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Future Plans for Bermuda Public Beneficial Ownership Register

Bermuda has collected and maintained information concerning beneficial owners of Bermuda registered entities for over 70 years and the Bermuda Government committed to making beneficial ownership information public, when public beneficial ownership registers became a global, international standard. Further to a press statement on 12 July 2020, the Minister of Finance stated that the Bermuda Government plans to table legislation by January 2023, twelve months from the publication of the European Union fifth Anti-Money Laundering Directive anticipated on 5 January 2022, to make the beneficial ownership register currently maintained by the Bermuda Monetary Authority, accessible to the public.

 

Click to view advisory

Walkers Fundamentals White Paper 2020 – Regional Update: Europe

Welcome to Walkers’ 2020 Fundamentals White Paper Series, in which we discuss certain trends identifiable among the hedge funds and private equity funds that we helped our clients launch over the last twelve months.

In last year’s White Paper, published in November 2019, managers and their funds appeared to be positioning themselves for market turbulence in the face of global uncertainties and a volatile economic and financial environment. One year on, with the benefit of hindsight, this was something of an understatement. 2020 has tested all aspects of managers’ businesses, from the boardroom to the back office, and in many parts of the world out of the office altogether. All of this, of course, is not to overlook the broader global context of the pandemic and the significant health, economic and political challenges that 2020 has brought and continues to present.

To visit the other parts of the series, please use the direct links below:

Guernsey

Despite difficult market conditions and uncertainty around global investment markets, Guernsey’s funds industry continues to excel; the most recently released figures saw total net asset values increase by 7.6% to £233.2 billion, including 12-month increases in closed-ended schemes (8.2%) and open-ended schemes (5.2%).

Guernsey’s versatile funds model is well understood by professionals within the European funds industry, with many having used Guernsey for years. Guernsey also continues to benefit from having a regulator that is willing to innovate.

The most recent examples of innovation are reforms to the regimes for migrating funds, as well as the creation of a new fast-track regime for migration of fund managers – lawyers from Walkers’ Guernsey Investment Funds and Corporate Law Practice Group were closely involved in the creation of the new regimes, and we have already advised on several migrations, from and to jurisdictions, including Malta.

During the year, Walkers advised on the launch of Guernsey’s first ever medicinal cannabinoid fund. The team advised Chrystal Capital Partners LLP in relation to the registration of cannabinoid investment fund, Verdite Capital Fund I L.P., which was registered by the Guernsey Financial Services Commission in July, and which was reported in the Financial Times. The regulatory approval for the fund demonstrates that Guernsey is a leading international financial centre that can provide innovative solutions for novel investment products. The coverage of the Verdite launch has sparked several inquiries to the team about similar funds launches.

During 2018, the Guernsey regulator approved the creation of the Guernsey Green Fund, a “kitemark” for funds with an environmental focus. As with any other type of Guernsey fund, the investment strategy and investments can be focused outside of Guernsey, while the fund benefits from an accredited green kitemark issued by the Guernsey regulator. Investors in a Guernsey Green Fund are able to rely on the Guernsey Green Fund designation and logo, provided through compliance with the Guernsey Green Fund Rules, to represent a scheme that meets strict eligibility criteria of green investing and has the objective of a net positive outcome on the environment. This is particularly relevant given the commitment by various governments to “Build Back Better” with more environmentally-focused infrastructure spending as the international COVID-19 economic recovery develops. At most recent count, Guernsey Green Funds held an aggregate net asset value of £3.3 billion.

The versatility of Guernsey’s regime was again illustrated by its selection as the jurisdiction for Hipgnosis Songs Fund Limited – a high-profile fund investing in rights over popular music tracks advised by various music industry figures.

Guernsey’s Private Funds’ model continues to be a successful offering for managers not seeking to raise capital publicly, with one of its main attractions being a light-touch regulatory regime. There are currently 62 PIFs registered – a mix of both closed-ended and open-ended – and their use for club deals, private wealth investment structures and for start-up managers demonstrates their versatility.

Guernsey also offers structures and platforms to cater for the rise in separately managed accounts ("SMAs"), which do not need to be registered as funds due to having a single investor. Since COVID-19 started to disrupt fundraising, we have seen an increase in inquiries about SMAs from large institutional investors and we have advised on several matters involving SMAs in the European market. In Guernsey, SMAs tend to be structured either as limited partnerships with a sole limited partner, or as segregated cells within a Guernsey protected cell company.

