CAYMAN ISLANDS Law and Practice Contributed by: Agnes Molnar, Jason Ta, Paul Walters and Gemma Walters, Travers Thorp Alberga
ceeds of disposal of such asset) if the SPE fails to discharge its liabilities. Mortgages Legal mortgages are the most comprehensive and secure form of security in the Cayman Islands. A legal mortgage is the transfer, by con - veyance or assignment, of the legal ownership of an asset by way of security. This transfer is subject to an obligation to re-transfer ownership of the asset to the mortgagor if the mortgagor discharges its liabilities. An equitable mortgage is the transfer by the mortgagor of its beneficial interest in the relevant asset to the mortgagee while the legal interest remains with the mortgagor. Charges Charges are always equitable in nature. Chargors do not transfer legal or equitable interests in the asset to the chargee, nor do they confer a right of possession. Instead, the chargee has a right to resort to the asset in order to realise it and apply the sale proceeds towards payment of its debts. Liens and Pledges Liens and pledges are dependent upon delivery of possession of the secured asset; thus, they are rarely used in Cayman law-governed security structures. Registration of Security There is no public system of registration of security in the Cayman Islands and therefore no basis for constructive knowledge of a registered charge. A Cayman Islands company granting security is required under the Companies Act to note a short description of the secured asset, the amount of the security and the name of the secured creditor on its internal register of mort -
gages and charges, which must be maintained at its registered office in the Cayman Islands. Failure to register does not invalidate the securi - ty itself unlike in some jurisdictions (eg, England and Wales). There is no statutory time limit within which registration must take place. 3. Documentation 3.1 Bankruptcy-Remote Transfer of Financial Assets Various forms of legal instrument are used to give exposure to underlying assets. • True Sale and the Sale Agreement: The agree - ment effects a sale and transfer of title in the receivables from the transferor to the SPE. See 1.1 Common Financial Assets . • Recharacterisation Risk: Such risk arises in the context of an insolvency practi - tioner, creditor, court or regulator seeking to recharacterise a true sale as a secured loan arrangement. The English Court of Appeal set out the differences between a sale and a secured loan in the case Re: George Inglefield Ltd [1933] Ch. 1. The three principles char - acterising a sale transaction set out by the Court of Appeal are as follows: (a) The seller should not have the right to the return of the asset sold by returning the purchase price to the purchaser. (b) If the purchaser disposes of the asset for an amount in excess of the initial pur - chase price, the purchaser does not have to account to the original seller in respect of the gain. (c) The seller is not necessarily obliged to ac - count to the purchaser for losses incurred by the purchaser on the disposal of an asset.
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