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Chambers Global Practice Guide 2020: Banking & Finance – Bermuda: Law and Practice

Partners Adam Bathgate and Nathalie West have authored the Chambers 2020 Global Practice Guide: Banking & Finance - Bermuda: Law and Practice.

The publication provides guidance on the current Banking and Finance market, including a panoramic view of the impact of the current regulatory environment and economic cycles, the impact of the COVID-19 pandemic, project finance, bankruptcy and insolvency, tax, assets and forms of security, and more. 

Click to view guide

Published with permission from Chambers and Partners (October 2020)

The Cayman Islands – A Jurisdiction of Choice for Ultra-Wealthy Chinese Families

The Cayman Islands has long been known and trusted by Chinese nationals as a jurisdiction to establish corporate and fund vehicles for outbound business investments from China or Hong Kong. In recent years, though, the Chinese have also turned to Cayman for wealth structuring and family succession planning, and Cayman Islands trusts, foundations and companies are often part of ultra-high-net-worth (UHNW) families’ personal planning.

Many Chinese families do not only operate within national borders and boundaries. Whether it is family members moving to the US, Canada, Dubai or Europe, they are often not geographically tied to their region of origin and need to ensure that all aspects of their wealth planning take their families’ increased global footprint into account. International families are looking at the broad spectrum of possibilities for wealth planning and structuring, and the Cayman Islands are increasingly becoming a jurisdiction of choice.

Monique Bhullar, a partner with Walkers law firm, which has offices in Cayman and Hong Kong explains: “As a law firm, we have seen a significant increase in the number of ultra-high-net-worth individuals and family offices either relocating or preparing a contingency plan for relocating to Cayman. This is without actively seeking this type of work, so is clearly illustrative of a global trend.

“An uptick in high-net-worth migration from a region is often a signal of negative economic, political or societal factors influencing a region. Where clients are considering contingency planning based on such factors, they are often looking further afield to jurisdictions physically distant from their home jurisdiction or region, and often also economically or politically different, in order to mitigate risk. This applies to immigration planning as well as asset protection and estate planning and makes Cayman an attractive option for residents of Mainland China and Hong Kong.”

Contingency or ‘Plan B’ residency is something that is being considered by many wealthy, global Chinese families who are concerned about political, economic or other societal issues their home country. The recent protests in Hong Kong and the outbreak of COVID-19 have brought these issues into sharp focus.

Bhullar adds: “Where we have assisted ultra-high-net-worth individuals from China and the surrounding region to relocate to Cayman, the driving factors in those clients selecting Cayman have been (i) infrastructure – the quality and diversity of service providers in Cayman are second to none and the level of connectivity is that of any larger country, (ii) safety – Cayman is considered one of the safest countries in the region, which is a paramount issue for UHNW clients, (iii) rule of law – Cayman has a reliable and well-tested legal and judicial system, (iv) anonymity – UHNW individuals are able to maintain an unusually high degree of anonymity in Cayman, compared to other countries, and (iv) lifestyle – Cayman offers luxury real estate and facilities for other significant assets which UHNW clients are likely to be accustomed to and require in their new or contingency jurisdiction.”

Click to read article

Article written by Emma Parker and first published by Dart Real Estate.

A Cayman Islands Hedge Fund Review | Part 4: Distressed Situations

A review of Cayman Islands hedge fund corporate governance and best practice, including in times of distress

It may be business as usual for hedge funds as they seek to weather the market storm caused by Covid-19. However, the true economic effects are perhaps yet to be seen.

This five-part series considers some of the guiding principles that apply to corporate governance in a Cayman Islands hedge fund context and some of the best practices that boards of directors should be implementing as a matter of course, which may need to be re-visited and adapted in times of distress.

To access part 1, part 2 or part 3 please click herehere and/or here.

Part 4: Distressed Situations

If a fund becomes distressed and liquidity issues arise, an emergency meeting of the board of directors will almost certainly be required. While the constitutional documents of most modern funds permit ad hoc meetings at short notice and by telephone/video conference, the constitutional documents will still need to be checked to ensure any stipulated requirements relating to the holding of board meetings, e.g. the requirement for prior notice (including the ability to waive notice and any other formalities), are satisfied.

In addition, depending on the circumstances, the location of the directors may make attendance difficult (in light of current restrictions/limitations on travels), e.g. in the event the location of a director has adverse consequences on the fund from a non-Cayman legal/tax perspective. It will be important to engage relevant local (tax) counsel on this issue.

