THE CONTRACTS (RIGHTS OF THIRD PARTIES) LAW, 2014
The Contracts (Rights of Third Parties) Law, 2014 came into force on 21 May. The law provides a mechanism by which contracting parties can give enforceable rights to persons who are not party to the contract. The regime is “opt-in” so third parties cannot be inadvertently given such enforceable rights.
THE EXEMPTED LIMITED PARTNERSHIP LAW, 2014
The Exempted Limited Partnership Law, 2014 has not yet been brought into force. The reason for the delay is unclear, but is likely due to the need for additional regulations in connection with the new regime for registration of foreign limited partnerships.
THE DIRECTORS REGISTRATION AND LICENSING LAW, 2014
This recently passed law has been published but its provisions are not yet in force. The law may be brought into force, in part or in whole, at any time by Order of the Cabinet. It introduces a registration regime for directors of hedge funds registered with the Cayman Islands Monetary Authority (“CIMA”) under the Mutual Funds Law (as revised) and also for directors of companies registered with CIMA as excluded persons under the Securities Investment Business Law (as revised). It is not yet clear what information will be required from such directors or what the registration fees will be. The law also contains separate licensing regimes for professional directors, who serve on 20 or more relevant boards, and for corporate directors.
On 30 April, a Bill was published that would amend the Tax Information Authority Law (as revised) (the “TIA Law”) to permit the automatic exchange of tax information to facilitate implementation of the intergovernmental agreements entered into between the Cayman Islands and the United States and between the Cayman Islands and the United Kingdom (the “FATCA IGAs”). Provisions implementing the reporting and other obligations under the FATCA IGAs are expected to be included in Regulations made under the TIA Law.
On 12 May, the Cayman Islands Government circulated draft FATCA Guidance Notes for industry feedback. The draft Guidance Notes have been prepared by the Cayman Islands FATCA Working Group and aim to assist entities in deciding if they are a Financial Institution, if they maintain Financial Accounts, if they need to register with the IRS and the extent of their reporting obligations.
CASE LAW UPDATE
The Government of the Commonwealth of the Northern Mariana Islands v Millard
In a judgment dated 15 April, the Cayman Islands Court of Appeal overturned bankruptcy orders in relation to two individuals, Mr and Mrs Millard. The Millards’ main liabilities were alleged tax liabilities owed to the Marianas government. The Court of Appeal held that only liabilities enforceable in the Cayman Islands can be included in the test for insolvency. Foreign judgments in respect of taxes are not enforceable in the Cayman Islands. Once the Marianas tax liabilities were taken out of the equation, the Millards were clearly solvent and therefore the bankruptcy orders were discharged.
Irving H Picard and Bernard L Maddoff Investment Securities LLC v Primeo Fund
In a judgment dated 16 April, the Cayman Islands Court of Appeal provided clarification on the form of relief available to foreign insolvency representatives seeking assistance from the Cayman Islands Courts. Mr Pickard had been recognised by the Cayman Islands Court as the bankruptcy trustee of BLIMS and he then sought to bring claw back claims in relation to payments by BLIMS to the Primeo Fund, a Cayman Islands company. The Court of Appeal found that on the application of Part XVII of the Companies Law a Cayman Islands Court can apply Cayman Islands claw back provisions, based here on fraudulent transactions or preference payments, in support of foreign insolvency proceedings. Nevertheless, the Court of Appeal also ruled that a Cayman Islands Court cannot in the same situation apply foreign law avoidance provisions, in this case from the US.
REMOVAL FROM COLOMBIA’S TAX HAVEN LIST
Once the Convention on Mutual Administrative Assistance in Tax Matters comes into force in Colombia on 1 July, Colombia and the Cayman Islands will have in place a tax information exchange agreement. Accordingly the Cayman Islands will be removed from Colombia’s Tax Haven List (Non-Cooperative Jurisdictions) when it is next revised in October.
In the first four months of 2014 a total of 3,633 new companies were incorporated and 876 new exempted limited partnerships were registered in the Cayman Islands. The rate of company incorporations is back to 2005-6 levels and exempted limited partnerships are being registered at record levels. However, the number of hedge funds registered with CIMA has continued to stabilise at around 8,000 (or 11,200 including registered master funds), which supports anecdotal evidence that new managers are finding it hard to overcome the onshore regulatory hurdles and that the bulk of new hedge fund launches are new strategies from existing managers.