Private equity managers domicile their closed-ended funds in the Cayman Islands using the exempted limited partnership structure for two main reasons: tax efficiency and the flexibility to define the rights and obligations of the fund’s stakeholders in contract with minimal legislative interference. When it comes time to liquidate or restructure these funds, complications can often arise due to the novel nature of these partnership structures. Recent first instance and appellate decisions in the Cayman Islands have clarified how these partnerships are to be liquidated and restructured. This article summarises those decisions and offers some practical points for how investors can best protect their positions when they invest in these structures.
Discussion points
- Defining characteristics of a Cayman Islands exempted limited partnership
- The Limited Partnership Agreement – key provisions
- What happens upon the expiry of a closed-ended fund’s term How does liquidation work
- Dealing with recalcitrant liquidators
- Restructuring of Cayman Islands exempted limited partnerships
Referenced in this article
- Exempted Limited Partnership Act (2021 Revision)
- In the matter of ECM Straits Fund I, LP (unreported, 20 December 2022).
- In the matter of One Thousand and One Voices Africa Fund I, LP (In Voluntary Liquidation) (unreported, 9 May 2024).
- Kuwait Ports Authority v Port Link GP Ltd FSD 236 of 2020 (unreported, 25 November 2021).
- Kuwait Ports Authority et al v Port Link GP Ltd et al (unreported, CICA (Civil) Appeals Nos. 002 and 003 of 2022, 20 January 2023).
- Kuwait Ports Authority & Ors v Port Link GP Ltd & Ors FSD 236 of 2020 (unreported, 25 May 2023, Parker J).
- Neoma Manager (Mauritius) Limited, in its capacity as the manager of Neoma Private Equity Fund IV LP v Abraaj ABOF IV SPV Limited & Ors (FSD 322 of 2020, FSD 141 of 2021 and FSD 52 of 2022, unreported, 10 March 2023).
Introduction
The Cayman Islands exempted limited partnership (ELP) is the preferred offshore investment vehicle for closed-ended private equity (PE) funds. Investors choose the Cayman Islands due to its tax neutral status, flexible structuring options and strong common law legal system. With the value of PE deals rebounding in recent months, post-pandemic choppiness has given way to a stronger recovery trendline, and general partners (GPs) of Cayman ELPs have been turning their attention towards opportunities further up the risk curve.
The surge in PE deal volume will incite a collective sigh of relief from M&A lawyers – but what about the funds whose assets have been locked up and their valuations battered by persistently high inflation, supply chain issues and geopolitical tensions over recent years GPs are coming up with creative solutions to unlock liquidity – such as GP-led secondaries and continuation vehicles – but the historical conduct of GPs in their management of PE funds as fiduciaries is coming under increasing scrutiny and resulting in disputes. In this article, we will look at some recent, real-world examples of alleged GP misconduct and offer some practical advice as to how limited partners (LPs) can protect their investments in Cayman ELPs.
ELPs
Although recently described by the Honourable Sir Michael Birt as the ‘new kid on the block’,[1]ELPs were introduced into Cayman Islands law back in 1991, making the ‘new kid’ 33 years old! It is likely that the Honourable Justice’s remarks were prompted instead by the continuous iteration of the Exempted Limited Partnership Act (ELPA), which has been amended 21 times since its introduction to ensure that it continues to accommodate the business needs of PE funds in evolving market conditions.
An ELP is a partnership that is registered under the ELPA. The principal advantages of a Cayman ELP are the partnership pass-through tax treatment (the Cayman Islands has no corporate, income, capital gains or any other taxes applicable to an ELP conducting offshore business) and the flexibility to define the entire relationship between the parties in a contract typically called a limited partnership agreement (LPA) with minimal statutory constraints. There are almost 40,000 active ELPs registered with the Cayman Islands General Registry,[2]collectively deploying billions of US dollars of investable capital.
Unlike a company, an ELP has no separate legal personality.[3] It cannot sue or be sued. It also cannot own property in its own right; instead, the property of the ELP is held on statutory trust by the GP for the benefit of the LPs, in accordance with the terms of the LPA.[4] Any debt or obligation incurred by the GP in the conduct of the business of the ELP is a debt or obligation of the ELP.[5] The business of the ELP is conducted solely by the GP, which will enter into all contracts, deeds and other legal instruments on behalf of the ELP. LPs are not permitted to play any active role in the business of an ELP.
