Tuesday September 11 2012
News Source: Fund Regulation
Focus: AIFMD
Type: Third party articles
Country: Cayman Islands
Please find below an article written by Appleby Global which provides a good overview of two recent cases brought to the Grand Court in the Cayman Islands regarding side letters entered into by corporate hedge funds.
The cases clarify the status of side letters in the Cayman Islands and identify issues which a fund and its promoters need to consider when deciding the nature and extent of different terms to be given to investors via side letters.
For existing funds, care needs to be taken to ensure that the directors do in fact have the power (discretionary or otherwise) under the Articles of Association to grant terms contained in side letters to investors (either with or without creating a new share class); and also that the side letter is directed to the registered shareholder and not some other party merely associated with the shareholder. If this is not possible, funds and fund promoters will need to consult their lawyers as to alternative methods of achieving their aims.
For new funds, this case serves as a further reminder to both lawyers and fund promoters that clear drafting of both the Articles of Association and offering documents is a must, if a fund wants to have flexibility to offer preferential terms to certain investors. The Articles of Association must contain appropriate discretionary powers for the directors, especially in relation to liquidity; and any offering documents must contain disclosure that the fund may enter into side letters with investors which will contain different terms from those set out in the main offering document.
Should you wish to discuss any of the matters raised above, please do not hesitate to email info@funds-axis.com