Subscription Finance Collateral Package: A Cayman / Luxembourg Comparison
In this briefing we look at the typical collateral packages provided in favour of a secured party in a subscription finance deal. This briefing focuses on both the similarities and differences between the Cayman Islands and Luxembourg in the context of a subscription finance collateral package and issues to be considered by a secured party when structuring a transaction.
Security over uncalled capital commitments and rights to call capital are generally expressed as an assignment by way of security and it is typical for a Cayman fund structured as an exempted limited partnership (which acts through its general partner) and its general partner to both be party to such security document. A key feature of a subscription finance collateral package involving a Cayman fund is that there is no reason why such security document needs to be Cayman law governed and in the majority of cases the security document will not be governed by Cayman law (even though the collateral will include rights arising under a Cayman law governed limited partnership agreement and related subscription documents).
Furthermore, it is not necessary to have a Cayman law governed security agreement to document security over the collateral account into which investors' capital contributions are deposited - the collateral account would not usually be located in the Cayman Islands so the collateral account security would be governed by the laws governing the account (typically US or English law).
Priority of the security over the uncalled capital commitments is achieved by giving notice of the creation of the security interest to the investors. Aside from establishing priority, giving notice to the investors has additional benefits for a secured party. After investors have been notified of the security interest the investors will not be able to set-off against their uncalled capital commitments any amounts which become due and payable to the investors (from the Cayman fund) after they have received the notice. In addition until investors receive notice of the security interest they are entitled to treat the fund/its general partner as the person to whom they are liable and to obtain a good discharge by payment to, or settlement with, the fund/its general partner.
There is no central security registration regime in the Cayman Islands for security over uncalled capital commitments and rights to call capital. Cayman companies (including limited liability companies)...
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