ELPs are formed by at least one GP entering into a partnership agreement with at least one LP.[6]The GP is typically a Cayman Islands exempted company. In a closed-ended fund structure, the LPs will also typically be Cayman Islands exempted companies, created as special purpose vehicles for the LPs’ investment in the ELP.
LPA
The LPA is a contract that outlines the manner in which the ELP will conduct its business, together with the applicable rights and obligations of the GP and the LPs. In the context of a closed-ended PE fund, the essential commercial terms of the LPA are generally as follows.
Fund size, capital allocation and duration
The LPA will set out the total amount of capital that the GP can raise from the LPs, together with the respective capital contribution required by each LP and the time in which those capital contributions must be made. The LPA will also define the duration of the fund, make provision for the extension of the duration of the fund by consent and outline how the ELP will be dissolved once the term of the fund comes to an end.
Distributions
The LPA will specify the order, timing and proportion in which distributions will be made to the LPs and the GP. This will typically be set out in the form of a distribution waterfall, which will prioritise the return of capital to the LPs and then make allowance for a preferred return of the fund’s investment profits to the LPs (typically crafted as a hurdle rate setting out a minimum return that the fund must achieve for investors before the GP receives any performance fee). It is also not uncommon to see provisions providing for a GP catch-up, which will allocate distributions to the GP after the hurdle rate has been achieved to incentivise the GP to outperform. Provision will also be made for a management fee to be paid to the GP.
Investment objective and restrictions
The LPA will define the fund’s investment objective and set out investment restrictions, which may be defined by reference to classifications such as asset class, jurisdiction, leverage, liquidity, concentration or perceived risk.
Valuation
There will often be a mechanism set out in the LPA for the valuation of the assets of the fund and the frequency with which valuations are to be performed. The valuation of the fund’s assets may then have a bearing on how and when distributions are made to the LPs.
Investment committee
The LPA may make provision for the appointment of an investment committee or other form of advisory board, to assist the GP in the management of the fund. It is important to note that the participation of any one or more of the LPs on such committee or advisory board is one of a very limited number of safe harbours set out in the ELPA that operate as an exception to the overriding principle that LPs are not permitted to play any active role in the business of an ELP.[7]
Duties of GPs of Cayman ELPs
The duties and liabilities of a GP of a Cayman ELP are defined by
- the ELPA;
- the (non-exempted) limited partnership law of the Cayman Islands, along with broader company and trusts law, some of which applies directly and some of which is helpful by analogy for novel situations that arise in the ELP context;
- the terms of the relevant LPA; and
- the rules of equity and of common law applicable to partnerships insofar as they have not been amended by Cayman statutory provisions.[8]
Fiduciary duties of GPs of Cayman ELPs
GPs of Cayman ELPs have a fiduciary duty to the fund and to the LPs. The primary fiduciary duty is the duty of loyalty and good faith, which requires GPs to act in the best interests of the fund and its LPs,[9]and to avoid any conflict of interest that could compromise the GP’s ability to do so.[10]The ELPA does not provide any specific guidelines or guardrails in this respect; rather, the extent of the duty is determined by common law.
Section 19(1) of the ELPA provides that
“A general partner shall act at all times in good faith and, subject to any express provisions of the partnership agreement to the contrary, in the interests of the exempted limited partnership.”
Cayman law does not go as far as Delaware law in permitting an LPA to exclude entirely a GP’s duties to act in the interests of the ELP. At an absolute minimum, a GP of a Cayman LP must act in good faith for the benefit (although potentially not in the best interests) of the ELP; it must not act fraudulently; it must not act in bad faith or wilfully engage in misconduct; and it must not seize a commercial opportunity of the ELP for its own benefit.
Duties of care and skill applicable to GPs of Cayman ELPs
GPs of a Cayman ELP owe broadly the same (but not exactly the same) duties of care and skill as would be owed by a director of a Cayman Islands company.[11] Following modern common law authority, this duty comprises both an objective and a subject test for the standard of care and skill that a GP of an ELP would be required to exercise. The applicable test in the company context would be that of
“A reasonable diligent person having both (a) the general knowledge, skill and experience that may reasonably be expected of a person carrying out the same functions as are carried out by that director in relation to the company, and (b) the general knowledge, skill and experience that that director has.[12]”
GPs of a Cayman ELP are expected to acquire and maintain a sufficient knowledge and understanding of the fund’s business to enable them to properly discharge their duties as managers and custodians of the fund’s assets.[13]
Unlike ordinary partnerships and in contrast to the position of GPs, LPs of Cayman ELPs owe no fiduciary duties either to the ELP itself or to fellow partners in the ELP.[14]
It is important to note that an ELP is not a company, nor is it a conventional partnership. While the principles that apply in the corporate, trust and partnership contexts are instructive by analogy, when assessing the liability of a GP, the Cayman Court is likely to apply a sui generis test bespoke to the ELP structure.
