The spotlight of the international community is shining more brightly than ever on international financial centres and those that use them, in an effort to reduce aggressive tax avoidance, tax evasion and other practices which are perceived to be practised largely through offshore structures. To assist global efforts to tackle tax evasion and corruption and increase transparency, the government has amended the Companies Law and proposed a fundamental overhaul of its confidentiality laws.
On May 13 2016 the Companies (Amendment) Law 2016 came into force. The amendment removes the power of Cayman Islands exempted companies to issue bearer shares and other forms of negotiable shares. The new Section 231A of the Companies Law:
- prohibits the issue of any new bearer shares after May 13 2016; and
- provides that existing bearer shares must be converted into registered shares before July 13 2016 or they will be void.
Correlating provisions relating to shares transferable by negotiation have been repealed.
The provisions themselves are unobjectionable and reflect the general trend in the market away from bearer-type securities, which are incompatible with modern anti-money laundering procedures. In practice, bearer shares have been dematerialised for some time: abolishing them outright is logical and consistent with the position taken by the governments of other international financial centres. Most financial institutions refuse to deal with bearer share-issuing companies as a matter of policy in any event, so the number of bearer share-issuing companies remaining is thought to be very small.
Past experience in other jurisdictions would suggest that the provisions will create few problems for active companies, but may cause difficulties where companies which had previously issued bearer shares and are presently either struck off or dissolved are restored. In such cases, companies cannot comply with the provisions until after they are restored, by which time they will already be in breach of the amended law.
On May 11 2016 the government published a bill which would repeal the Confidential Relationships (Preservation) Law and replace it with a new inverted regime which specifies when confidential information may (or must) be disclosed.
Confidentiality is a difficult legal subject. At common law, in broad summary, a party may disclose confidential information:
- where compelled to do so by law;
- where in certain cases it is in the public interest;
- where it is necessary to protect its own interests; or
- with consent.
While the new bill is admirably brief, it marks a radical departure from – indeed, an inversion of – the existing statutory regime.
Under the existing law, which is drawn very broadly, information concerning any property which comes into the hands of a person carrying on "business of a professional nature" is automatically subjected to the law and not disclosable unless it has been disclosable:
- in the ordinary course of business;
- pursuant to a request from certain criminal or regulatory authorities or a court order; or
- with the consent (express or implied) of the person to whom the information belongs.
The Confidential Relationships (Preservation) Law criminalises the disclosure of confidential information otherwise than in accordance with its provisions, leading to the "ordinary course of business" exception being construed very narrowly.
The bill makes a number of fundamental changes. The first important difference is that the criminal offences have been abolished: it will no longer be a crime to divulge confidential information other than in accordance with the Confidential Relationships (Preservation) Law.(1)
Importantly, the bill is structured to provide statutory exceptions to the common law duty of confidence. Instead of information imparted to a person carrying on business of a professional nature being automatically protected, as it is under the existing law, the first step in an enquiry under the new law would be to show that the information imparted was subject to a duty of confidence in the first place. That is a very different enquiry and shifts the burden of proof back to the party providing the information. If duty of confidence can be shown to exist in relation to the information provided, Clause 3(1) of the bill provides that it "shall not constitute a breach of the duty of confidence and shall not be actionable at the suit of any person" if a party then discloses that information in certain circumstances or to certain authorities in accordance with its statutory obligations.
Similarly, Clause 3(2) of the bill protects any party which discloses confidential information "in relation to a serious threat to the life, health, safety of a person or in relation to a serious threat to the environment". This sounds very similar to, but subtly different from, the common law defence of disclosure in the public interest. Is the new statutory provision intended to add to the common law rule or replace it? It is likely that the courts will regard the common law as overruled by the statute on this point.
The bill preserves the rule that a party giving evidence that includes the divulgence of confidential information must seek directions from the court before doing so, but what is caught by this requirement has been clarified (some might argue extended) to include the production of documents by way of discovery.
The bill is still at a relatively early stage, although the intent is clear. The precise relationship between the tortious common law rules and the wording of the proposed statute may need more time to resolve and will probably be left to the courts.
For further information on this topic please contact Colin Riegels at Harney Westwood & Riegels by telephone (+1 284 494 2233) or email (firstname.lastname@example.org). The Harney Westwood & Riegels website can be accessed at www.harneys.com.
(1) However, some query whether it ever really was a crime in a practical sense: in the 50-plus years since the original confidentiality law was enacted in Cayman, there has been no criminal prosecution for its contravention.
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