Geographically, Guernsey continues to see the majority of fund sponsors originating from the UK, the US and continental Europe. Germany and Scandinavia are particularly familiar with Guernsey fund structures, and the use of national private placement regimes to market to EU based investors continues to be a popular route of accessing European investment (particularly where investors are concentrated in a limited number of EU jurisdictions).

Ireland

The latest statistics show that the net asset value of Irish-domiciled funds exceeded €3 trillion at the end of Q2 2020. This represents an annual increase of 13% (€339 billion) from €2.71 trillion in Q2 2019. Since Q4 2019, the net asset value of Irish-domiciled funds grew by over €1 billion.

The number of Irish-domiciled funds (including sub funds) grew from 7,707 in Q4 2019 to 7,760 in Q2 2020. On an annual basis, the number of Irish-domiciled funds increased by 229, growing from 7,531 (in Q2 2019). In terms of the number of Irish-domiciled funds by category, Irish-domiciled AIFs (including sub-funds) reached 3,014 at the end of Q2 2020 and the total number of Irish-domiciled UCITS Funds (including sub-funds) reached 4,746. Out of all Irish-domiciled funds, 23.12% of Irish-domiciled funds are bond funds, 25.04% are alternative funds, 19.7% are money-market funds, 25.68% are equity funds, 4.8% are balanced funds, and 1.66% are other funds.

The total number of Irish-domiciled QIAIFs reached 2,731 at the end of June 2020 and total assets held by Irish QIAIFs reached €713 billion. This was driven by annual QIAIF asset growth of 12% up to the end of Q2 2020. As of the end of Q2 2019, Ireland is the top domicile for European ETFs, with a 62.58% share of the European ETF market and total assets of €450 billion.

As a consequence of COVID-19 and its effects on the Irish investment funds industry the Central Bank of Ireland has increased its focus on liquidity related issues throughout 2020. Despite the challenges faced as a result of COVID-19, regulation continued to shape the investment funds industry through 2020 with new requirements relating to beneficial ownership under EU’s Fourth Anti-Money Laundering Directive coming into effect in Ireland for certain types of entities as well as other requirements such as those introduced under the Shareholder Rights Directive II. Sustainable finance is another key area of focus for the Irish investment funds industry, with a refocus on Brexit occurring towards the second half of 2020.

The Investment Limited Partnerships (Amendment) Bill 2020 is currently working its way through the Irish houses of parliament. This bill is a positive step in the direction of making Ireland a more attractive domicile for private equity and venture capital funds. The reforms are predominately aimed at (i) redefining certain rights and obligations relating to LPs and the GP; (ii) harmonising the rules relating to, and the characteristics of, the ILP structure with other Irish regulated fund structures and certain legal and regulatory developments since the Act was introduced; and (iii) adopting market standard practices and features from other popular fund domiciles. Once enacted it is expected that Ireland will become a popular jurisdiction for managers looking to utilise a GP/LP structure given the ILP’s innovative features.

Jersey

Jersey’s investment funds industry continues to thrive. Against the historically difficult and uncertain global economic backdrop, the first six months of 2020 saw a rise in the value of regulated funds serviced in Jersey, up to a record high of £361.7 billion.

That rise of just over 5% was accompanied by another increase in the number of registered Jersey Private Funds (“JPF”), a new product for up to 50 sophisticated investors with a lighter-touch regulatory regime, introduced in 2017. This product has been a runaway success, with its versatile offering attracting use as a private wealth structuring tool for club deals and for start-up managers.

Hedge fund, real estate and private equity asset classes continue to dominate, and in the last published statistics in June 2020, accounted for 87% of Jersey’s overall funds business.

The uncertainty around Brexit has not diminished the Island’s appeal. The tried and tested NPPR route into the EU continues to work well for managers, while an AIFMD compliant regime is ready to be introduced once passporting for third countries is considered again by ESMA. Managers continue to make use of Jersey to access European markets, and in the last few months, we have seen more US managers using Jersey vehicles to target European capital.

At the same time, reforms to the Island’s regime for migrating limited partnerships have also simplified the process for managers looking to move funds to the Island.

Although COVID-19 has had an impact on the Island, one trend that began in late December has persisted through lockdown and beyond. This has been a slight shift away from the traditional closed-ended model, in which Jersey used to specialise, to open-ended funds (or “hybrids” a term coined for open-ended funds with less frequent dealing days, generally monthly or quarterly).

