Answer ... (a) Commercial/corporate
Buyers should conduct the usual diligence of the target’s:
- constitutional documents – including its memorandum and articles of association and statutory registers, and any shareholders’ agreements; and
- commercial contracts entered into by the target to check for any change of control provisions indemnities and termination rights, among other things.
Buyers should be aware that:
- the register of members of Cayman Islands companies is prima facie evidence of the matters set out therein (ie, the register of members will raise a presumption of fact on the matters set out therein, unless rebutted); and
- a shareholder registered in the register of members will be deemed as a matter of Cayman Islands law to have legal title to the shares as set against its name in the register of members.
The register of members and other constitutional documents are not publicly available for Cayman Islands companies and must be provided by the target as part of the due diligence process, which will be highly unlikely on a hostile bid.
There are no Cayman-specific points relating to financial due diligence and buyers should conduct the usual checks in this regard.
Searches of the Cayman Islands courts are routinely carried out as part of the due diligence exercise to determine whether the Cayman target has been involved in any local litigation (past or ongoing cases).
The Cayman Islands currently has no income, corporate or capital gains tax, and no estate duty, inheritance tax or gift tax. Other than stamp duty, no registration, documentary or any similar taxes or duties of any kind are payable in the Cayman Islands in connection with the signature, performance or enforcement by legal proceedings of any Cayman Islands law-governed documents.
A Cayman Islands exempted company may apply to the Financial Secretary at the Ministry of Finance and Economic Development of the Cayman Islands for a written undertaking that should a law ever be enacted in the Cayman Islands imposing any tax to be levied on profits, income, gains or appreciations, that law shall not apply to the exempted company or its operations. This undertaking may be granted for up to 30 years from the date of the undertaking. The target should be asked whether such undertaking has been obtained as part of the due diligence process.
The Labour Act (2011 Revision) is the key law governing the terms and conditions of employment in the Cayman Islands and employment contracts must comply with minimum levels of protections provided under this law.
(f) IP and IT
The Trade Marks Act 2016 establishes a Cayman Islands Register of Trade Marks and the Patents Act (2018 Revision) provides for a Cayman Islands Registry of Patents.
(g) Data protection
The Cayman Islands Data Protection Act 2017 (CIDPA) is the primary legislation in the area of data protection in the Cayman Islands. CIDPA is based substantially on the UK Data Protection Act, 1998 and is intended to meet the ‘adequate protection’ requirements relating to the international transfer of personal data. CIDPA does not replicate the EU General Data Protection Regulation (2016/679), but there is considerable overlap.
The Cayman Islands Monetary Authority (CIMA) recently updated its Rule and Statement of Guidance relating to Cybersecurity for Regulated Entities, which came into effect on 27 November 2020. The rule applies to entities that are regulated by CIMA, including banks and insurance companies, and requires such entities to establish and maintain a cybersecurity framework. The Statement of Guidance supplements the rule by providing detailed guidance on implementing rule requirements, including in relation to:
- risk identification and assessment;
- risk monitoring and reporting;
- incident response, containment and recovery;
- use of the Internet;
- employee training and awareness;
- outsourcing arrangements; and
- data protection.
(i) Real estate
Title to real estate is evidenced by registration at the Cayman Islands Land Registry, which is open to public inspection and is the primary source of information on any real estate due diligence in the Cayman Islands.