In a bid to strengthen investor protection and make financial markets more efficient, resilient and transparent, the European Union (‘EU’) has put in place, as of 3 January 2018, its updated Markets in Financial Instruments Directive (‘MiFID II’) and Markets in Financial Instruments Regulations (‘MiFIR’).
Will it apply to funds based in the Cayman Islands?
The legislative framework applies not just to the financial services industry in the EU, but also to those buying assets based upon trades with an EU connection. Directors will need to inform themselves on the obligations imposed by the new regime and the information which will need to be stored to meet the demand for transparency. The increased information kept by parties to trades affected by MiFID II and MiFIR may be sought by investors and will be available to regulators and (should the investments fail) liquidators, which will enable scrutiny of the activity of those in charge of the fund’s investments.
In an Industry Advisory dated 20 December 2017 the Cayman Islands (‘Cayman’) the Department of International Tax Cooperation (‘DITC’) published a high level summary of The Tax Information Authority (International Tax Compliance) (Country-By-Country Reporting) Regulations, 2017 (‘the Regulations’) published in the Gazette on 15 December 2017.
What are the regulations about?
The Regulations relate to Country by Country Regulations (‘CbCR’) which apply to Multinational Enterprises (‘MNEs’) and/or their constituent entities (‘CE’s). Cayman is a member of the Inclusive Framework on Base Erosion and Profit Shifting (‘BEPS’)set up by the Organisation for Economic Co-operation and Development (‘OECD’) and the G20 and which is designed to create a single set of consensus-based international tax rules to protect tax bases while offering increased certainty and predictability to taxpayers. All OECD and G20 countries have agreed to CbCR, one of the BEPS minimum standards (‘actions’). (See also the relevant guidance).
The Judicial Committee of the Privy Council in London (JCPC), the highest court of appeal of the Cayman Islands, found that redemption payments to a former shareholder that are made from the share premium account are payments out of capital. It also found that if such payments are made when the company is not solvent then they are unlawful acts by the company.
Case: DD Growth Premium 2X Fund (In Official Liquidation) v RMF Market Neutral Strategies (Master) Limited  UKPC 36
New legislation came into force on 1 July, 2017 in the Cayman Islands (‘Cayman’) requiring all companies and limited liability companies (‘LLCs’) registered in Cayman (and their subsidiaries) to establish and maintain a beneficial ownership register (‘BOR’), unless they are ‘exempted’. The legislation does not apply to Cayman exempted limited partnerships (‘ELPs’). Although Cayman companies and LLC’s are already required to keep and maintain certain beneficial ownership information in line with international standards and commitments to combat tax evasion and money laundering, this new regime agreed between the British Government and other Crown dependencies and overseas territories is aimed at enhancing how this information can be exchanged between government authorities.
In a unanimous decision, the United Kingdom Supreme Court (‘UKSC’) has decided that in future criminal and civil cases the test for dishonesty should be that by the standards of ordinary decent people the person’s conduct was dishonest. Before this decision this objective test was that applied in civil actions, but the test applied in criminal cases had an additional requirement that the defendant had to appreciate that their action would be considered dishonest by the standards of ordinary decent people. The UKSC also decided that in future the same test should be applied in both civil actions and criminal prosecutions. Although a UK case, the Cayman Islands courts would consider the decision persuasive authority.
Reversing earlier decisions, the New York Court (‘NYC’) has found that a plaintiff bringing a derivative action in New York courts on behalf of a Cayman Islands (‘Cayman’) company does not need to obtain leave of the Cayman Grand Court beforehand.
What was the issue?
The matter at issue was whether Order 15 Rule 12A (‘Rule 12A’) of the Cayman Grand Court Rules 1995 (Revised) (‘GCR’), would act to prevent a plaintiff from bringing a derivative action. The NY Court decided the issue by considering if Rule 12A were substantive or procedural in nature. Only substantive law would need to be taken into account by the courts in New York.
A recent case before the Cayman Islands (‘Cayman’) Grand Court is a reminder that the principle of open justice means that applications heard before a judge in chambers, and not in open court, are still public. If you know that confidential information will need to be disclosed in an application to be heard by a judge in chambers then you need to make specific applications to the court to guarantee that access to or use of that information is restricted.
The Cayman Islands (‘Cayman’) Foundation Companies Law (‘the FCLaw’) came into force on 18 October 2017. The FCLaw introduces a new non-profit investment vehicle called the Foundation Company (‘FCo’).
In world where many documents, photographs, letters and websites or social media accounts for your business only exist in a digital or online format it is worth spending some time to review if and how your executors might access your digital media in the event of your death.
The England and Wales Court of Appeal (‘EWCA’) has considered what needs to be established when a party applies to the court to set aside an earlier judgment which it alleges was based on fraudulent evidence.The decision would be considered persuasive in the Cayman Islands courts.