As a jurisdiction already used to demonstrating substance in its investment fund and investment management regimes, Jersey is well placed to meet the demands placed on it by the ever changing regulatory and political landscape. Jersey continues to stress test its product offerings and business models in order to comply with the highest global regulatory standards, while remaining a competitive jurisdiction in the investment funds market.

London

2020 has been a busy year for the London market, and despite a difficult first quarter, hedge funds managed to bounce back in the second and third quarter of the year and outperform the major public indices, taking advantage of the market volatility essentially driven by the coronavirus pandemic and the macro economic uncertainties - US presidential elections, trade barriers between the US and China as well as the growing tensions between the UK and the EU over Brexit.

During that same period, the hedge fund industry in Europe has also experienced positive inflows as investors looked to make significant allocations to macro and relative value strategies across a wide range of performing firms, from large asset managers, to mid-sized asset managers and smaller outfits. In addition to performance gains, this net inflow has translated into a growing AUM for the industry, which follows the global trend. It has also fuelled a good number of new hedge fund launches by institutional and established managers, as well as start-up managers spinning out of major institutions. This is not- withstanding the restrictions under the pandemic and the shadow of Brexit politics, as financial services have been able to function robustly in a more decentralised environment thanks to an ever improving technology infrastructure. Notably, it seems that a greater proportion of these new entrants are being FCA authorised in their own right, rather than being FCA hosted.

Despite the facilitative Cayman funds regime, fund launches below the £30 million mark are now a rarity. Barriers to entry, such as increased regulatory burden and compliance costs imposed on European man- agers versus the low AUM, make it hardly viable even when utilising hosting platforms. However, the comparative advantage of greater flexibility of Cayman funds means Cayman remains the domicile of choice for innovative entrepreneurial propositions, such as tokenised funds for listing and digital trading funds, and for funds with exposure to certain assets, such as commodities.

We have also seen a significant increase in London-based hedge fund managers launching hedge-fund co-investment vehicles, taking advantage of investment opportunities that do not fit within their flagship fund while, at the same time, providing investors with a way to reduce the average fees they pay to the manager across the funds they invest in. Typically such co-investments are structured through Cayman exempted companies or limited partnerships, relying on Cayman’s advantage of being a trusted jurisdiction to launch vehicles quickly and at a low cost. Speed of execution is often key to making the most of a co-investment opportunity.

For closed-ended funds, select private equity managers continue to take advantage of Cayman Islands structures to facilitate bringing their product market. However, we have seen fewer launch maiden Cayman private equity funds continuing in this region to prefer European Private Equity jurisdictions. There remain however real estate-focused managers who are committed to Cayman funds.

Walkers Fundamentals White Paper 2020 – Regional Update: Americas & Middle East

Welcome to Walkers’ 2020 Fundamentals White Paper Series, in which we discuss certain trends identifiable among the hedge funds and private equity funds that we helped our clients launch over the last twelve months.

In last year’s White Paper, published in November 2019, managers and their funds appeared to be positioning themselves for market turbulence in the face of global uncertainties and a volatile economic and financial environment. One year on, with the benefit of hindsight, this was something of an understatement. 2020 has tested all aspects of managers’ businesses, from the boardroom to the back office, and in many parts of the world out of the office altogether. All of this, of course, is not to overlook the broader global context of the pandemic and the significant health, economic and political challenges that 2020 has brought and continues to present.

To visit the other parts of the series, please use the direct links below:

Bermuda

Funds

Bermuda is the leading jurisdiction for the creation, support and listing of insurance-linked securities (“ILS”) (with the BSX having almost 95% of market share of global ILS listings) and ILS funds. Investors’ appetite for portfolio diversification and interest in this relatively uncorrelated alternative asset class that is also acknowledged as a sustainable development investment, continues to grow and the total AUM of global ILS investment managers is approximately $100 billion. Many of the largest ILS investment managers have a physical presence in Bermuda.

Bermuda remains the third largest offshore jurisdiction for traditional fund products, in terms of number of funds registered, with a reputation for quality clients and innovative structures.

Bermuda fared remarkably well throughout the COVID-19 pandemic. The Government of Bermuda is now offering a ‘Work from Bermuda’ certificate to allow digital nomads and professionals who normally work from another jurisdiction, a 1-year pass to live and work on the Island instead. The programme is very attractive for those stuck in cities with high infection rates, or working from a home office longer than expected, and is being structured for asset managers in particular.

