The spotlight of the international community is shining more brightly than ever on International Financial Centres and those who use them in an effort to reduce aggressive tax avoidance, tax evasion and other practices which are perceived to be practiced largely through offshore structures. To assist global efforts to tackle tax evasion and corruption and to increase transparency, the Cayman Islands government has amended its companies law and has proposed a fundamental overhaul of its confidentiality laws.
On 13 May 2016 the Companies (Amendment) Law 2016 came into force. The purpose of the amendment is to remove the power of Cayman Islands exempted companies to issue bearer shares and other forms of negotiable shares. A new section 231A is inserted into the Companies Law which (i) prohibits the issue of any new bearer shares after 13 May 2016, and (ii) provides that all existing bearer shares must be converted into registered shares before 13 July 2016 or they will be void. Correlating provisions relating to shares transferrable by negotiation have been repealed.
The provisions themselves are unobjectionable, and reflect the general trend in the market away from bearer type securities as being incompatible with modern anti-money laundering procedures. In practice bearer shares have been dematerialised for some time: taking the next step in abolishing them outright is logical and consistent with the position taken by the governments of other International Financial Centres. Most financial institutions refuse to deal with bearer share issuing companies as a matter of policy in any event, so the number of bearer share issuing companies remaining is thought to be very small.
Past experience in other jurisdictions would suggest that the provisions will cause few problems for active companies, but may cause difficulties where companies which had previously issued bearer shares and are presently either struck off or dissolved are restored. In such cases companies cannot comply with the provisions until after they are restored, by which time they will already be in breach of the amended law.
Confidential Information Disclosure Bill 2016
On 11 May 2016 the Government published a Bill which would repeal Cayman's Confidential Relationships (Preservation) Law, and replace it with a new inverted regime which will specify when confidential information may (or must) be disclosed.
Confidentiality is a difficult legal subject. At common law, in broad summary, a party is entitled to disclose confidential information where (i) compelled to do so by law, (ii) where in certain cases it is in the public interest, (iii) where it is necessary to protect their own interests, or (iv) with consent. Whilst the new Bill is admirably brief, it marks a radical departure from and, in fact, and inversion of the existing statutory regime.
Under the existing law, which is drawn very broadly, information concerning any property which comes into the hands of a person carrying on "business of a professional nature" was automatically subjected to the Law and not disclosable unless it was disclosable (a) in the ordinary course of business, (b) pursuant to a request from certain criminal or regulatory authorities or an order of the court, or (c) with the consent (express or implied) of the person to whom the information belonged. The Law criminalised the disclosure of confidential information otherwise than in accordance with the Law, leading to the "ordinary course of business" exception being construed very narrowly.
The Bill makes a number of fundamental changes. The first important difference is that the criminal offences have been abolished. It will no longer be a crime in the Cayman Islands to divulge confidential information other than in accordance with the Law (although query if it ever really was a crime in a practical sense: in the 50 and more years since the original confidentiality law was enacted in Cayman there has not been a single criminal prosecution for its contravention).
The next important change in the Bill is that it is structured to provide statutory exceptions to the common law duty of confidence. Instead of information imparted to a person carrying on business of a professional nature being automatically protected, as it is under the existing Law, the first step in the enquiry under the new law (if enacted) will be to show that the information imparted was subject to a duty of confidence in the first place. That is a very different enquiry and shifts the burden of proof back on to the party providing the information. If duty of confidence can be shown to exist in relation to the information provided, clause 3(1) of the Bill provides that it "shall not constitute a breach of the duty of confidence and shall not be actionable at the suit of any person" if a person then discloses that information in certain circumstances or to certain authorities in accordance with their statutory obligations.
Similarly clause 3(2) of the Bill protects any person who discloses confidential information "in relation to a serious threat to the life, health, safety of a person or in relation to a serious threat to the environment". That sounds very similar but subtly different to the common law defence of disclosure in the public interest. Is the new statutory provision intended to add to the common law rule or replace it? It is likely that the courts will regard the common law as overruled by the statute on this point.
The Bill preserves the rule that a party who needs to give evidence which includes the divulgence of confidential information must seek directions from the court before doing so, but what is caught by this requirement has been clarified (some might argue extended) to include the production of documents by way of discovery.
The Bill is still at a relatively early stage, although the intent is clear. The precise relationship between the tortious common law rules and the wording of the proposed statute may need more time to resolve and will in all probability be left to be resolved by the courts.
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