Cayman Islands: Cayman Islands Quarterly Update - April 2016

Cayman Strikes Beneficial Ownership Agreement with UK

The Cayman Islands and the UK have signed a framework agreement on the sharing of beneficial ownership information, which does not involve the use of a central register and will not provide public access to this information. Under the agreement, designated Cayman Islands law enforcement officials will be able to directly obtain details of beneficial ownership of Cayman Islands entities from the licensed corporate service providers that already collect and maintain this information.

The Cayman Islands has successfully argued that its proposed enhancement to the existing system, under which beneficial ownership information is collected and verified by licensed corporate service providers, is in fact superior to a public register of self-reported and unverified information. Once implemented, the Cayman system will allow UK law enforcement agencies to request and access beneficial ownership information more rapidly than is currently the case.

Tax Transparency Reporting Update

Guidance notes for compliance with the Common Reporting Standard (CRS) were issued by the Cayman Islands Tax Information Authority (TIA) on 12 April 2016. CRS was implemented in the Cayman Islands on 1 January 2016, as one of 96 countries participating in the OECD's new global standard for the automatic exchange of tax information.

The guidance notes (which can be viewed here) confirm that CRS registration and reporting to TIA will begin in 2017 in respect of the 2016 calendar year. Reporting financial institutions must register on TIA's AEOI Portal by 30 April 2017 and submit their first reports by 31 May 2017. Clarification is also provided on the transition arrangements for reporting in 2017 on UK account holders under both UK FATCA (CDOT) and CRS. The guidance notes state that no duplicate reporting is required while both regimes are in operation, but wherever CDOT or CRS requires more reporting, that regime will apply.

TIA has announced that since 2016 is the first CDOT reporting year, it has extended the deadline for registration on its AEOI Portal to 10 June 2016 and the FATCA / CDOT reporting deadline to 8 July 2016. It has also made minor changes to the approved form of self-certification to be obtained by FIs from their account holders; and it has updated the list of CRS participating jurisdictions.

CIMA Identifies Current and Emerging Risks

A recent circular from the Cayman Islands Monetary Authority (CIMA) provided an insight into the regulator's priorities for the medium term. These include preparation for a review of the Cayman Islands' AML/CFT measures by the Caribbean Financial Action Task Force during Q2 2017 and a focus on the robustness of licensees' data security and risk management systems.

Private Equity Industry Growth

The number of Exempted Limited Partnerships (ELPs) registered in the Cayman Islands reached a new high of 17,896 in 2015, with an annual record of 3,299 new registrations. ELPs are typically used as private equity fund vehicles, and with the number of ELPs almost doubling since 2009, it is clear that the Cayman Islands are experiencing a boom in private equity fund and M&A deal activity.

Washington Special Opportunity Fund Inc

This case considered whether it was possible to successfully present a winding up petition on a just and equitable basis in circumstances where the company's Articles permitted the Fund to have a "soft wind down". An investor presented a winding up petition on the just an equitable grounds citing a loss of substratum, a loss of trust and confidence and management, that there had been a wilful disregard for and the undermining of investors' rights and interests and there was a need for independent investigation by official liquidators. The solvency of the Fund was not in issue. The Court dismissed the petition and held that in circumstances where the Fund had an express provision in its Articles permitting a soft wind-down, which had been agreed to by the investors, the Fund could not have suffered a loss of substratum as a result of the soft wind down taking place. It is also worth noting that the petition was dismissed despite the fact that the majority (53%) of investors supported the petition.

Conway and Walker (as Joint Official Liquidators of Weavering Macro Fixed Income Fund) v SEB

In this case, the Grand Court has, for the first time, ordered the repayment of redemption proceeds paid by a fund to an investor shortly before the commencement of the Fund's liquidation on the basis that such repayment constituted a voidable preference pursuant to section 145(1) of the Companies Law. The liquidators were successful in clawing back US$8.2million paid in redemption proceeds to the defendant investor, SEB, relating to payments made to SEB during the period December 2008 through February 2009 (the Fund entered liquidation in March 2009). The Court confirmed that it was not enough for the liquidators to show that the payments which had been made had the effect of preferring SEB over other creditors, rather the Court confirmed the need to demonstrate a dominant intention to prefer. The evidence presented to the Court was that Mr Magnus Peterson (held to be the controlling mind of the Fund) believed that SEB would be re-investing in another Weavering fund. This was sufficient for the Court to find that in circumstances where Mr Peterson instructed the Fund to pay SEB ahead of other redeemers, the dominant intention was present. The Court of Appeal heard SEB's appeal from this judgment in April, but are yet to produce a decision.

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