Five comments we make on LPAs (and why we make them…)

Senior counsel Bicrom Das takes a quick look at Cayman comments on LPAs.

Having spent my formative legal years practicing as a private funds attorney in London, one of the things I remember most vividly is the sheer number of comments on fund documents which landed in my inbox. Clients, opposing counsel, offshore counsel, all contributed with varying levels of frequency, detail and insistence to the documents on which I was holding the pen.

My experiences, both positive and negative, of reviewing such comments through the prism of an onshore funds lawyer have guided my own approach to marking up documents that I now receive offshore. Critically, judicious use of the red pen is very much about quality, not quantity: we are here to ensure compliance with Cayman law and try and add value where appropriate but, most importantly, to do so in a way that makes cleints' and onshore lawyers' lives easier.

There remain however certain comments which I find myself making on Cayman Islands exempted limited partnership agreements ("LPAs") which are typically accepted as they are not commercially contentious but which, to the non-Cayman eye, may seem overly pedantic. Below are five Cayman comments which you may not have had the time to query but which we make for the following reasons:

As of this comment is needed: a red mark on the front cover is never a great start, especially to strike out something as seemingly innocuous as an "as of" date. Unfortunately agreements governed by Cayman Islands law, such as LPAs, cannot be backdated: the earliest they can be dated is the date all parties have signed. To the extent the parties wish to agree a prior effective date we can provide language to that effect (notwithstanding that such prior effectiveness would not be binding on third parties) but the date of the agreement itself cannot precede its being fully executed.

Certifiably annoying: whilst our Exempted Limited Partnership Law is based on its Delaware counterpart, and there remain numerous similarities, the terminology of amending and filing a "certificate" does not make sense in the context of a Cayman Islands exempted limited partnership (an "ELP"). An ELP is registered upon the filing of a Section 9 statement: to the extent any of the details set out in such statement change a Section 10 statement is filed detailing the relevant amended term, rather than an amended Section 9 statement. The certificate of registration of an ELP only sets out its name and registration number, and is only updated on a change of name when the Registrar will issue a certificate of change of name upon, of course, our having filed the relevant Section 10 statement.

Chewing the FATCA: Having bestowed FATCA on the world the US, unlike Cayman, has not as yet agreed to become a participating jurisdiction under its progeny the Common Reporting Standard ("CRS") established by the OECD. As such, whilst domestic US funds are only subject to FATCA, Cayman funds are subject to both FATCA and CRS. We can work with you to minimise the consequential drafting changes but, broadly, it is essential that limited partners of a Cayman fund are contractually obliged to provide information required not just by FATCA but also by CRS, with the relevant defined terms having to be expanded out accordingly. 

A gross by any other name: Whilst it may seem perverse to have the term "gross negligence" be as interpreted (not governed: everything in an LPA must be governed by Cayman law) by Delaware law, the term "gross negligence" has no clear definition under Cayman law. This formulation does have the advantage of allowing the gross negligence standard at the level of the Cayman fund to match that of any Delaware master/parallel fund.

You're winding me up: Why change the convenient, pithy term "dissolution" for the more syllable heavy "commencement of winding up"? Unfortunately, whereas we understand the term "dissolution" in Delaware refers to the point at which a partnership ceases its regular business and starts to wind up its portfolio, in Cayman it refers to the point at which the final notice of dissolution is filed and the ELP is, to slip back into Delaware terminology, terminated. Why so important to track the correct Cayman terminology? Consider an LPA where management fees are payable through dissolution and the material commercial effect using the incorrect language might have.

Any other Cayman comments which you regularly get and on which you would like some background or context? Drop me or your other Walkers contacts a line and we would be happy to discuss.

CAYMAN ISLANDS
Bicrom DasPartnerT +1 345 814 4606bicrom.das@walkersglobal.com