Cayman Islands Quarterly Update - November 2016

Limited Liability Company arrives in the Cayman Islands

In what is likely to be a very popular addition to Cayman's stable of corporate products, the Limited Liability Company (LLC) has been introduced, in response to strong demand from the US asset management industry for an offshore vehicle more closely aligned with the Delaware LLC.

The new LLC brings together the best elements from the exempted limited company and exempted limited partnership in a flexible hybrid structure, with separate legal personality, but no requirement for share capital. Click here for more on the new Cayman Islands LLC

Italy adds Cayman Islands to white list

The Cayman Islands was included in Italy's 'White List' in early September, in a positive development, which reaffirms recognition in Europe of the strength of Cayman's robust framework to combat financial crime and tax evasion. The inclusion means that Cayman funds can invest in certain Italian securities such as bonds and securitisation instruments without attracting withholding tax. Furthermore, Cayman funds may receive full exemption from Italian tax on profits, where they own more than 5% of an Italian Real Estate Investment Fund.

Case Law update Court of Appeal clarifies claw back law

When a fund fails, the disappointed investors' sole hope of recompense often rests on the fund's liquidators gathering in and distributing pari passu as many of the fund's assets as possible. On the other hand, those investors who successfully redeemed shortly before the fund's collapse might regard the liquidators' efforts with a degree of concern.

The judgment of the Cayman Islands Court of Appeal in Skandinaviska Enskilda Banken AB (Publ) v Simon Conway and David Walker (CICA 2 of 2016), delivered on 18 November 2016, considered aspects of the liquidators' power to claw back certain types of redemption payments made shortly prior to liquidation as voidable preferences under s. 145 of the Companies Law. The Court of Appeal decision confirms that there is no need for the redemption payments to be tainted with any dishonesty for them to be recoverable and that common law defences, such as change of position by a custodian who transmits the redemption proceeds to a client, are not available in a s. 145 claim.

This will be welcome news for liquidators and frustrated creditors, but may cause some concern for investors in Cayman Islands funds, particularly custodians, because such investors will potentially now face a six...