Liquidation, restructuring and fraud – ELP claims in the Cayman Islands
Disputes in the context of closed-ended funds tend to have a prolonged gestation period. This is because LPs have minimal involvement in the day-to-day business of a fund and, therefore, tend to rely on material generated by the GP to ascertain the fund’s performance. Further, the fixed-term nature of a closed-ended fund permits the GP considerable time to make up for any losses potentially attributable to its (mis)management of the fund’s assets. In recent years, we have seen a proliferation of claims and cross-claims across ELP structures, typically arising from the alleged misconduct of the GP or the alleged mismanagement by the GP of the fund’s assets. The following are examples from recent years where GPs of Cayman ELP structures (sometimes in their capacity as voluntary liquidator) have been accused of breaching their fiduciary duties or their duties of care and skill and contentious disputes have arisen.
The case of the disappearing GP
The LPA of an ELP will set out the procedure for the liquidation of a fund once its term has come to an end. Conventionally, that will involve the GP placing the fund into a voluntary liquidation process, with the GP to act as the liquidator. The GP will pay the fund’s creditors, pay any liquidation expenses it has incurred, make a final distribution of any remaining assets and then make the necessary filings to bring the legal existence of the ELP to an end.
But what happens if, part way through the liquidation process, the GP ceases to perform its duties Even worse, what happens when the GP is struck off the register of companies, effectively abandoning the partnership and leaving the LPs with no clear ability to conclude the fund’s liquidation This was the unfortunate position that the sole LP of ECM Straits Fund I, LP found itself in, where following a breakdown in the relationship between the GP’s executive board the GP ceased to perform its role as GP and voluntary liquidator of the fund.
The provisions of the LPA and the ELPA, read together, were such that it was not possible for the LP to effect the appointment of an alternative voluntary liquidator to the fund itself, because such appointment would require the affirmative vote of the GP. This was problematic, because it left the LP in the unenviable position of not being able to receive its final distribution. The LP was left out of pocket, with no apparent recourse available either through statute or by reliance on the contractual terms set out in the LPA.
As is often the case, equity stepped in to save the day. In the same way that a company can be wound up when a court considers it is ‘just and equitable’ to do so, an ELP can be wound up on the application by a partner, creditor or liquidator and directions made as to the conduct of the liquidation as the court considers to be just and equitable in the circumstances.[15] In the case of ECM Straits Fund, the court had little difficulty in agreeing with the LP that there was a clear need to bring the liquidation of the fund under the supervision of the court in circumstances where the GP was either unable or unwilling to perform its duties as voluntary liquidator. Further, the court agreed that it had jurisdiction to grant the replacement liquidators the powers necessary to conduct the liquidation, which in this case meant the power to deal with the fund’s assets in accordance with the terms of the LPA, and ultimately for the benefit of the LP.
The GP that holds the LPs hostage
In the recent case In the matter of One Thousand and One Voices Africa Fund I, LP (In Voluntary Liquidation),[16] the GP of a Cayman ELP had been appointed as voluntary liquidator of the fund by resolution of the fund’s LPs. There followed a serious breakdown in the relationship between the GP and the LPs, which culminated in the presentation of a petition by one of the LPs for the appointment of independent voluntary liquidators to the fund.
Strikingly for a matter that had progressed all the way to a contested court hearing, a full 97 per cent of the fund’s stakeholders were in favour of the appointment of independent voluntary liquidators. In an ordinary commercial context, the wishes of the financial stakeholders reign supreme, and certainly in the case of a private company, the shareholders’ choice of voluntary liquidator is respected
“[W]hen the fund is contemplating the cessation of business and a voluntary winding-up…the starting assumption should be that where the majority of the participating shareholders nominates a suitable voluntary liquidator, their wishes should be acceded to…[17]”
But in this case, and notwithstanding the overwhelming opposition, the GP did not wish to be replaced as voluntary liquidator. The reasons for the GP’s recalcitrance were never fully ventilated in open court. It may have been motivated by fees, professional pride or a desire to avoid scrutiny of its conduct of the GP role in the preceding years. No findings of fact were made in the judgment, although reference was made to allegations that the GP had apparently rotated through five separate auditors in as many years, and that the GP may have been subject to an ongoing US Securities and Exchange Commission investigation into allegedly fraudulent conduct.
