CAYMAN ISLANDS Law and Practice Contributed by: Simon Thomas, Richard Spencer, Alexandra Clynes and Sayak Bhattacharya, Campbells
Governance Influence • Board Representation: (a) Depending on the size of their investment as a proportion of the post-money valu - ation, investors often negotiate seats on the board of directors, or observer seats, particularly in growth-stage companies. This ensures direct oversight of strategic decisions and operational management. (b) Independent Directors: Cayman funds in - creasingly appoint independent directors to balance governance, mitigate conflicts of interest, and align with CIMA’s corpo - rate governance guidelines. • Veto Rights: (a) Investors secure veto power over critical decisions, such as: (i) major asset sales or mergers; (ii) issuance of new equity or debt; and (iii) changes to the company’s constitu - tional documents. (b) These rights are typically embedded in shareholders’ agreements (where they relate to key business decisions – eg, adoptions of or amendments to business plans) or the company’s articles of asso - ciation (where they relate to key structural items – eg, creations of equity incentive plans, issuances of new securities rank - ing pari passu or senior to the last-issued preference share class). Information Rights • Investors require regular access to financial statements, operational updates, and mate - rial disclosures to monitor performance and compliance (often subject to confidentiality and trade secret carve-outs). Market Standard Rights • Liquidation Preferences: Preferred sharehold - ers (eg, VC investors) have priority in asset
longer holding periods or higher risk profiles (eg, growth-stage companies or distressed assets). • This ensures that limited partners (LPs) receive a guaranteed return on their capital before general partners (GPs) earn carried interest, providing an incentive for strong fund performance. Pay-to-Play Provisions • These provisions require existing investors to participate in follow-on financing rounds to avoid losing certain rights, such as anti-dilu - tion protections or liquidation preferences. • In recapitalisation transactions or down rounds, pay-to-play provisions have been increasingly employed to encourage investor participation and ensure adequate funding. Enhanced Redemption Rights • Investors are negotiating stronger redemption rights, allowing them to redeem their shares if an anticipated exit (eg, IPO or trade sale) does not occur within a specified timeframe (typically two to five years). Stricter Anti-Dilution Protections • While weighted-average anti-dilution remains standard, full-ratchet adjustments have become more prevalent in down rounds or distressed financings, ensuring investors maintain their economic position regardless of new issuance prices. 3.6 Corporate Governance Investors in Cayman Islands ventures typically secure significant influence over management and corporate governance through a combina - tion of contractual rights, share class structures, and regulatory frameworks. Below are the key mechanisms and market-standard rights.
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