Many of the underwriting facilities governed by New York law provide the lender with security over the call capital rights of limited partners of exempt limited partnerships incorporated under the laws of the Cayman Islands. This grant is usually set out in a security agreement governed by New York law even though the pledged rights are created under Cayman law.
In establishments governed by English law, it is customary to enter into a separate guarantee deed creating a security interest in that guarantee under Cayman law. However, taking such additional security under Cayman law is not common in the New York fund financial market. Much of the difference lies in business practice rather than how Cayman law treats New York and English transactions.
Money lenders in the United States have generally agreed to waive a separate Cayman guarantee due to the familiarity of Cayman courts and lawyers with New York’s security agreements and in order to be more effective. Cayman lawyers have also generally advised lenders that, provided a security agreement creates security valid under New York law (or the law of another state), a Cayman court would recognize a security interest. such security if this tribunal were the forum for resolving a related dispute.
Even in the absence of a separate deed of guarantee from Cayman, since the guarantee includes the right to call capital under a Cayman partnership agreement, Cayman’s legal advisers will notify lenders that a Safety notice will be given to the sponsors of the Cayman partnership. . Such notice has the effect of establishing the priority of the security of the underwriting lender over the claims of other creditors with respect to the call rights of capital. Lenders must also file financing statements in applicable jurisdictions in the United States in order to be perfected under the Uniform Commercial Code.
Additionally, if a borrower or a borrower’s general partner is a Caymanian corporation (as opposed to a partnership), Cayman’s advisers to lenders generally recommend that the security be recorded in the mortgage and charge register maintained by the corporation. company. Failure to register a security interest does not affect the validity or priority of the security interest, but it is still good practice to register the security interest as required by the Cayman Islands Companies Act.