The Cayman Islands legislature approved a major overhaul of the offshore domicile’s Exempted Limited Partnership law (or ELP law).
The ELP law was written in 1991 largely based off Delaware's limited partnership law so that US managers could use an offshore vehicle that was familiar and consistent with their onshore funds.
The reforms, expected to be signed into law by Cayman Islands Governor Helen Kilpatrick this week, realign the ELP law with Delaware's partnership law which have drifted apart over the years, said Jarrod Farley, a funds partner with offshore law firm Carey Olsen.
The Cayman Islands exempted limited partnership has proven a popular vehicle for US managers, who use the structure to pool the capital of their US tax exempt and non-US investors. By end of 2013, there were 14,355 active ELPs being used, 2,368 of which were formed during 2013 alone, according to the Cayman Islands Registrar.
“Despite being modeled around Delaware law, the ELP law is underpinned by English common law which has led to uncertainty in certain areas that the ELP hasn’t previously covered off explicitly,” said Farley.
At a practical level the changes to the ELP law give managers and investors greater certainty about the limits of their liability and secured creditors greater certainty about the validity and enforceability of their security, he added.
Furthermore, among other reforms, the ELP law now makes it clear that fiduciary duties can be limited, both for general and limited partners, subject to a minimum standard of good faith for GPs.