The introduction of the new Incorporated Segregated Accounts Act legislation has been well received. This builds on the traditional concept of operating segregated accounts that have the benefit of statutory segregation between accounts, allowing a ring-fencing of assets and liabilities, but also introduces the ability for each account to have its own separate legal personality.

As Bermuda already had in place a robust infrastructure for funds that meet international standards, there were no changes to the asset management regulatory landscape during 2020.

Like many financial centres, Bermuda is also seeing a marked increase in private equity activity, and an increase in family offices, looking to take advantage of Bermuda’s safe and stable environment.

Fintech

Bermuda’s Fintech sector continues to grow. The sector includes a broad range of innovative financial products and services enabled by distrib- uted ledger or blockchain technology. In May 2020, the Digital Asset Issuance Act came into effect, which replaced the ICO regime as the primary legislation for all digital asset offerings in or from Bermuda. The legislation is aimed at prioritising regulatory certainty, investor confidence and compliance with international anti-money laundering standards.

The resulting surge of interest in Bermuda as a jurisdiction for Fintech businesses, means that the island expects to see more investors and venture capitalists looking to Bermuda for new opportunities, particularly given the regulatory certainty and transparency.

The British Virgin Islands

The British Virgin Islands (“BVI”) continues to market itself as the jurisdiction of choice for emerging managers, and the numbers show continued growth in this segment of the market. While the mainstays of the BVI funds offering (the private and professional funds) have seen a minor decline over the past year (private funds are down by 0.3% and professional funds are down by 2% since Q3 2019), we are continuing to see increased interest in the incubator fund, approved fund and approved manager (incubator funds are up by 7%, approved funds are up by 5% and approved managers are up by 7% since Q3 2019).

Both the approved fund and the approved manager offer a cost-efficient and quick-to-launch option for a seeding manager that is looking to establish a track record with investments from either friends and family or a small investment from third-party investors (the approved fund is limited to a maximum of 20 investors and an assets under management limit of US$100 million).

In December 2019, the BVI Government enacted legislation requiring the registration and regulation of closed-ended investment funds. Previously, closed-ended investment funds were not required to be registered in the BVI. It is expected that this development will be particularly attractive to emerging managers in the private equity and venture capital spaces.

Dubai

Private Debt Becoming Increasingly Attractive

One of the major recent trends has been the increased popularity of private debt as an asset class. In particular, we have seen some of the leading sovereign wealth funds in the Middle East region move into private debt markets to seek higher yields. In doing so, several of these funds have teamed up with leading asset managers.

The deals that have been publicly announced include Mubadala Investment Company and its establishment of a financing platform with Apollo Global Management and the recently announced collaboration between the Qatar Investment Authority and Credit Suisse Asset Management to create a platform to invest into direct lending.

Trends in Other Asset Classes

The COVID-19 global pandemic has of course had an impact on asset allocations. There has been noticeably less activity in the hospitality and F&B sectors.

On the other hand, we have seen increased interest in the healthcare sector, with the global pandemic accelerating what was already a fast-growing industry. A recent KPMG report noted that, in the Gulf region, healthcare-related expenditure grew from $60bn in 2013 to

$76bn in 2019 and is expected to grow to $89bn by 2022. This rep- resents an overall increase of nearly 50% from 2013 to 2022.

In terms of other asset classes, blue chip real estate (for example in the US or UK) continues as a popular low-risk investment option for Middle East based investors. We are seeing in the VC space, that start-ups with an easily scalable platform based, technology-driven business are attracting a lot of interest.

Developing the VC ecosystem

One clear trend we have witnessed is the support being provided to local and regional start-ups by regional governments and sovereign wealth funds.

In Saudi Arabia, for example, we are seeing the likes of the Public Investment Fund and Saudi Venture Capital Company support local asset managers in launching VC funds which have a focus on investing in local and regional start-ups. Entities such as ISSF and Beyond Capital in Jordan are doing likewise.

Walkers Fundamentals White Paper 2020 – Regional Update: Asia

Welcome to Walkers’ 2020 Fundamentals White Paper Series, in which we discuss certain trends identifiable among the hedge funds and private equity funds that we helped our clients launch over the last twelve months.