So intent was the GP on remaining the fund’s liquidator that upon becoming aware of the petition seeking its replacement, it then took steps to remove the petitioner as LP of the fund before opening up a new litigation front, filing proceedings in New York seeking to enjoin the petitioner from proceeding in the Cayman Islands on the basis that the LP was seeking to ‘surreptitiously circumvent the clear venue provision’ in the LPA in favour of the courts of the state of New York.[18]
In any event, the court was deeply unimpressed by the GP’s conduct and, in what can fairly be described as a scathing judgment, granted the LP the relief it sought by appointing independent voluntary liquidators to the fund.
The message here is clear while LPs have no entitlement to participate in the management of a fund structured as an ELP during its term, in the event that the GP assumes the role of liquidator, they have the right to demand that an alternative voluntary liquidator be appointed in the GP’s place if they are unsatisfied with the GP’s conduct of the liquidation. This is a point that GPs must take note of. In the past year, we have become aware of a number of situations where GPs have outright refused to commence the process of liquidation of a fund once its term has expired, in circumstances where the fund has underperformed and the LPs will not receive a return of their capital contribution in full, meaning the hurdle rate will not be achieved and there will be no ‘cut’ for the GP. Instead, the GP effectively holds the LPs hostage, refusing to make any distributions or otherwise proceed with the liquidation unless the LPs agree to revise the commercial terms of the LPA. Although we are not aware of any of those matters going to court (yet), it is tolerably clear that the Cayman courts would take an extremely dim view of such a GP’s conduct, and would have little hesitation in making an order for the appointment of an alternative liquidator, using the just and equitable gateway in section 36(3)(g) of the ELPA, and also making a costs order in favour of the applicant LP, potentially on the indemnity basis. We expect to see more challenges in this space and potentially other service providers or funders coming in to balance the inequality and provide the LPs with a much-needed solution in this sphere, or at least a better seat at the table.
LPs contemplating the winding-up of an ELP in such circumstances should take care to carefully review the LPA to determine whether there is a non-petition clause that could effectively debar the presentation of a petition (and, equally, GPs should consider at the drafting stage whether it would be in the best interests of the fund for such a provision to be incorporated). Modern authority in the Cayman Islands has confirmed that a non-petition clause is effective in the context of an ELP,[19] but only if it drafted with exacting precision.[20]
The GP that withholds true and full information about the fund from the LPs
LPs of an ELP are not entitled to participate in the day-to-day operations and business of an ELP. In practice this means they would only be privy to information about such operations if provided by the GP voluntarily.
Section 22 of the ELPA seeks to address that information imbalance, and provides that
“Subject to any express of implied term of the partnership agreement, each limited partner may demand and shall receive from a general partner true and full information regarding the state of the business and financial condition of the exempted limited partnership.”
The scope of an LPs’ entitlement to true and full information was tested in a recent case for summary judgment as part of broader litigation involving the collapse of the Abraaj group, a PE syndicate in the Middle East that at its height had approximately US$13 billion of reported assets under management.[21]Appleby acts for the fourth to sixth defendants in these significant and multifaceted proceedings.
In these proceedings, the defendant LPs succeeded in their argument that an LP’s entitlement to documents under section 22 of the ELPA is a broad one. The court found that
- what is required to fulfil the obligation to provide ‘true and full information’ will vary from case to case depending on the circumstances, meaning the test is essentially a functional one;[22]
- all materials and advice provided to the ELP from, for example, its managers or advisers, should, in principle, also be available to the LPs so far as they relate to the business of the partnership;[23]
- the LPs’ entitlement to documents pursuant to section 22 of the ELPA is broader than that afforded through the usual discovery process, because section 22 requires production of ‘true and full’ information, not just ‘documents’,[24] and discovery is restricted to matters in issue in a specific litigated action, whereas section 22 disclosure extends to any matters regarding the state of the business and financial condition of the ELP;[25]and
- it is no defence to a request for section 22 disclosure for the GP to argue that it would be required to expend significant time and resources in responding to the request.[26]
The decision[27] serves as a timely reminder of the breadth of the information disclosure obligations of a GP to LPs and sets out a range of helpful clarifications as to the lengths to which GPs must go to comply with requests made pursuant to section 22 of the ELPA.
