CAYMAN ISLANDS Law and Practice Contributed by: Simon Thomas, Richard Spencer, Alexandra Clynes and Sayak Bhattacharya, Campbells
Time-based exit events • Redemption Rights: Investors may demand share redemption if an IPO or trade sale does not occur within a predefined period (eg, two to five years). • Conversion Rights: Preferred shares often convert to ordinary shares upon IPO, enabling participation in public market liquidity. Performance triggers • Liquidation Preferences: In a sale or winding- up, investors receive priority payouts (1x–2x capital) before ordinary shareholders. • Missed Milestones: Failure to meet revenue, valuation, or operational targets may trigger forced exits or investor redemption rights. Enforcement of exit rights • If a company cannot fulfill redemption obliga - tions (eg, insufficient funds), investors may issue a statutory demand and petition for court-supervised liquidation. Winding-up petitions are advertised, allowing other credi - tors/shareholders to intervene, complicating control for the petitioning investor. The scarcity of conventional exits has driven Cayman Islands investors to prioritise contrac - tual redemption rights, NAV financing, and liqui - dation safeguards. Legal enforcement (eg, wind - ing-up petitions) and innovative fund structures (eg, evergreen vehicles) now dominate market practice, reflecting a shift toward flexibility and preemptive risk mitigation in prolonged illiquid
and prevents immediate post-IPO sell-offs. Such agreements are typically required by underwriters in IPOs to ensure orderly market conditions. Redemption Rights • Investors may have the right to redeem their shares if an exit event (eg, IPO, trade sale) does not occur within a specified timeframe (eg, two to five years). This provides an exit mechanism for investors if anticipated liquid - ity events are delayed or fail to materialise. Failure to redeem can lead to winding-up pro - ceedings, as investors may petition the court to liquidate the company. Exit-Related Governance Provisions • Investors often secure board seats to influ - ence strategic decisions, including exit timing and terms. Investors may also have veto power over major decisions, such as asset sales or mergers, to protect their interests leading up to an exit. In addition to tag-along and drag-along rights, transfer restrictions include a right of first refusal whereby investors often hold a contractual right to purchase shares before they are offered to third parties. This ensures continuity and allows current stakeholders to retain ownership influ - ence. A company’s memorandum and articles of association may restrict transfers unless approved by the board or shareholders. Trans - ferors must also adhere to procedures outlined in shareholders’ agreements (eg, offering shares to existing investors first). Exit mechanisms are typically defined in consti - tutional documents and financing agreements to align investor and company interests as outlined below.
environments. 6.2 IPO Exits
After a slowdown in 2022–2023 due to high interest rates and geopolitical uncertainty, 2024– 2025 projections suggest a rebound in the IPO market, driven by easing regulations and inves -
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