In last year’s White Paper, published in November 2019, managers and their funds appeared to be positioning themselves for market turbulence in the face of global uncertainties and a volatile economic and financial environment. One year on, with the benefit of hindsight, this was something of an understatement. 2020 has tested all aspects of managers’ businesses, from the boardroom to the back office, and in many parts of the world out of the office altogether. All of this, of course, is not to overlook the broader global context of the pandemic and the significant health, economic and political challenges that 2020 has brought and continues to present.

To visit the other parts of the series, please use the direct links below:

Hong Kong

2020 has been a year of contradictions in private equity throughout Asia. This is particularly apparent in relation to fundraising. With the COVID-19 pandemic and a trade war affecting China, the region has faced significant headwinds. As such, it came as no surprise that in Walkers’ Asia Private Equity Fund Survey 2020, we found that fund- raising was seen as the second biggest challenge for managers, with only the pandemic being a bigger concern.

Notwithstanding the headwinds, fundraising has remained reasonably resilient. Private Equity International reported that three of the top ten funds raised in H1 of 2020, were Asia-focussed and that Asia-focussed funds raised 51% more capital than those focussed on Europe.[1]

This is not to say that fundraising is not changing. According to McKinsey & Company, in Asia, at least, “funding increasingly flows towards the largest, highest performing firms”[2] and there is increasing concentration in the top funds. This consolidation is most notable in China. In 2015, the top ten China-focussed funds accounted for 23% of funds raised for that sector. In 2019, their share had increased to 30%.[3] 2020 has seen this trend continue, especially since COVID-related travel restrictions resulted in first-time fundraisers having difficulties meeting investors, leaving a clear opportunity for existing powerhouses to garner re-up capital.

Looking at transactions in the region, average PE deal sizes in China have doubled between 2009 to 2019,[4] led by an increase in the number of deals above US$500 million (up from four such deals in 2009 to 40 in 2019).[5] Given the levels of dry powder allocated to Asia (apparently sitting at around US$388 billion[6]), and that competition should drive valuations up, there is little reason to think that average values won’t continue to rise.

The number of RMB funds raised by domestic GPs in China also under- went a material decline between 2017 and 2019[7]. This correlates with the observation that first-time and smaller fund raisers seem to be declining in the region – new China-focussed funds (which tend to be smaller and traditionally access smaller transactions) raised US$16.3 billion in 2017 but less than US$200 million in 2019.[8]

Exit numbers are similarly down. 2019 saw a decline in Asia Pacific deal values to US$150 billion (being 43% below the 2018 record high). Driven by macro-economic factors, specifically in China, where real GDP growth slowed to 6% in H2 2019[9], exits dropped from a peak of 229 deals in 2014 to 112 in 2019.[10]

All of this, taken together, indicates that the PE industry in Asia (and particularly China) continues to mature and is moving to a new level of sophistication, a trend we have seen in the region.

The experience of the Japan-based PE industry is not always consistent with the rest of Asia generally, and that remained true in 2019. PE investment value in Japan increased 144% from 2018 to 2019 (according to Bain).[11] As one leading Japanese fund formation firm observed, although there are no official statistics on the fundraising market in Japan, there has been an increasing demand from various private equity funds in 2019. It was also observed that membership of Japanese private equity and venture capital peak bodies, such as the Japanese Venture Capital Association and Japanese Private Equity Association, has materially increased[12], indicating that the trend towards wider acceptance of private equity in Japan is continuing.

In relation to hedge funds, similar to the experience in private equity, it has been a year of apparently conflicting data points. According to data from Preqin[13] performance for Asia-focussed hedge funds was solid in 2019 at +10.79% (well above the 7.8% posted in relation to Europe- focussed hedge funds and materially above the five year annualised average of 5.51%). Similarly, the Asia-Pacific hedge fund performance matrix, published by HFM, indicated that in Q3 of 2020 Asia-Pacific funds were up 8.9% year to date, well above the 3.9% figure posted in relation to the North America Index and 4.1% global index figure.[14]

In general, fund raising activity has been sluggish. Asian fundraises tend to rely heavily on start-up and spin out activity. A mixture of COVID-19 and travel restrictions, have materially impeded the ability of new entrants to go on fundraising roadshows, and for allocators and investors to undertake operational due diligence.

The pipeline for new funds looks strong however. Based on discussions with prime brokers, industry mainstays and our own intelligence, we expect a number of high pedigree funds to launch in H1 of 2021. That sentiment echoes the general level of optimism that managers signalled in our survey, with 80% being generally optimistic for 2021.

