Cayman Islands hopes to boost competitiveness through company law changes

The Companies Law (Amendment) Bill, 2011, makes necessary provisions to enhance the Cayman Islands’ offerings in the areas of company registrations and securities investment.

Amendments to the Cayman Islands’ Companies Law were tabled in the Legislative Assembly in April by premier and finance minister McKeeva Bush.

The idea behind the amendments is to “improve and build on the investor friendliness of Cayman’s legal and regulatory regime as it relates to supporting various structures, including funds,” according to the ­government.

The changes are an attempt to streamline activities, particularly when transactions such as mergers, acquisitions or changes to corporate structures are needed while at the same time ensuring compliance with international standards for transparency and accountability.

 “The process by which these amendments were prepared reflects government’s renewed partnership with the private sector, which has been instrumental in soliciting the views of industry and providing input into the drafting process,” noted Bush at the time.

All the departments involved, as well as the financial services legislative committee which is comprised mainly of private sector members, were involved in drafting the amendments aimed at ensuring Cayman “remains a key player in the global financial services market”, according to Bush.

The provisions of the bill include the amendment of merger provisions; treasury shares; paperless share transfer; share redemption and repurchases; execution of documents; update of foreign company provisions; special resolutions to permit different thresholds for various matters; permitting company names in a foreign script; segregated portfolio companies (SPCs) including portfolio names, director’s liability for failure to attribute correctly a commitment to a relevant SPC, segregation of assets and termination of SPCs.

“These amendments are the end result of an extensive consultation process, aimed at addressing client and market-driven issues that have arisen in practice,” says Bush.

The intent is to increase the attractiveness of Cayman as a domicile for corporate entities and maintain its competitive edge. Bush believes the amendment will create “new opportunities for growth in this key sector of our economy”.

According to Dax Basdeo, chief officer, financial services, ministry of finance, tourism and development, the amendments are another example of the close working relationship between the public and private sector in Cayman. “The changes are critical in order to bring us into line with or ahead of other jurisdictions,” comments Basdeo.

This is the first of a three-part process, says Basdeo. The second phase will encompass key, but not critical, changes while the final phase will clean up smaller, less ­crucial areas.

“It is essential for Cayman to push ahead of other jurisdictions,” says Basdeo in relation to the amendment allowing the use of a foreign script. This he says will be particularly important for the Chinese and other Asian markets.

Having a dual name in a script other than the Roman alphabet and without a direct translation of the English name will also be important for Middle East markets.

The merger and consolidation regime, first introduced in 2009, should make the regime significantly more straightforward to use and also introduce additional flexibility to enable it to be used in a wider range of transactions, according to a note by Maples and Calder on the proposed amendments.

The threshold for approving a proposed merger or consolidation has been simplified. Subject to a company’s articles, the level of shareholder approval required from each constituent company will be a special resolution of the shareholders having the right to vote, says a Walkers note on the changes.

The provisions relating to the merger of Cayman companies with overseas companies have been expanded to permit such mergers or consolidations, not just where the Cayman company is the surviving company but also where the overseas company is the surviving company, according to Walkers.

This additional scope for a Cayman company to merge or consolidate with an overseas company as the survivor avoids the need for Cayman companies that want to merge or consolidate in this way to migrate the Cayman company first to an overseas jurisdiction that permits such mergers or consolidations.

Cayman companies will also have greater flexibility with regard to their share capital when repurchasing, redeeming or surrendering shares. The directors will be able to determine whether or not to cancel those shares or keep them as treasury shares. Treasury shares can subsequently be cancelled or sold by the company without regard to capital maintenance rules, according to Maples and Calder.

There is a wide variety of possible uses, including offering listed companies the ability to manage their capital more flexibly and simplifying the structuring of share option and incentive plans

The new provisions will permit Cayman companies to admit their shares to listing and trading on exchanges and settlement systems in jurisdictions that provide for or require electronic settlement and recording of share actions. Walkers says although paperless share transfers were not previously prohibited under common law, this statutory codification for Cayman companies is a ­welcome clarification.

The amendment on special resolutions introduces increased flexibility for the definition of a special resolution, according to Campbells. Previously, special resolutions needed to be passed by at least two-thirds of the shareholders who vote, greater numbers specified in the company’s articles of association or all the members if it is a written resolution.

Under the amendment a company’s articles can have different required majority votes required to approve special resolutions. For example a special resolution approving a change in name of the company might require a two-thirds majority but a merger or consolidation might require unanimity says Campbells.

On the changes to SPCs, which permit the segregation of assets and liabilities among various segregated portfolios in a way that binds third parties, a number of useful enhancements to the provisions have been introduced, ­comments Maples and Calder.

Directors of segregated portfolio companies will no longer be personally liable where there has been a failure to execute a contract so that it shows to which segregated portfolio it is attributable. A mechanism has been introduced so directors can attribute the relevant contract to the intended portfolio and notify all parties and any persons who may be adversely affected by it, according to Walkers.

A person who objects to such attribution can apply to the court for an order reattributing the contract to a particular portfolio or to the general assets. These changes have the effect of changing the focus from assigning liability to providing a clear recourse for resolving ­misattribution disputes.

Laws that were amended to facilitate the passing of the Companies Law (Amendments) Bill, 2011, were the Property (Miscellaneous Provisions) Law and the Securities Investment Business Law.

Cayman Finance continues to battle for truth

Over the past few years Cayman Finance, a private sector organisation has established to promote Cayman’s financial services industry, has been led by the feisty and articulate Anthony Travers. In a move that took many by surprise earlier this year, Travers stepped down as chairman.

Travers, a former managing partner at Maples and Calder, remains as chairman of the Cayman Islands Stock Exchange. He has been succeeded by Richard Coles, an experienced lawyer in England and in the Cayman Islands who was the Attorney General for the Cayman Islands for six years as well as a member of the cabinet and Legislative Assembly and a government minister.

Travers took on the role of chairman when Cayman’s public image and relations were at a low point. Both the US and UK governments were “extremely hostile” to Cayman and its financial system, according to a statement by Travers. “We were threatened by hostile US legislation and were subject to unjustified criticism from the UK and the European Union,” he said.

With Travers’ departure Cayman Finance has entered a new phase. “Tony Travers stood on the fire deck during the storm. He was an excellent wartime leader. Now it is peacetime and different staff are needed,” explains Peter Cockhill, managing partner of the Cayman legal practice and co-head of Ogier’s global investment funds team as well as a member of the board of Cayman Finance.

The appointment of a full-time chairman was one of the first signs of a transition. Cockhill says the organisation intends to keep up its proactive role advocating Cayman’s financial services. It will continue to rebut incorrect statements and provide accurate information. In addition the organisation is planning roadshows and other events. “We have an interesting story to tell,” says Cockhill.

He admits before the appointment of Travers the jurisdiction had become complacent. “We need to do a number of different things, engage financial services centres and ramp up our promotion of Cayman,” explains Cockhill.

Other members of the board of directors include: Roy McTaggart, the managing partner at KPMG; Stuart Dack, president and chief executive of Cayman National; Nick Freeland, senior partner of PricewaterhouseCoopers in Cayman; Gonzalo Jalles, CEO of HSBC in Cayman; Mark Lewis, managing partner of clients and senior investment funds at Walkers; Conor O’Dea, managing director of Butterfield Bank (Cayman); David Roberts (treasurer), managing director of Cayman Management; Dan Scott, regional managing partner and asset management sector leader for the Bahamas, Bermuda and Cayman Islands sub-area of Ernst & Young’s financial services office; and Ian Wight, managing partner of Deloitte in Cayman.