The GP accused of defrauding its LPs
The Port Fund LP is the subject of ongoing litigation in the Cayman Islands (in which Appleby is involved), in which two Kuwaiti state entities, in their capacity as LPs of the fund, have brought proceedings focusing on the alleged misfeasance, fraud and breach of duty of (among other parties) the GP of the fund. As part of that litigation, the LP plaintiffs have pleaded, among others
- individual direct claims against the GP; and
- derivative claims against the GP and other defendants on behalf of the ELP.
One of the primary allegations at issue in the proceedings is that the GP had made payments to third-party service providers as part of a fraudulent scheme to expropriate money from the fund. Total losses are said to exceed US$100 million.
A decision on the GP’s culpability for the fraud itself is still some years away. However, the interlocutory litigation in the meantime has led to the delivery of rulings on novel points of law that are very relevant to stakeholders in Cayman ELPs.
LPs may, in limited circumstances, bring derivative claims for and on behalf of an ELP
Section 33 of the ELPA provides that
“Subject to subsection 33(3), legal proceedings by or against an exempted limited partnership may be instituted by or against any one or more of the general partners only, and a limited partner shall not be a party to or named in the proceedings.
…
“A limited partner may bring an action on behalf of an exempted limited partnership if any one or more of the general partners with authority to do so have, without cause, failed or refused to institute proceedings.”
As part of the broader dispute, the GP (which at the time was under the control of independent directors with no connection to the alleged fraud) had determined, upon advice, that the claims identified by the LPs lacked merit and that to pursue those claims would not be in the best interests of the fund. The LPs responded by bringing an application to bring the claims derivatively in the name of the ELP. The defendants, in turn, applied to strike out the derivative claims on the basis that they were not permitted under the ELPA. At first instance,[28] the Grand Court dismissed the defendants’ strike-out applications, permitting the LPs to proceed with their derivative action. The effect of the first instance ruling was to set a relatively low bar for LPs seeking to bring claims on behalf of a fund.
The judgment was appealed, and in a 2023 ruling as part of the broader litigation, the Court of Appeal of the Cayman Islands struck out the derivative claims against the GP, including on the basis that the LPs already had an alternative remedy available to them in the form of their direct claims, and that the fund itself had suffered no loss separate and distinct to the loss suffered by the LPs directly. A revised test for derivative actions in the context of ELPs has emerged in the process, with the Court of Appeal confirming that LPs have, in very exceptional circumstances similar to those that would apply to derivative claims brought by shareholders on behalf of companies in the corporate context, the right to bring claims for and on behalf of an ELP.[29] The judgment (which itself is now under appeal to the Judicial Committee of the Privy Council, with final judgment yet to be delivered) makes a number of important findings that are relevant to PE investors in ELP structures in the Cayman Islands[30]
- a plaintiff seeking to proceed derivatively in the name of an ELP does not have to first seek the leave of the court, as is the case with shareholder derivative actions in the company context;[31]
- the question of a plaintiff’s entitlement to proceed derivatively must be addressed at an early stage, either by way of a strike-out application or alternatively by asking the court to determine the matter as a preliminary issue;
- on a strike-out application in the ELP context, the defendant does not bear the onus of satisfying the strike-out threshold; rather
“The court must decide, on the basis of the material before it, whether the likelihood of the general partner having failed or refused to institute proceedings without cause is sufficient to lead the court to conclude that a derivative action should be permitted in the interests of justice. In reaching this evaluative conclusion, the Court will no doubt have regard, inter alia, to the strength of the evidence that the general partner has failed or refuse to institute proceedings without cause, the strength of the underlying claim which is sought to be brought and the likelihood and nature of any injustice if the derivative claim is not permitted;[32]”
and
- the court retains an overriding discretion to decline to permit a derivative claim brought by LPs in the name of an ELP to continue, even if the requirements of the section 33(3) gateway in the ELPA have been met.
Receivers can be appointed to an ELP
One of the many complexities that arose in the broader case was that due to a lack of funding, the directors and other office-holders of the GP had resigned, leaving the GP incapable of acting despite its involvement (as both claimant and defendant) in the proceedings. To remedy this governance void, the plaintiffs filed an application seeking the appointment of receivers and managers over the assets of the GP, to manage the litigation on its behalf in accordance with the LPs’ instructions, with funding to be provided by the LPs.