Singapore

The funds market in Singapore continues to be vibrant. Over the last five years, assets under management in Singapore expanded at an 11% compound annual growth rate. At the end of 2019, total assets managed by Singapore-based asset managers grew 15.7% from 2018, to reach S$4.0 trillion (US$2.94 trillion).[15] The alternatives sector saw sustained growth of 12% in 2019 to S$721 billion (US$531 billion), led by private equity and venture capital managers while AUM from hedge fund managers increased by 14%.[16]

With AUM rising by almost 36%, to reach US$1.2 trillion in 2019, Asia Pacific now represents a quarter of the global PE and VC market.[17] Despite the lingering COVID-19 uncertainty and other regional turmoil, Singapore continues to be attractive, with close to 300 global and regional PE and VC managers based in Singapore by the end of 2019.[18] HFM Global has reported that seven hedge funds launched in Hong Kong compared to six in Singapore in the first half of 2020, compared to 18 and three, respectively, in the previous six-month period.[19]

The outlook is robust with the expansion to Singapore of some of the largest managers globally.[20] This includes TPG Capital, who have consolidated their Asia Pacific investment activities in Singapore[21], D.E. Shaw, one of the world’s biggest hedge funds, which reportedly has applied for a fund management license in Singapore[22] and the move to open an office by Citadel hedge fund business.[23] Singapore is also attractive to local and Chinese wealth managers vying for a slice of the asset management market in Southeast Asia.[24]

In January 2020, the Monetary Authority of Singapore introduced the Variable Capital Company (“VCC”), a new corporate structure for investment funds which was launched with a highly attractive grant scheme. As at 15 October 2020, 149 VCCs had been incorporated.[25] Industry participants in Singapore envisage the VCC primarily being used by local boutique managers with a domestic and regional focus rather than the larger global players.

For larger multi-jurisdictional offerings, it is expected that Cayman will remain the domicile of choice of Singapore based managers. This is supported by the results of our 2020 Walkers Asia Private Equity Survey, where investor familiarity is the key driver for domicile choice, a key consideration when it comes to fundraising.




[1] Private Equity International, “Fundraising Report H1 2020”

[2] McKinsey & Company, “In Search of Alpha: Updating the playbook for private equity in China”, 27 August 2020

[3] McKinsey & Company, “In Search of Alpha: Updating the playbook for private equity in China”, 27 August 2020

[4] McKinsey & Company, “In Search of Alpha: Updating the playbook for private equity in China”, 27 August 2020

[5] McKinsey & Company, “In Search of Alpha: Updating the playbook for private equity in China”, 27 August 2020

[6] Bain & Company, Asia-Pacific Private Equity Report 2020

[7] McKinsey & Company, “In Search of Alpha: Updating the playbook for private equity in China”, 27 August 2020

[8] McKinsey & Company, “In Search of Alpha: Updating the playbook for private equity in China”, 27 August 2020

[9] Bain & Company, Asia-Pacific Private Equity Report 2020

[10] McKinsey & Company, “In Search of Alpha: Updating the playbook for private equity in China”, 27 August 2020

[11] Bain & Company, Asia-Pacific Private Equity Report 2020

[12] Lexology, “Private Equity Fundraising in Japan” 14 August 2020

[13] Preqin Global Hedge Fund Report 2020 data pack

[14] HFM, “Hedge Funds in Q2 20”

[15] 2019 Singapore Asset Management Survey, Monetary Authority of Singapore

[16] 2019 Singapore Asset Management Survey, Monetary Authority of Singapore

[17] Bain & Company, “Asia Pacific Private Equity Report 2020”

[18] 2019 Singapore Asset Management Survey, Monetary Authority of Singapore

[19] 2019 Singapore Asset Management Survey, Monetary Authority of Singapore

[20] 2019 Singapore Asset Management Survey, Monetary Authority of Singapore

[21] 2019 Singapore Asset Management Survey, Monetary Authority of Singapore

[22] Billionaire Ken Griffin’s Citadel Opens Singapore Office, Bei Hu, August 24, 2020, Bloomberg

[23] D.E. Shaw to Open Singapore Office as Hedge Funds Target Asia, David Ramli, October 15, 2020, Bloomberg

[24] China Wealth Manager Hywin Plans Foray Into Singapore By Lulu Yilun Chen, August 3, 2020, Bloomberg

