Jersey: Security Over Shares Of Cayman Islands Company

Last Updated: 6 September 2016
Article by Angus Davison, James Heinicke and Bradley Kruger

Most Read Contributor in Jersey, September 2016

An exempted company is the most common form of Cayman company and this client briefing seeks to address the issues involved when security is granted over shares in a Cayman exempted company.

This client briefing is intended to provide a general summary of the position in law as at the date shown above, and is not to be taken as specific legal advice applicable to particular issues or circumstances. If such advice is required, please contact your usual Ogier contact or one of our partners listed here.

Nature of Exempted Company Shares

The ownership interests in an exempted company are registered (i.e. book entry) shares. Legal title to shares derives from entry in the register of members, and it is typical for a company's constituent documents (i.e. the memorandum and articles of association) to provide that the company shall not recognise any interest in shares other than the interest of the registered holder, whom it treats as the legal and beneficial owner. 


There are two ways of taking security over shares of an exempted limited company, a legal charge or an equitable charge.

Legal Charge

A legal charge over shares is created by the transfer of the shares into the name of the secured party, or its nominee and the registration of that person as a holder of the charged shares in the register of members of the company. A legal charge is a more secure and comprehensive form of security interest, as it transfers legal title to the charged shares to the secured party and prevents the chargor from dealing with the shares while they are subject to the charge.  In a legal charge, the secured party undertakes to re-transfer the shares on discharge of the secured obligations.

As registered holder of the charged shares, the secured party is entitled to receive all benefits derived from, and to exercise all rights attaching to, the charged shares. Generally speaking, the registered holder's ability to exercise such rights will be contractually limited in the security document and, provided no event of default has occurred, the secured party will pay over to the chargor sums received in respect of the charged shares by way of a dividend and will exercise voting rights attaching to the charged shares in such manner as the chargor may require, provided that it is not required to exercise such rights in a manner which would be prejudicial to the security. Following the occurrence of an event of default, the secured party will be entitled to all rights and benefits deriving from and attaching to the charged shares without restriction.

A legal charge has the advantage that, since the secured party obtains legal title to the charged shares, it is not subject to any pre-existing equitable interest in the charged shares, unless such secured party had actual or constructive notice of that equitable interest prior to the creation of the legal charge.

A further advantage of a legal charge is that if it becomes necessary to enforce the security, the secured party is already in control as the registered owner of the charged shares. The secured party can therefore, subject to provisions to the contrary in the constituent documents, sell the charged shares to whomever it wishes and take other action available to a shareholder.  Note, however, that a transfer of registered shares is effected by a written instrument of transfer which is registered in the register of members. That register is under the control of the directors and in the event that the directors purport to exercise their right to decline to register a transfer of the charged shares in the event of the sale of the charged shares, then, on enforcement, the secured party under a legal charge may, as the registered shareholder, need to exercise powers available to it in the articles of association to remove the directors.

The disadvantage to a legal charge is that strictly speaking, where a secured party takes a legal charge over, and so becomes the registered holder of, the whole of (or the majority of) the issued share capital of an exempted company, that company may be treated as its subsidiary from an accounting perspective.  Whether this is an issue may depend upon the law and the accounting principles of the jurisdiction in which the accounts of the secured party are prepared. In addition, there may be tax and/or regulatory implications for a secured party in taking legal title to shares pursuant to a legal charge. As a result it is much more common for a secured party to take an equitable charge over shares.

Equitable Charge

An equitable charge transfers only the beneficial interest in the charged shares to the secured party, the legal title remaining with the chargor. The contractual position is the inverse of that under a legal charge, which is to say that the chargor remains entitled to all the benefits deriving from, and the rights attaching to, the charged shares, subject to whatever contractual restrictions are contained in the security document relating to the manner in which these may be exercised.

