CAYMAN ISLANDS Law and Practice Contributed by: Simon Thomas, Richard Spencer, Alexandra Clynes and Sayak Bhattacharya, Campbells
Representations and Warranties Common Representations by a Cayman target as well as a VC investor, in the context of a VC financing: • Corporate Authority: (a) valid existence, good standing, and authority to execute agreements, includ - ing under Cayman law; (b) confirmation that constitutional docu - ments permit financings and security grants; (c) up-to-date capitalisation and disclosures as to potential dilution; (d) details of subsidiaries; (e) absence of third-party consents and related-party transactions; and (f) validity of shares to be issued in connec - tion with financing. • Financial and Operational Integrity: (a) accuracy of financial statements and absence of undisclosed liabilities; and (b) ownership of material assets, including intellectual property. • Legal Compliance: (a) compliance with applicable regulatory regimes (eg, Private Funds Act, AML/ KYC, economic substance, beneficial ownership, data protection); and (b) no ongoing litigation or regulatory inves - tigations. • Security Validity: (a) enforceability of security interests over assets (eg, capital call rights, shares). Investor Representations • Accredited investor status, investment experi - ence and compliance with AML/KYC require - ments.
distribution during winding-up, often receiv - ing 1x–2x their investment before ordinary shareholders. • Anti-Dilution Protections: Weighted-average or full-ratchet anti-dilution clauses adjust con - version prices in subsequent down rounds to protect investors’ ownership stakes. • Redemption Rights: Investors may demand redemption of shares if exit events (eg, IPO) do not occur within two to five years. Failure to redeem can trigger winding-up proceed - ings. • Pre-emption Rights: Existing investors main - tain the right to participate in new equity issu - ances to avoid dilution, often codified in the company’s constitutional documents. • Constitutional Document Provisions: The memorandum and articles of association (M&AA) define shareholder rights, voting thresholds, and reserved matters requiring investor consent (eg, mergers, material bor - rowings). • Shareholders’ Agreements: These contracts formalise governance roles, exit mechanisms (eg, drag-along/tag-along rights), and dis - pute-resolution processes. CIMA’s 2023 updates mandate robust govern - ance frameworks, including conflict-of-interest policies, risk management systems, and trans - parency in decision-making. Operators (eg, boards) must act in the fund’s best interests, In venture capital and private equity financings in the Cayman Islands, representations, warran - ties, covenants, and undertakings are tailored to mitigate risks and ensure compliance with local laws. Below is a summary of market-standard terms and recourse mechanisms for breaches. enhancing investor protections. 3.7 Contractual Protection
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