The application was novel. Receivers had never been appointed to a Cayman ELP. The jurisdictional basis of the application required the court to be persuaded (which it was, without any real difficulty) that it had the same power for the appointment of equitable receivers as vested in the English High Court pursuant to section 37(1) of the Senior Courts Act 1981.[33] The application was also strongly opposed by the defendants, who argued that the true motivation of the plaintiffs was to hijack the GP’s conduct of the litigation, and that the court should instead grant the alternative, and more conventional, remedy of appointing an independent, special purpose liquidator to the GP to ensure it was properly able to defend itself in the proceedings.
Ultimately, the court granted the plaintiffs’ application.[34] The court was satisfied that it was just and convenient to approving receivers
“for the purpose of ensuring that there is a professional, independent, and impartial office holder in place who will regularly report to the Court and … ensure the interests of the General Partner in the litigation are monitored, protected and advanced appropriately.”
While acknowledging the defendants’ concerns that the plaintiffs had ulterior motives in seeking to install receivers, the court determined that the appointment of receivers would ensure that ‘the General Partner’s interests will be advanced on an objective, reasonable, and independent basis free from the improper influence by any of the protagonists in the litigation’.[35]
The court determined that the alternative approach, being the appointment of liquidators, was not appropriate as it would sound the ‘death knell’ to the GP[36] and that as a remedy of last resort, it was not ‘appropriate, necessary or desirable’ at the time that the judgment was handed down.[37] In a later twist of events, after the hearing of the application but before the judgment was handed down, the Second Defendant placed the GP in a voluntary liquidation process in his capacity as the GP’s ultimate beneficial owner, leading to the rather strange situation where both receivers and liquidators have been appointed to the GP. Given the entrenched position of the litigants, it seems likely that we will see further interlocutory manoeuvres before a final ruling is handed down on the substantive question of the alleged fraud of the GP.
Restructuring of Cayman ELPs
Although this article has focused largely on the conduct of GPs in the context of the liquidation of Cayman ELPs, in the restructuring context it is important to note that the Cayman Islands’ relatively new restructuring officer regime[38] applies not only to companies but also to ELPs. This means that GPs of ELPs can seek the appointment of restructuring officers who can thereafter seek the sanctioning of a compromise or arrangement between the partnership and its LPs or its creditors.
Practical pointers for LPs of Cayman ELPs
Most closed-ended PE funds structured as Cayman ELPs successfully achieve their investment objective and are duly liquidated at the end of the term by their GPs. The cases discussed in this article are exceptions to the norm. Disagreements and disputes between the LPs of a fund and its GP are not uncommon though, and it is important that LPs are aware of their right and powers, particularly in the liquidation context. To that end, we offer the following practical pointers in parting
- Information is power. If a dispute arises with the GP, consider forcing the disclosure of documents (pursuant to the information disclosure provisions of the LPA or section 22 of the ELPA, or both) as an initial pre-litigation step. Many GPs would rather make a concession to the LPs than risk any wrongdoing being publicly exposed.
- The contract is key. The flexibility afforded by the ELP structure, where the parties’ rights and obligations are prescribed almost exclusively in the LPA, is often cited as one of the greatest advantages of a Cayman ELP but it can also create issues where gaps or ambiguous provisions leave the partners unsure as to their respective positions. Draft with precision. Provisions in relation to liquidation, distribution and clawback are critical. Also important are provisions dealing with the removal/replacement of the GP should there be a breakdown in the relationship between the various partners.
- How and where will the partners resolve any dispute Consider the use of tiered dispute clauses, requiring the sparring partners to attempt to conciliate their differences before they are entitled to file proceedings. Also be mindful of how any dispute resolution clause mandating arbitration might interact with the entitlement of an LP to petition in the Cayman Islands for the winding-up of the ELP on the just and equitable basis. Check for non-petition causes in the LPA.
- Do not delay. A closed-ended fund will typically include mandatory/affirmative language in the LPA to the effect that the GP shall be appointed as liquidator and shall liquidate the fund upon the expiry of the term. If the GP delays or prevaricates in the liquidation of the fund, LPs should write to the GP in short order, drawing the GP’s attention to its duties and to the consequences of inaction.
