Cayman Islands: Cayman Corporate Collateral Packages In Subscription Facilities
Last Updated: 10 September 2014

Appleby (Cayman) Ltd. continues to lead the way in structuring innovative collateral packages in the Cayman Islands. In the subscription credit market in particular, Appleby has assisted in structuring unique collateral arrangements over corporate entities in a traditional subscription call deal.

Any proposed security over a Cayman exempted company's right to collect outstanding capital commitments from its shareholders differs significantly from the subscription finance arrangements that have become common practice in relation to securing capital call rights of Cayman exempted limited partnerships.

Unlike a traditional exempted limited partnership ("ELP") capital call financing, where the capital call rights are a contractual obligation which can be assigned by way of security, the "contractual rights collateral package" in corporate subscription deals is inextricably linked to an additional obligation to issue shares by the directors or investment management company. This creates enforcement concerns and additional insolvency risks which are distinct from those of a partnership.

The creation of an obligation of the investors in the company to purchase shares "to-be-issued" in the future is different from the obligation of an investor in an ELP to fund the remainder of its commitment to the ELP as part of its existing interest. The enforceability of the obligation to purchase shares "to-be-issued" could potentially create a greater challenge to enforceability (particularly in an insolvency) than the funding of a capital commitment to an ELP.

Recently, Appleby's Finance and Funds lawyers closed a uniquely structured security package. Essentially investors were issued shares at par value on closing coupled with a remaining obligation to fund their outstanding commitment with respect to those shares when called to do so by the company. The company in turn then granted the lender a security interest over its right to enforce the shareholders' obligations to fund their remaining commitments. The issue of the enforceability of an investor's obligation to purchase shares "to-be-issued" was therefore removed in favour of an approach for which there are no similar enforceability concerns.

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