The new regime does not, however, prevent secured creditors
from enforcing their security.

Court-supervised debt restructurings are implemented through a
scheme of arrangement. A scheme of arrangement involves a
compromise or arrangement between a company or LLC and its
creditors and/or members. It must be sanctioned by the Cayman
Islands courts and is a tool which enables a company or LLC to
impose a compromise on dissenting creditors if the requisite
majority of creditors (including, in the calculation of such
majority, any dissenting creditors) approves the scheme. The
requisite majority of creditors for this purpose is a majority
(i.e. over 50%) in number, representing 75% in value of creditors
or each class of creditors, present and voting either in person or
by proxy. While there is an automatic stay of proceedings against
the entity when an order for winding up has been made and on the
appointment of a provisional liquidator, the stay does not prevent
a secured creditor from enforcing its security interest.

7.7 Will the courts in your jurisdiction recognise and
enforce an arbitral award given against the company without
re-examination of the merits?

The courts of the Cayman Islands will recognise and enforce
arbitral awards made pursuant to an arbitration agreement in a
jurisdiction which is a party to the United Nations Convention on
the Recognition and Enforcement of Foreign Arbitral Awards (the
“New York Convention”). 

Although there is no statutory enforcement of arbitral awards
made in jurisdictions not party to the New York Convention, the
Cayman Islands courts will recognise and enforce such arbitral
awards provided that (a) the parties have submitted to the
arbitration by an agreement which is valid by its governing law,
and (b) the arbitral award is valid and final according to the law
which governs the arbitration proceedings. The arbitral award will
not be regarded as final by a Cayman Islands court unless the
arbitral tribunal has disposed of all the issues itself. A Cayman
Islands court will not, however, recognise or enforce such arbitral
awards if: (a) under the submission agreement and the law
applicable thereto, the arbitrators have no jurisdiction to make
the award; (b) it was obtained by fraud; (c) its recognition or, as
the case may be, enforcement would be contrary to public policy; or
(d) the proceedings in which it was obtained were opposed to
natural justice.

8. Bankruptcy Proceedings

8.1 How does a bankruptcy proceeding in respect of a
company affect the ability of a lender to enforce its rights as a
secured party over the collateral security?

In accordance with the Companies Act (As Revised), when a
winding up order is made or a provisional liquidator is appointed,
no suit, action or other proceedings, including criminal
proceedings, shall be proceeded with or commenced against the
company or LLC except with the leave of the court and subject to
such terms as the court may impose. This prohibition, in our view,
extends to judicial proceedings and does not include security
enforcement methods which do not require an order of the court in
the Cayman Islands. Furthermore, subject to any debts preferred by
law, each of the Companies Act (As Revised) and the Limited
Liability Companies Act (As Revised) provide that secured creditors
may enforce their security notwithstanding that a winding up order
has been made in respect of the applicable company or LLC.

8.2 Are there any preference periods, clawback rights or
other preferential creditors’ rights (e.g., tax debts,
employees’ claims) with respect to the security?

The enforceability of any security document will be subject to
general insolvency rules applicable to the company or LLC including
voidable preferences and transactions effected at an
undervalue. 

A secured party holding a fixed charge will, notwithstanding
that a winding up order has been made, be entitled to enforce its
security without the leave of the Cayman Islands court and without
reference to the liquidator. However, if the security interest
created by the relevant security document is treated as a floating
charge, then debts preferred under Cayman Islands law will have
priority over the secured party on a liquidation of the company or
LLC. 

In addition, subsequent purchasers, mortgagees, chargees,
lienholders and execution creditors in respect of the assets
subject to the floating charge are likely to have priority over the
secured party, although this will depend upon such factors as the
terms of the floating charge, in particular the scope of any
restrictions, whether any subsequent purchasers, mortgagees or
chargees have knowledge of any restrictions and the circumstances
in which any subsequent transactions arise.

8.3 Are there any entities that are excluded from
bankruptcy proceedings and, if so, what is the applicable
legislation?

As a matter of Cayman Islands law, no entities formed or
incorporated in the Cayman Islands are excluded from proceedings
under the Companies Act (As Revised), the Limited Liability
Companies Act (As Revised) or any other applicable laws or
regulations.

8.4 Are there any processes other than court proceedings
that are available to a creditor to seize the assets of a company
in an enforcement?

