By Mel Wheaton | DLA Piper – Emerging Growth and Venture Capital Contact, From JDSupra Business Advisor

Cayman Islands revise Exempted Limited Partnership [ELP] law and pass new legislation allowing enforcement of contracts by third party beneficiaries

Earlier this month the Cayman Islands passed new legislation revising its existing Exempted Limited Partnership Law. The new legislation, the Exempted Limited Partnership Law 2014, replaces the existing legislation in its entirety and has a primary objective of providing Cayman Islands partnerships with more flexibility in a number of areas and generally bringing Cayman Islands law into closer conformity with existing laws in more familiar jursidictions such as Delaware. This is welcome news to both private fund investors and sponsors. A detailed review of the changes enacted by the new legislation will follow in a future post on The Venture Alley, but here is a quick summary of some of the more material changes contained in the new legislation:

Allows foreign limited partnerships to serve as general partners of Cayman Islands exempted limited partnerships (previously funds typically had to set up either a Cayman Islands exempted limited partnership or Cayman Islands exempted company to serve as the general partner);

No longer requires an exempted limited partnership’s register of limited partners to reflect contributions by and distributions to limited partners, but rather only the names and addresses of limited partners (which will serve to increase the privacy of limited partners who are invested in Cayman Island investment funds);

No longer requires the limited partnership agreement to be executed as a deed and witnessed in order to make valid a power of attorney granted therein (with this change being retroactive so as to validate any power of attorney granted prior to the passage of the new legislation); and

Simplifies the admission process for new limited partners in connection with a transfer of interest in an exempted limited partnership.

Concurrent with the enactment of the Exempted Limited Partnership Law 2014, the Cayman Islands also passed new legislation in the form of the Contracts Rights of Third Parties Law, which officially recognizes the concept of third party beneficiares by enabling the enforcement of rights given to a party in a contract between other parties. Prior to the passage of this new legislation, third party beneficiaries of a contract were generally not able to enforce the terms of the contract under Cayman Islands law due to the fact that they were not parties to the contract in question. This lack of a third party beneficiary concept has historically been an issue of contention in the context of Cayman Islands investment funds, as limited partners have had to worry about their ability to enforce the clawback provsions of a partnership agreement against the fund’s sponsors and sponsors, in turn, have had to worry about their ability to enforce the indemnity provisiosn of a partnership agreement. Fortunately, the passage of the Contracts Rights of Third Parties Law should work to alleviate these historical concerns.

Overall, the changes to Cayman Islands law reflected in both the Exempted Limited Partnership Law 2014 and the Contracts Rights of Third Parties Law serve to bring Cayman Islands law closer to what investments funds are used to seeing in jurisdictions such as Delaware, which should add additional comfort to fund sponsors and investors alike and increase the appealability of setting up offshore funds in the Cayman Islands.

For more on this story go to: http://www.jdsupra.com/legalnews/cayman-islands-revise-exempted-limited-p-79427/