Amendments to the Exempted Limited Partnerships Law passed by the Legislative Assembly last week will provide the Cayman Islands with a state-of-the-art product, according to Wayne Panton, minister for financial services.
The new law enhances Cayman’s partnership formation framework by providing more flexibility in the types of partnerships that can be formed. It provides for the registration, licensing and regulation of exempted limited partnerships and also updates certain provisions to reflect the laws governing exempted limited partnerships in other jurisdictions, such as in the U.S. sate of Delaware.
Changes to the law were driven by the demands from the most frequent users of Cayman Islands’ financial products, in particular, private equity funds, Mr. Panton said in the Legislative Assembly on Thursday.
The law’s amendments deal with the evolving complexity of transactions and ensure flexibility and certainty. In addition, he said, fees related to the products will provide an entirely new revenue source.
The Exempted Limited Partnerships Bill will repeal the current Exempted Limited Partnerships Law and become effective following its publication in the Cayman Islands Gazette.
Mr. Panton said Cayman’s previous regime was not as flexible as Delaware’s legislation, which raised concern among Cayman service providers and onshore legal counsel.
He noted that other jurisdictions, such as the Marshall Islands, have enacted legislation modeled on the Delaware statutes and recognize Delaware court decisions.
Although Cayman’s exempted limited partnerships are a popular product, he said the new law was necessary to bring legislation in line with the concepts desired by the financial services industry and private equity managers in terms of flexibility and improved certainty.
The amendments, initially proposed by the Financial Services Legislative Committee, were designed to meet the market-led demand that the law not unduly restrict the ability of partners to determine for themselves in an agreement the rights and obligations they have with respect to each other.
The law should also offer partners greater flexibility to use a variety of management and ownership structures, and permit partners to amend those structures more efficiently.
It should further account for changes to the commercial environment in which exempted limited partnerships are used and enable a broader range of partnership transactions.
Another objective of the law is “to cure areas of ambiguity or uncertainty in the [repealed] law, as well as common law, and to provide greater certainty and consistency of advice,” Mr. Panton said.
The new law should also allow for greater consistency with Delaware law, so that Cayman limited partnerships, which are often used by managers in conjunction with Delaware limited partnerships, have similar concepts and principles.
The ELP law was passed together with the Contracts Rights of Third Parties Law, which enables the enforcement of rights given to a person in a contract between other parties.
To illustrate third party rights, Mr. Panton gave the example of a real estate contract where the commission is shared between buyer and seller. Because the agent typically does not have an agreement with the buyer, under existing legislation it would not be possible to enforce the right to receive part of the commission based on the contract between the seller and the buyer.
However, the real intention and main purpose of the law is to be a companion piece of legislation to the Exempted Limited Partnership Law, an area where those third party rights also exist.
Comparable U.S. legislation for exempted limited partnerships grants the enforcement of third party rights, Mr. Panton noted.
The new law enhances Cayman’s partnership formation framework by providing more flexibility in the types of partnerships that can be formed.