The Exempted Limited Partnership Law, 2014 (the “Law”) was Gazetted today and has now passed into law. This is a much-anticipated, and entirely revamped, version of the prior Exempted Limited Partnership Law. The revisions are based on three broad principles: to confer even greater contractual flexibility on the partners, to reflect developing trends in the formation, regulation and operation of private funds and to ensure consistency of advice on matters of Cayman Islands law.
We set out below various key changes introduced under the Law:
- The current statutory duty of the General Partner to act in the interests of the Partnership will now be capable of contractual variation to allow the duty to be subject to any express provisions agreed in the partnership agreement. This amendment now allows the commercial agreement struck in the partnership agreement to apply provided that the General Partner must still act in good faith.
- Limited Partners Advisory Committees are given statutory status, and the Law confirms that members of the LPAC (i) do not owe a fiduciary duty to other partners, and (ii) are permitted to rely on the indemnity and exculpation provisions of the partnership agreement, despite not being direct parties thereto. On the point of third party rights, the Cayman Islands government has passed into law a Contracts (Rights of Third Parties) Law, 2014 which gives contracting parties that desire to opt-in the ability to grant to persons who are not parties to a contract the ability to enforce rights that have been conferred on them by the contract’s principal parties.
- The schedule of safe harbours has been extended to confirm that acting as a member of an LPAC will not compromise the limited liability of the appointing Limited Partner.
- Foreign limited partnerships are permitted, by registration in the Cayman Islands, to act as general partners of Cayman exempted limited partnerships (compared to the prior regime where only foreign companies could so act).
- Where multiple General Partners are appointed to a single partnership, the ability of the partners to determine and delineate the specific and separate authorities of each General Partner has been confirmed by the statute.
- The execution mechanics applicable to deeds and previously introduced in relation to Cayman companies, have been extended to exempted limited partnerships. These changes restore commercial sensibility to the signing process after some decisions of the English courts on the subject, which required additional formalities to be complied with.
- Partnership agreements are deemed, however executed or adhered to, to have been executed as deeds for the purposes of the Powers of Attorney Law of the Cayman Islands. This provision applies retroactively.
- The formalities associated with the admission of limited partners have been clarified so that admission of new limited partners to the partnership simply requires compliance with whatever admission protocol is prescribed by the partnership agreement. This provision also applies retroactively.
- The provisions of the partnership agreement relating to defaulting limited partners will now be strictly enforceable in accordance with their terms. This addresses the concern at common law that such provisions may have been unenforceable in some circumstances where they are regarded as being penal.
- The statutory clawback regime requiring limited partners to return distributions made in circumstances of insolvency has been modified, requiring limited partners to have actual knowledge of such insolvency.
- Rights of access to information in the partnership register, and generally to the books and records of the partnership, are now entirely subject to the provisions of the partnership agreement.
- Several technical provisions were introduced to codify certain aspects of the common law as it relates to the grant and enforcement of security interests. These changes are particularly helpful when entering into financing facilities secured by a grant of security over the right to call for and receive capital contributions, and these changes will significantly enhance the ease of execution of such transactions by providing greater certainty to lenders and borrowers.