For further information, please contact:
Ben McCosker, Partner, Appleby
bmccosker@applebyglobal.com
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[1] In the matter of Aquapoint LP v Xiaohu Fan CICA (Civil) Appeal No. 14 of 2022 (4 October 2023) at [77].
[2] Partnership Statistics – Cayman Islands General Registry (httpswww.ciregistry.kypartnerships-registerpartnerships-statistics).
[3] This is one of many important differences between Cayman ELPs and Delaware ELPs (DELPs) that many readers will be familiar with. DELPs have their own distinct legal personality, pursuant to section 17-201(b) of the Delaware Revised Uniform Limited Partnership Act.
[4] Section 14(1) of the ELPA.
[5] Sections 4(2) and 20 of the ELPA.
[6] Section 4(2) of the ELPA.
[7] Section 20(2) of the ELPA.
[8] This includes rulings on equity and common law from the courts of England & Wales and other common law jurisdictions, which will be persuasive, although not binding, on determinations made by the Cayman Islands Courts. The Judicial Committee of the Privy Council, sitting in London, is the highest court of appeal of the Cayman Islands.
[9] Section 4(3) of the ELPA. Subject to any express provision in the LPA to the contrary. The LPA may demand a higher standard of care, but it may not dilute the obligation of the GP to act in good faith.
[10] Kuwait Ports Authority v Port Link GP Ltd FSD 236 of 2020 (RPJ) (unreported, 25 November 2021).
[11] It would not, however, be correct to say that the duties are identical. It is best to treat director duties as a helpful analogy, rather than a binding precedent in the ELP context.
[12] Re D’Jan of London Limited [1994] 1 BCLC 561.
[13] Re Barings PLC, Secretary of State for Trade and Industry v Baker (No 5) [1999] BCLC 433, 439 and applied in the Cayman Islands in Weavering Macro Fixed Income Fund Limited (in liquidation) v Stefan Peterson and Hans Ekstrom [2011] 2 CILR 203.
[14] Section 19(2) of the ELPA.
[15] Section 36(3)(g) of the ELPA. Previously considered by the Court in In Re Xio Diamond Ltd (unreported, FSD 256 of 2019, 30 April 2020), in which the Court held that the provision was analogous to section 129 of the Cayman Islands Companies Act, but that section 129 did not apply to the winding-up of ELPs pursuant to section 36.
[16] (Unreported, 9 May 2024).
[17] Re Asia Private Credit Fund [2020] (I) CILR 134 at [99] per Field JA.
[18] At [46] of the judgment.
[19] Re Rhone Holdings, LP (Appeal No. 21 of 2015, Cause No. FSD 119 of 2015).
[20] In the matter of KES Power Limited (Cause No. 192 of 2023 (NSJ), 31 May 2024).
[21] Neoma Manager (Mauritius) Limited, in its capacity as the manager of Neoma Private Equity Fund IV LP v Abraaj ABOF IV SPV Limited & Ors (FSD 322 of 2020, FSD 141 of 2021 and FSD 52 of 2022, unreported 10 March 2023). See also Dorsey Ventures Limited v XIO GP Limited (FSD 38 of 2018, unreported 22 October 2018) and In the matter of Gulf Investment Corporation v The Port Fund LP [2020] (2) CILR Note 6.
[22] At [75](c) of the judgment.
[23] At [62](v) of the judgment.
[24] At [34] of the judgment.
[25] At [41] of the judgment.
[26] At [75](j) of the judgment.
[27] Which is subject to an ongoing appeal as of the time of writing.
[28] Kuwait Ports Authority & Another v Port Link GP Ltd. & Ors (FSD 236 of 2020, unreported, 25 November 2021, Parker J).
[29] Section 33(3) of the ELPA.
[30] Kuwait Ports Authority et al -v- Port Link GP Ltd et al, Unreported, CICA (Civil) Appeals Nos. 003 and 003 of 2022, 20 January 2023.
[31] Per O. 15, r.12A of the Grand Court Rules.
[32] At [118].
[33] Pursuant to section 11 of the Grand Court Act (2015 Revision), albeit this was not entirely without precedent, with the same point having been considered previously in Y v R (Mangatal J, 9 January 2018).
[34] Kuwait Ports Authority & Ors v Port Link GP Ltd. & Ors FSD 236 of 2020 (unreported, 25 May 2023, Parker J).
[35] At [111] of the judgment.
[36] At [126] of the judgment.
[37] At [128] of the judgment.
[38] Set out in Part V of the Companies Act.