There are a number of disadvantages to an equitable charge:

(i) the directors of a company, having power to decline to register transfers, may decline to register the share transfer submitted by the secured party on enforcement and the constituent documents of the company are also likely to contain a provision to the effect that the company is not affected by notice of the interest of the secured party in shares nor is it required to recognize a beneficial interest in its shares. Unless the secured party is the person entered in the register of members as holder of the charged shares it will have no rights vis-à-vis the company in respect of the shares.  It will only have a contractual right against the chargor pursuant to the share charge;

(ii) a fraudulent or negligent chargor, having remained the registered holder of the charged shares, could transfer the shares held by it to a third party.  Since the company itself does not recognize the rights of anyone other than the legal holder of the charged shares, should such a fraudulent transfer be registered it would frustrate the registration of the secured party as a member upon enforcement of the equitable charge; and

(iii) a legal charge of shares for value will rank before a prior equitable charge of shares provided that the legal secured party does not have actual or constructive notice of such prior equitable interest at the time of the creation of the legal charge. Actual notice will include the registration of a prior equitable charge in the register of mortgages and charges of the chargor (if the chargor is a Cayman company).  In this regard a certified copy of the register of mortgages and charges of the chargor (if the chargor is a Cayman company) noting the security interests created by the equitable charge should always be obtained at the time an equitable charge is taken.

Despite such disadvantages the customary and more practical approach is to use an equitable charge and take steps in order to mitigate the difficulties associated with an equitable charge.

An equitable charge security package often incorporates the following in order to address the deficiencies associated with an equitable charge:

(i) Obtaining the original share certificates representing the shares (if share certificates exist – under Cayman law a company is not required to issue share certificates) and an executed but undated share transfer form in respect of the shares, together with an irrevocable power of attorney (note under Cayman law a power of attorney must be executed by way of deed).  Upon enforcement of the equitable charge the share transfer form would be dated and delivered to the registered office of the company for registration and updating of the register of members;

(ii) Obtaining signed, undated letters of resignation from all the directors of the company to be dated upon enforcement of the equitable charge in order to remove the directors.  A Cayman company's directors are responsible for approving the registration of any share transfer.  Any directors unwilling to register the transfer could frustrate enforcement.  In these circumstances an option would be to remove the directors using the pre-signed resignation letters;

(iii) It would be normal to provide for notice of the equitable charge to be given to the company whose shares are the subject of the equitable share charge and for the company to acknowledge, amongst other things, that it has not received notice of any prior equitable interest in the charged shares;

(iv) Obtaining an irrevocable proxy from the chargor in favour of the secured party in order that the secured party can vote the charged shares on behalf of the chargor. This proxy could be used on enforcement to appoint replacement directors who could then take steps to register the share transfer and update the company's register of members;

(v) Requiring the company to amend its articles of association to build in provisions to assist on an enforcement. For example, a Cayman company's articles of association will typically give the directors discretion to refuse registration of share transfers – this provision would typically be amended to ensure that the directors are obliged to transfer the shares to the secured party upon enforcement of the share charge and also to prevent the directors from registering any transfer of the charged shares to any person other than the secured party for as long as the share charge exists. The share charge itself would include a requirement that the secured party's consent is required for any subsequent amendments to the articles;

(vi) It is also market practice to require a notation to be made in the register of members of the company noting that the shares are subject to the equitable share charge.  This is in order to put any third party on notice in the event that they were to inspect the register of members. Practically, since the register of members is not publicly available, such notation will only be of value where a prospective purchaser of the shares requires sight of the register of members to check whether there are any encumbrances over the shares; and/or

(vii) Filing a "stop notice" with the Grand Court of the Cayman Islands, which is then served on the company whose shares have been charged. This notice requires that in the event of any proposed dealing with the charged shares by such company, fourteen days prior written notice has to be given to the secured party and no dealing with the shares may be completed within that period.  A "stop notice" is not necessary to perfect the security (but does provide additional protection) and will often be resisted by the chargor, since the existence of the security will, on the filing of the "stop notice", be a matter of public record (which would not otherwise be the case).

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

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

In association with
Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.