Assuming the board of directors is able to validly meet, at the outset of the meeting it will be essential for the board of directors to:

  1. manage conflicts of interest. For example, if a real (or ostensible) conflict arises, a director may wish to recuse themselves from relevant discussions and/or resolutions, or even step-down as a director to ensure the integrity of the board is not, in any way, compromised. In particular, if the investment manager is represented on the board of directors (which is typical), then conflicts as regards "their" director may quickly become apparent, e.g. in the context of discussions around NAV calculation/hard-to-value assets and fee terms. The directors have, amongst others, a duty to avoid conflicts of interest and a duty to act in what the director bona fide considers to be in the best interests of the fund. It is therefore imperative that any conflicts of interest are suitably identified, disclosed, monitored and managed. Any conflicts of interest should be noted in the board minutes (or documented in written resolutions);
  2. establish if the fund is insolvent or 'in the zone of insolvency', i.e. is the fund able to pay its debts as they fall due (including any crystallised redemption payments). This analysis will also include any debts which are prospective in nature[1]. This is because, where the fund is insolvent, the directors must have regard to the interests of the fund's creditors when discharging their duties to the fund, rather than (in a solvent situation) having regard to the interests of the fund. The fund's financial position needs to be verified by the board of directors undertaking a full assessment of the fund's financial position and consistently with the valuation of assets principles discussed above. Such cash flow assessment should be undertaken regularly by the fund to allow the board of directors to make appropriate decisions; and
  3. consider whether they have sufficient and relevant knowledge and experience to carry out their duties as directors in a distressed situation. It might be the case that the appointment of additional or replacement directors who specialise in distressed situations is appropriate.


Once these basic, but essential, issues have been addressed, the board of directors may then seek to manage liquidity in consultation with the investment manager. In doing so, it is strongly recommended that the board of directors consults with its legal counsel (and, in particular, insolvency and dispute resolution teams), as, amongst other matters, there can be significant personal implications on the directors. In particular, the law in this area often evolves quickly and there are restructuring tools available to funds in the Cayman Islands that can facilitate a restructuring of the fund whilst providing a 'safe harbour' for the directors and a stay on claims against the fund. However, it may be the case that certain discussions between the board of directors and legal counsel take place independently; that is, away from the investment manager, in light of the potential conflicts of interest that may arise in a distressed situation.

As ever, detailed minutes of all meetings, including the matters considered and decisions made, and the information requested from, and provided by, service providers and advisors, should then be prepared for the review and sign-off by the directors. Where permitted, a meeting accompanied by detailed written resolutions may be preferable. It is always possible that the resolutions of the board of directors could be scrutinised at a later date, and accurate record-keeping may assist the directors in demonstrating that they discharged their duties as directors.

About Walkers Professional Services
Walkers Professional Services is the leading provider of corporate, company secretarial, regulatory, compliance and fiduciary services to corporate and institutional clients across global financial centres.

Our Company Secretarial and Corporate Governance Services group has extensive experience in their respective fields and offers tailored services to help clients meet ever-changing legal and regulatory demands. Services include: Meeting Support Services, Shareholder Support Services, Global Company Secretarial Services, Action Point Maintenance, Economic Substance Solutions and Custom Data Room Solutions.


Part 5 - the final part - will consider relations with the Cayman Islands Monetary Authority and investors.



[1] There is no prescribed period within which directors need to assess prospective debts, but it is noteworthy that in order to give a declaration of solvency in relation to a company, directors are required to consider the company's ability to meet its debts in the coming 12 month period.

A Cayman Islands Hedge Fund Review | Part 5: Relations with CIMA and Investors

A review of Cayman Islands hedge fund corporate governance and best practice, including in times of distress

It may be business as usual for hedge funds as they seek to weather the market storm caused by Covid-19. However, the true economic effects are perhaps yet to be seen.

This five-part series considers some of the guiding principles that apply to corporate governance in a Cayman Islands hedge fund context and some of the best practices that boards of directors should be implementing as a matter of course, which may need to be re-visited and adapted in times of distress.

To access part 1, part 2, part 3 or part 4 please click hereherehere and/or here.

Part 5: Relations with CIMA and Investors

It is important to recall that the directors of Cayman Islands hedge funds must conduct a fund's affairs in a transparent and honest manner, always disclosing to the Cayman Islands Monetary Authority ("CIMA") any matter which could materially and adversely affect the financial soundness of the fund and any breach of law and regulation. For example, CIMA would expect to be notified in the event the board of directors resolved to suspend NAV calculations and/or redemptions.

The fund may also be subject to filing and/or notification requirements in the Cayman Islands and other jurisdictions, depending on the resolutions of the board of directors vis-à-vis the continued operations of the fund.

Communication with investors is also key, particularly in a time of distress. Of course, depending on the facts, disclosure may be required as matter of law, rule or regulation, and/or in accordance with the terms of investment of the fund. However, if a fund does need to be restructured, it may be that the consent of all or some of the investors (e.g. two-thirds by NAV) is required to implement the proposed course of action. Accordingly, broader commercial considerations are also relevant to the timing, nature and extent of disclosure to investors. Similar considerations also apply as regards communications (if any) with creditors of the fund.