[25]https://www.acra.gov.sg/docs/default-source/default-document-library/variable-capital-companies/list-of-vccs_as_at_15october20.pdf

We're coming home: Grand Court Confirms the Primacy of Insolvency Proceedings in a Cayman Company's Home Jurisdiction

In a recent decision of the Grand Court of the Cayman Islands (the “Grand Court”) in the matter of Sun Cheong Creative Development Holdings Limited (FSD 160 of 2020), the Chief Justice considered the principles applicable to the appointment of “soft touch” provisional liquidators to effect the restructuring of a Hong Kong-listed Cayman Islands company where two competing winding up petitions were filed before the High Court of Hong Kong (the ("HK Petitions" and the “HK Court” respectively). His Lordship held that the Grand Court would be slow to give primacy to pure winding up proceedings of a Cayman Islands company before a foreign court where the company intended to present a reorganisation plan for the benefit of its creditors as a whole.

 

By way of background, Sun Cheong Creative Development Holdings Limited (the “Company”) is a Cayman Islands-incorporated holding company registered in Hong Kong and listed on the Hong Kong Stock Exchange. Its corporate group had historically been profitable until it began to face severe financial difficulties in 2019 and the Company itself was admittedly cash flow insolvent as at the date of the application. The HK Petitions were listed to be heard in August and September respectively and the Company petitioned for its own winding up in the Cayman Islands immediately before the first of the HK Petitions was to be heard. On the same date, the Company applied on an urgent ex parte basis for the postponement of its own petition and the appointment of “soft touch” joint provisional liquidators (“JPLs”) under section 104(3) of the Companies Law to allow it to present a restructuring proposal to its creditors.

 

The Company’s restructuring proposal contemplated that proceeds from a “white knight” investor were to be used, amongst other things, to fund a creditors’ settlement and to invest in new business lines to enable the Company to continue trading. This was to be contrasted with an official liquidation where the likely distribution to creditors was estimated at 1 cent on the dollar. Given the decision to appoint the JPLs would result in the adjournment of the HK Petitions in circumstances where the Company was admittedly insolvent, the Grand Court had to consider whether, notwithstanding the likely objections of the Hong Kong petitioning creditors, the interests of the majority of the Company’s creditors would be better served by a restructuring rather than an official liquidation in Hong Kong. The Grand Court ultimately found that the appointment of JPLs to pursue the restructuring proposal would be in the best interests of the Company’s stakeholders.

 

Where a creditor has submitted a winding up petition in respect of an undisputed debt, the primary approach of the court is that the creditor will be entitled to a winding up order “as of right” unless special reasons can be shown why the relief should not be granted. The Chief Justice noted that, had the Hong Kong petitioning creditors petitioned in the Cayman Islands, he would have considered their application in light of the Grand Court’s previous decisions where it had been willing to offer assistance to distressed companies by permitting a court-supervised restructuring which protects the interest of the creditors as a whole. Given a “white knight” had been identified, a detailed restructuring plan was in place, and independent evidence as to its viability and benefit to the creditors as a whole was before the court, his Lordship was satisfied that the jurisdiction to appoint "soft touch" liquidators to implement the compromise had been engaged. Accordingly, the Chief Justice considered there were compelling reasons to make an order in the Cayman Islands appointing the JPLs (effectively adjourning the HK Petitions).

 

In deference to the HK Court, the Chief Justice considered it necessary to consider the question of comity and found that while there was a well-established practice in Hong Kong of recognising the appointment of foreign office holders appointed in the country of incorporation, the converse (i.e. the Grand Court's jurisdiction to grant reciprocal recognition of foreign office holders appointed in a country other than the company’s place of incorporation) was far more limited. Where the Grand Court has granted such assistance in the past, the cases demonstrate that it will be more willing to grant recognition where the purpose is to facilitate a restructuring or otherwise to avoid a winding up where that is in the best interests of the company’s stakeholders. On the other hand, it will be slow to prefer a pure official liquidation of a Cayman Islands company before a foreign court where it is satisfied that there is an intention to present a restructuring plan of greater benefit to its creditors.    

 

The decision is a helpful reminder that where a company is cash flow insolvent, the interests of the creditors as a whole will be of paramount importance even where questions of comity arise. The decision also confirms that where a compromise is to be presented, and it is in the best interests of a company's creditors, in appropriate circumstances the Grand Court will effect a court-supervised restructuring in the company's home jurisdiction.

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