Worldwide: Powers Of Attorney Supporting The Typical Security Package: A Cayman/Luxembourg Comparison

Powers of Attorney

In this briefing we examine the role that a power of attorney plays in supporting the typical security package held by a secured party.  There are notable differences between the Cayman Islands and Luxembourg which should be borne in mind by a secured party when structuring a transaction.

Cayman Islands

In a typical subscription finance transaction, the core assets over which security is taken from a Cayman fund comprise contractual rights held by the Cayman fund and its general partner under the limited partnership agreement and each subscription agreement.  This vests an interest in such contractual rights in the secured party, which are exercisable by the secured party should an enforcement scenario arise.

In order to support the secured party's security interests in such contractual rights, an express irrevocable power of attorney is usually granted to the secured party by the Cayman fund and its general partner.  This allows the secured party to step into the shoes of the Cayman fund or the general partner and call capital from investors in the name of the Cayman fund or general partner.

It is prudent to have the Cayman fund and its general partner execute the security agreement as a deed where the governing law of the security agreement is not Cayman Islands law.  This is aimed at ensuring the power of attorney contained within the security agreement constitutes a power of attorney for the purposes of the Cayman Islands' Powers of Attorney Law.  Other than that, there are no formalities that need be observed with respect to execution of the power of attorney by the Cayman fund or its general partner (assuming the general partner is not an individual person).

Key to a power of attorney granted by a Cayman fund and its general partner is that it is expressed to be irrevocable. Under the Powers of Attorney law a power of attorney granted by or on behalf of a Cayman fund that is expressed to be irrevocable and which is granted to secure the performance of an obligation owed to a secured party: (a) cannot be revoked without the consent of the secured party; and (b) would survive the winding-up or insolvency of the Cayman fund, in each case for as long as the obligation to the secured party remained undischarged.

It should also be noted that failure to constitute a power of attorney as a power of attorney for the purposes of the Powers of Attorney Law would not detract from the power of attorney's validity or enforceability as a matter of the governing law of the document in which the power of attorney is contained.  Whilst security interests over Cayman assets would ideally be governed by Cayman Islands law, they are often captured in foreign law documents with little to no detriment to the secured party.

The issues described above remain relevant where the Cayman fund is a limited liability company or an exempted company, adopted to the prevailing structure as necessary.

Luxembourg

Similarly to a Cayman fund, the security granted by a Luxembourg fund involved in a subscription finance transaction is generally over the contractual rights held by the Luxembourg fund and its general partner under the limited partnership agreement and each subscription agreement. In a US context, the security interest granted by the Luxembourg fund over the limited partners' uncalled capital commitments will typically be created pursuant to a first ranking security agreement governed by the same governing law as the loan documents and a second ranking pledge agreement governed by Luxembourg law.

In order to support the secured party's security interests over such contractual rights, an express irrevocable power of attorney is generally granted to the secured party enabling it to serve capital call notices to the limited partners of the Luxembourg fund on its behalf. However, under Luxembourg law certain limitations arise in relation to powers of attorney.

Under Luxembourg law a power of attorney (a) will terminate by operation of law and without further notice on the commencement of any bankruptcy (faillite) or judicial winding-up (liquidation judiciaire) of the grantor of the power; (b) will become ineffective upon the grantor of the power entering controlled management (gestion contrôlée) or suspension of payments (sursis de paiement); and (c) may be revoked voluntarily by the grantor despite being expressed to be irrevocable.

Any such termination, ineffectiveness or voluntary revocation causes the cessation of all power on the part of the attorney to act on behalf of the Luxembourg fund's general partner, although a voluntary revocation of a power expressed to be irrevocable may result in the grantor being liable for damages resulting from the breach of contract. This principle is considered to be a mandatory rule under Luxembourg law. Therefore, as well as applying to Luxembourg law governed powers of attorney, there is also a risk that the Luxembourg courts could consider it a matter of Luxembourg international public policy, which could also lead them to set aside the application of a foreign law governed power of attorney purporting to be irrevocable in all circumstances.

As a result it is common practice for a Luxembourg fund and its general partner to grant a power of attorney to the secured party in the Luxembourg law security agreement collateralising the investors' undrawn commitments and to express it as being irrevocable. In addition, the Luxembourg fund and its general partner will specifically confirm that the power of attorney is granted jointly in their interests as well as in the interest of the secured party for the proper management of the secured collateral and that it constitutes a mandate of mutual interest (mandat d'intérêt commun). Finally, in accordance with the provisions of article 2003 of the Luxembourg civil code, a provision will also be included that provides that the power of attorney granted does not terminate upon the occurrence of bankruptcy (faillite) or similar Luxembourg or foreign law proceedings affecting the rights of creditors generally in respect of the Luxembourg fund and its general partner.

Whilst the above is likely to improve the lender's protection, this would still not be sufficient to make a power of attorney irrevocable in all circumstances. However, Luxembourg market practice generally acknowledges that the right to serve capital call notices is an ancillary right to the secured collateral. Luxembourg security interests survive the insolvency / bankruptcy of the grantor and so upon an enforcement event, a secured party would remain entitled to exercise the right of the fund and its general partner to call and receive the collateralised capital commitments of the limited partners, and so to issue and deliver the related capital call notices to the limited partners, despite the power of attorney having been terminated or having been revoked. This would be done by the secured party acting in its own capacity as secured party under the security agreement and not in its capacity as attorney of the general partner pursuant to the power of attorney.

Ogier’s CAYLUX fund finance team is ideally placed to assist clients and their international transaction counsel on fund finance transactions involving funds domiciled in the Cayman Islands and Luxembourg.

Our multi-jurisdictional team includes Luxembourg legal capability in Cayman and therefore within US timezones and Cayman legal capability from Europe, in addition to their respective home jurisdiction. Our CAYLUX fund finance team provides one port of call for all Cayman and Luxembourg fund finance matters. We provide 'transatlantic standard' client service and responsiveness regardless of which jurisdiction is used and the timezone in which the deal takes place.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions