CAYMAN ISLANDS Law and Practice Contributed by: Simon Thomas, Richard Spencer, Alexandra Clynes and Sayak Bhattacharya, Campbells
Covenants and Undertakings Affirmative covenants • Regulatory Maintenance:
• Tort Claims: For intentional misrepresentation or conspiracy, investors may pursue direct claims against founders/management. Security enforcement • Capital Call Rights: Lenders enforce security over uncalled capital via equitable assign - ments, requiring notice to investors under Dearle v Hall principles. • Asset Realisation: Security over shares, bank accounts, or intellectual property can be liqui - dated to recover debts. The Cayman Islands government and quasi- government entities have introduced several initiatives to support equity financing in growth companies, particularly in technology, innova - tion, and financial services. While direct equity investment programmes are limited, the jurisdic - tion’s regulatory framework and strategic eco - nomic policies create an attractive environment for venture capital and private equity activity. Cayman Enterprise City (CEC) is a quasi-gov - ernment special economic zone (SEZ) designed to attract global tech companies, start-ups, and innovation-driven businesses. Key incentives include: • Tax Benefits: exemptions from corporate tax, capital gains tax, and import duties; • Streamlined Set-up: fast-tracked business licensing and work permits for investors and employees; and • Networking and Mentorship: access to a community of 250+ global companies, foster - ing collaboration and investment opportuni - ties. 4. Government Inducements 4.1 Subsidy Programmes
(a) registration with CIMA under the Private Funds Act (for funds) and ongoing com - pliance; and (b) regular financial reporting and notification of material adverse changes. • Operational Commitments: (a) use of funds for agreed purposes (eg, growth initiatives); and (b) preservation of corporate structure and key assets. Negative covenants • Restrictions on Debt/Encumbrances: (a) limits on additional borrowing or security grants without investor consent. • Exit Timelines: (a) commitment to pursue exits (eg, IPO, sale) within stipulated periods (typically two to five years). • Indemnification: Investors may claim damag - es for losses caused by breaches of warran - ties (eg, misrepresentation in financials). • Cure Periods: Ventures are allowed to rectify breaches (eg, late regulatory filings) within 15–30 days before defaults are triggered. • Acceleration/Redemption Rights: (a) Lenders may demand immediate repay - ment or enforce security (eg, capital call rights). (b) Investors may redeem preference shares if exit timelines are missed. Enforcement actions • Liquidation Petitions: Investors can petition courts for winding-up if ventures are insolvent or breach material obligations. Recourse for Breaches Contractual remedies
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