Case reviewed: Takhar v Gracefield Developments Ltd and others  EWCA (‘Takhar’)
There are two ways a Cayman Islands (‘Cayman’) exempt company’s existence can come to an end. It can be wound up (i.e. liquidated) or it can be struck off the register of companies by the Cayman Companies Registrar. Here we explain why it is better to wind up the company under the Companies Law (2016 Revision) (‘Law’) than to have it struck off and set out the five main steps in the process. If your company is ready to be dissolved, if you start the voluntary winding up process as soon as possible you may be able to complete the necessary steps required before the end of 2017 and save the 2018 annual statutory and registered office fees.
As we reported at the end of December 2016, the Cayman Islands Monetary Authority (‘CIMA’) is continuing to roll out its process for Regulatory Enhanced Electronic Forms Submission (‘REEFS’). Use of the portal will become mandatory where there are online forms available as of 1 October 2017. In other news, the Cayman Islands (‘Cayman’) has (once again) come first in a global survey by The Banker magazine (a part of the internationally recognised Financial Times group).
The England and Wales High Court (‘EWHC’) has considered whether there was a cause of action to allow judgment debtors (‘Marex’) to pursue a claim against the controlling person (‘CSG’) of two British Virgin Islands (‘BVI’) companies (in liquidation) (‘the Companies’) where CSG had allegedly asset-stripped the Companies and dissipated their assets. The issue arose in a challenge by CSG to the jurisdiction of the EWHC. If Marex could not show a basis on which to bring such a claim then CSG’s jurisdictional challenge would succeed. (For the purpose of the hearing the facts were assumed to be as alleged by Marex in their claim.)
The Cayman Islands Department for International Tax Cooperation (‘DITC’) has issued an Industry Advisory to remind users of its portal for the Automatic Exchange of Information for Tax Purposes (‘AEOI Portal’) that the deadline for Foreign Account Tax Compliance Act (‘US FATCA’) and Common Reporting Standard (‘CRS’) reporting is today, 31 August 2017. The AEOI Portal will close at 4pm on 13 September 2017 to prepare the data which has been submitted for transmission. Until it closes the AEOI Portal will accept the submission of late reporting.
A decision of the England and Wales High Court (‘EWHC’) has considered when the legal principle of privilege (‘Privilege’) may be used to protect documents prepared by attorneys in anticipation of an investigation by a regulator (in this case the UK’s Serious Fraud Office (‘SFO’). The principles involved are similar to those covered in our earlier piece (The attorney in the room: privilege and attorney meeting notes) and the application of privilege to the ‘working papers’ of an attorney. Although these are decisions of the EWHC they would be persuasive authority in the Cayman Islands (‘Cayman’).
The Cayman Islands (‘Cayman’) has received the highest assessment standard (‘Compliant’) in seven out of the ten elements making up the international standards governing the exchange of information among tax authorities. In the three remaining categories Cayman was assessed as ‘Largely Compliant’, which is also its overall assessment. Cayman was one of the first ten countries to receive a second-round review, which saw Australia, Canada and Germany also rated as ‘Largely Compliant’.
Long term residence (‘LTR’) certificates allow a holder (and any qualifying dependants) to reside in the Cayman Islands (‘Cayman’) full time. LTR certificates can be beneficial for a host of reasons, including estate and tax planning or simply to allow you and your family to reside in a safe, stable and attractive Caribbean island. If you are looking to acquire LTR in Cayman, you might consider applying under section 37D of the Immigration Law 2015 Revision (the ‘Law’). This section was developed to encourage businesses to come to and thrive in Cayman by providing their key players with an easier path to residency.
The United Kingdom (‘UK’) Privy Council (‘PC’) has confirmed that to appeal orders made by a Court other than at trial (‘interlocutory Orders’) the appealing party must ask for permission (‘Leave’) to appeal from the Court which made the order. Once it has this permission or if it is refused, then the party will be entitled to ask the appeal court to consider the case. The decision relates to proceedings in the Bahamas, but as the applicable law is almost identical to that of the Cayman Islands (‘Cayman’) the decision would be considered highly persuasive authority by the Cayman courts.
The question of when and how a document can be ‘signed’ electronically in the Cayman Islands (‘Cayman’) arises surprisingly often. The Electronic Transactions Law (2003 Revision) (‘the Law’) sets out when and how electronic signatures (‘e-signatures’) can be used and accepted in Cayman.
On 2 August 2017 the Cayman Islands (‘Cayman’) Information Commissioner’s Office (‘ICO’) indicated that the Cayman Government’s Data Protection Law 2017 (‘the Law’) is expected to come into effect in January 2019 (see here). IMPORTANT UPDATE - In November 2018 this was formally put back until September 2019 - see Cayman Data Protection regime will now start in September 2019.
Once that happens the Law will affect any individual or organisation established in Cayman which processes personal data, even where that data is being processed outside Cayman. Although the Law was passed on 17 March and was published in the Cayman Gazette on 5 June 2017 it is not yet in force, allowing those affected time to prepare. Here we look at some of the Law’s provisions (including the corporate finance exemption) and suggest some steps you should consider taking if the Law is likely to affect you or your organisation.
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