It is therefore imperative that the board of directors works closely with legal counsel to ensure that these important matters are navigated and addressed, and in a legally compliant and commercially sensitive manner.

Conclusions

There is no 'one size fits all' solution as to how boards of directors should regulate their business and conduct their meetings. However, directors must always pay regard to the principles set out in CIMA's Statement of Guidance for Regulated Mutual Funds – Corporate Governance and, of course, act at all times in accordance with their duties as directors, including fiduciary duties.

Ultimately, fund governance must be appropriate and suitable to enable effective oversight, direction and management of a fund, including oversight of risk. How these principles translate as a matter of practice will be a question for the board of directors, in consultation with the fund's professional advisors, including legal counsel, having regard to factors such as assets under management, number of investors, the complexity of the structure, the nature of the investment strategy and the nature of the operations.

It is imperative to establish best practices in a 'business as usual' environment, and for the board of directors to continue such practices (proactively adapted as necessary) during all phases of a fund's life, including in times of distress. There is no substitute for active engagement by the board of directors.

Furthermore, it is important that the board of directors should not just be, but should be capable of being seen to be, discharging their duties as directors by accurately recording in minutes or written resolutions the matters considered and decisions made, and the information requested from, and provided by, service providers and advisors.

In the event of any doubt, or if issues arise or the circumstances dictate, specific legal advice should be taken by the board of directors.



About Walkers Professional Services
Walkers Professional Services is the leading provider of corporate, company secretarial, regulatory, compliance and fiduciary services to corporate and institutional clients across global financial centres.

Our Company Secretarial and Corporate Governance Services group has extensive experience in their respective fields and offers tailored services to help clients meet ever-changing legal and regulatory demands. Services include: Meeting Support Services, Shareholder Support Services, Global Company Secretarial Services, Action Point Maintenance, Economic Substance Solutions and Custom Data Room Solutions.


What Are The Go-To Jurisdictions for Wealthy Middle Easterners and Why?

Ultra High Net Worth Middle Eastern families and individuals have a variety of jurisdictions to look to for succession planning and asset protection vehicles, but the three "go-to" jurisdictions are Cayman, Guernsey and Jersey.

This piece by partners from Walkers Private Capital and Trusts teams in each of those three jurisdictions – originally published as the lead feature in eprivateclient's Middle East Report – explores the appeal of Cayman, Guernsey and Jersey, and compares the respective trusts and foundations regimes as well as the nuances that make the various jurisdictions stand out.

Click to view article

 

Why would UHNW MEs look to be using offshore jurisdictions?

Historically, Ultra High Net Worth Middle Eastern families and individuals (“UHNW MEs”) may have looked to the Cayman Islands and the British Virgin Islands when selecting a jurisdiction to base an offshore corporate structure due to an understanding of the jurisdiction, ease of creation and competitive pricing provided. This understanding was a result of experienced legal, trust and corporate administrative service providers from Cayman and the BVI being based in the region and providing education and information on a real time basis when necessary. As a result Cayman remains a favourable jurisdiction providing substantive offshore structuring solutions for the region.

Cayman, historically known in the Middle East as a private banking and corporate jurisdiction, has transitioned over the years to being recognised as a preeminent private client jurisdiction. UHNW MEs now look to Cayman as a jurisdiction to structure and house their succession planning vehicles, as well as to grow the family’s wealth within those vehicles.

However more recently, with greater information flow, travel capabilities and the increasing ease of communication (highlighted at the moment by the significant business being done despite the travel restrictions in place as a result of Covid-19), the region’s interest in and understanding of Guernsey and Jersey has been ever increasing.

Guernsey and Jersey are regarded as providing a ‘gold standard’ service and being a ‘private wealth hub’ for UHNW MEs. Security and discretion are of paramount importance to an individual or family wanting to ensure that not only their assets are protected, but that the jurisdiction in which they are based is secure, stable and has an excellent reputation for service.

UHNW MEs with significant assets may have a variety of reasons for looking to structure all or some of their assets in offshore jurisdictions. Each of the individual countries that form our understanding of the modern Middle East have their own specific and unique laws and rules (which we will not delve into here), but some of the themes/considerations that make it desirable to use offshore jurisdictions are: geopolitical considerations, diversification of jurisdictional risk, forced heirship, equalization of family assets, international education, intergenerational succession planning, a flatter ownership structure, retention of controls, the ability to invest in worldwide assets/investments in a Sharia compliant manner and greater involvement of women in the ownership and management of family assets. Each family is different as are the drivers for holding and structuring assets in a particular manner.