The Companies Act (As Revised) provides that, at any time after
the presentation of a winding up petition and before a winding up
order has been made, the company or any creditor or contributory
may (a) where any action or proceeding against the company,
including a criminal proceeding, is pending in a summary court, the
Cayman Islands court, the Court of Appeal or the Privy Council,
apply to the court in which the action or proceeding is pending for
a stay of proceedings therein, and (b) where any action or
proceeding is pending against the company in a foreign court, apply
to the court for an injunction to restrain further proceedings
therein, and the court to which application is made may, as the
case may be, stay or restrain the proceedings accordingly on such
terms as it thinks fit. On a voluntary winding up, there is no
automatic moratorium. The Cayman Islands court does, however, have
discretion to impose a moratorium on a blanket or a case-by-case
basis. In practice, the court would only exercise its discretion if
there was any doubt about the company’s solvency.

As set out in question 7.6, a creditor of a company or LLC may
have a compromise or arrangement imposed upon him under the
Companies Act (As Revised) if a majority in number representing
three quarters or more in value of the creditors (or class of
creditors including the affected creditor) have approved the
compromise or arrangement and it has been sanctioned by the Cayman
Islands courts. Although this is not a mandatory insolvency
provision, it is a circumstance in which a creditor of a company or
LLC may be made subject to an arrangement or compromise affecting
its rights without its consent. It would not, however, affect the
enforcement of security rights.

9. Jurisdiction and Waiver of Immunity

9.1 Is a party’s submission to a foreign
jurisdiction legally binding and enforceable under the laws of your
jurisdiction?

The submission by a company or LLC in a security document to the
jurisdiction of the courts of a particular jurisdiction will be
legal, valid and binding on the company or LLC assuming that the
same is true under the governing law of the security document and
under the laws, rules and procedures applying in the courts of that
jurisdiction.

9.2 Is a party’s waiver of sovereign immunity
legally binding and enforceable under the laws of your
jurisdiction?

Companies and LLCs may, as a matter of contract, waive immunity
for any legal proceedings in the Cayman Islands. However, subject
to certain exceptions, companies may receive the benefit of
sovereign immunity under the State Immunity Act of the United
Kingdom, which has been extended to the Cayman Islands by statutory
order.

10. Licensing

10.1 What are the licensing and other eligibility
requirements in your jurisdiction for lenders to a company in your
jurisdiction, if any? Are these licensing and eligibility
requirements different for a “foreign” lender (i.e. a
lender that is not located in your jurisdiction)? In connection
with any such requirements, is a distinction made under the laws of
your jurisdiction between a lender that is a bank versus a
lender that is a non-bank? If there are such requirements in your
jurisdiction, what are the consequences for a lender that has not
satisfied such requirements but has nonetheless made a loan to a
company in your jurisdiction? What are the licensing and other
eligibility requirements in your jurisdiction for an agent under a
syndicated facility for lenders to a company in your
jurisdiction?

There are no licensing or eligibility requirements under Cayman
Islands law for lenders to a company or LLC. Assuming that the
lenders are not incorporated in or registered under Cayman Islands
law and all the activities of such parties have not been and will
not be carried on through a place of business in the Cayman
Islands, then the lenders will not be required to be licensed in
the Cayman Islands solely in order to lend to a company or LLC. Any
lenders that are incorporated or registered in the Cayman Islands
or otherwise carrying on business in the Cayman Islands will be
required to register and be licensed, as applicable, in accordance
with Cayman Islands law.

11. LIBOR Replacement

11.1 Please provide a short summary of any regulatory
rules and market practice in your jurisdiction with respect to
transitioning loans from LIBOR pricing.

The transitioning of loans from LIBOR pricing is generally
completed in the non-Cayman Islands law transaction documents, with
limited (if any) impact on a security interest granted by any
Cayman Islands entity and/or collateral located in or governed by
Cayman Islands law.

12. Other Matters

12.1 How has COVID-19 impacted document execution and
delivery requirements and mechanics in your jurisdiction during
2022 (including in respect of notary requirements and delivery of
original documents)? Do you anticipate any changes in document
execution and delivery requirements and mechanics implemented
during 2021/2022 due to COVID-19 to continue into 2023 and
beyond?

Execution and delivery requirements by a Cayman Islands entity
or Cayman Islands governed document have not been impacted; the use
of electronic signatures is usual practice and delivery of original
documents are not required, unless otherwise expressly provided for
in such entity’s constituent documents or the transaction
documents. If certain deliverables are required to be certified by
a Cayman Islands notary, such notary may adhere their stamp to the
document by electronic means. Given that the Cayman Islands has
been executing and delivering documents by electronic means for a
number of years, the transition to the virtual world has been
seamless. 

12.2 Are there any other material considerations that
should be taken into account by lenders when participating in
financings in your jurisdiction?

There are no other material considerations which should be taken
into account.

Originally Published by International Comparative Legal
Guide

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.