Bearing all these themes and considerations in mind, many UHNW MEs are increasingly choosing Guernsey and Jersey, and continue to use Cayman, as jurisdictions to hold and grow their private capital assets.

What makes Guernsey, Jersey and Cayman so attractive?

Guernsey and Jersey are both Crown Dependencies, which means they are not part of the UK but are self-governing dependencies of the Crown. Similar in size, geographic location and international financial centre experience, they each have individual distinctions and specialisms. Cayman is a British Overseas Territory, which means it has a constitutional link with, but does not form part of the UK and is similarly self-governing. This status of these three jurisdictions has provided them with the economic, legal and political stability to attract UHNW MEs and continually develop their respective financial services industries.

Preferences for one jurisdiction over the other can be for personal or technical reasons and should be considered on an individual basis, but broadly the following applies to all three jurisdictions.

Legal Framework

Guernsey, Jersey and Cayman have their own courts (with ultimate recourse to the Privy Council) and creating and adapting their own laws, which with their widely respected judiciary and reputation for robust judgments ensure that they proactively remain at the forefront of wealth structuring development and as top tier jurisdictions.

An example is that the trusts laws of each jurisdictions have ‘firewall’ provisions that provide protection from a foreign court seeking to determine matters in relation to a Guernsey, Jersey or Cayman law governed trust. Additionally, the reservation or granting of powers to a settlor or specified party other than the trustee is also permissible under each of these laws. This can provide added comfort to a UHNW ME if they are entering the realm of asset protection for the first time, are naturally cautious and or are wishing to retain a larger level of involvement at the beginning. On the other end of the scale, this oversight can be extremely useful when creating a family office for a UHNW ME wishing to take the next step in structuring.

Regulation & Business Costs

The Guernsey Financial Services Commission and Jersey Financial Services Commission (the “Commissions”) are independent bodies that supervise and regulate the finance industries of Guernsey and Jersey respectively. The Commissions ensure that service providers in both jurisdictions remain compliant with standards set by international bodies and that the financial industry remains at a level of professional excellence. The Commissions are able to work with the financial industry to agree proportionate supervision for innovative commercial solutions.

The Cayman Islands Monetary Authority (“CIMA”) is the principal regulator for the financial services industry of Cayman. CIMA provides appropriate, responsive, cost-effective and efficient supervision to enhance the economic wealth and reputation of Cayman by fostering a growing, competitive and internationally recognised financial services industry.

Over the last 10-15 years the world has changed dramatically in relation to international regulation and oversight, through the implementation of various worldwide anti-money laundering legislation and regulation, FATCA, CRS, economic substance and beneficial ownership laws. This has meant that compliance, anti-money laundering and economic substance have become part of our everyday financial lexicon. UHNW MEs understand that this is a firm part of doing business, and want to make sure that the jurisdiction where sensitive information is held is secure and would not be forced unnecessarily into disclosing information where it is not appropriate or in accordance with the applicable legislative protocols.

This has significantly levelled the playing field when it comes to the costs of doing business. Guernsey and Jersey are no longer regarded as more expensive jurisdictions, instead that there is a greater understanding, realism and value in respect of costs as they have been adhering to the higher threshold of compliance for a significant period of time. UHNW MEs now look at jurisdictional experience and excellence in relation to security of information and regulation. Also relevant is where their interest lies in terms of investment opportunities, with the Channel Islands often used to facilitate UK real estate acquisition and Cayman performing the same role for the US.

Quality of Service Providers

UHNW MEs continue to see Guernsey, Jersey and Cayman as the ‘gold standard’ in private capital structuring due to the multitude of experienced service providers in the jurisdictions. A wealth of experienced lawyers, accountants, fiduciaries, corporate and fund administrators within the region mean that there is a variety of excellence to choose from within the jurisdictions.

Flexibility and understanding of UHNW MEs priorities allow for structures to be created in Guernsey, Jersey or Cayman which are also Sharia compliant. A wide variety of structures can be tailored to meet the specific needs, now and in the future. No two structures or family offices are the same, and a governance framework can be put in place to ensure continuity of the family vision.

Some structuring solutions may use any or all of the following: foundations, foundation companies, trusts, private trust companies, unit trusts, private investment funds, protected cell companies, segregated portfolio companies, companies limited by shares or guarantee and partnerships, to name a few.

There are many reasons why one jurisdiction is chosen over another, sometimes geographical and time zone convenience, other times location of investment opportunities, with Guernsey and Jersey often used to facilitate UK and European investments, and Cayman performing the same role for the US and South America, but it is clear that UHNW MEs have chosen Guernsey, Jersey and Cayman as the main centres for their personal structuring to protect, preserve and enhance their private capital now and for future generations.

This article first appeared in ePrivateClient’s Middle East Report

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