Structuring the boards of Cayman funds and managers — a Hong Kong perspective
When setting up a Cayman Islands investment fund and, where applicable, its Cayman Islands investment manager, consideration needs to be given to structuring the board of directors of each of these companies, not only in the context of corporate governance issues but also to ensure that they are not brought ‘onshore’ for tax purposes. The Cayman Islands Monetary Authority (CIMA) currently imposes relatively limited restrictions on the structure of the boards of open-ended investment funds, with its main requirement being that two individuals be appointed to the board of a licensed mutual fund or, in certain circumstances, a sole corporate director may be permitted (this is in addition to the requirement that such persons are fit and proper). While managers are therefore generally given wide scope when structuring the boards of their Cayman funds, in doing so they need to consider not just principles of good corporate governance but also relevant tax rules which may affect the tax residency of these offshore companies.
In the wake of international developments calling for enhanced corporate governance, CIMA is currently undertaking an industry-wide consultation process with the intention of providing a set of guidelines on the primary duties of directors of regulated mutual funds as well as setting sector-specific corporate governance standards. This is expected to supplement the current statement of guidance on corporate governance issued by CIMA, which applies to all licensed entities within the Cayman Islands. Without going into the detail of these new proposals, it is anticipated that managers will have more to consider in respect of the selection and ongoing operation of the fund’s board.
This note gives a very broad overview of some of the matters that Asian-based managers should be aware of when structuring the boards of their offshore fund entities…
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Formal, court-driven restructuring proceedings are available into Luxembourg law, but for practical reasons, these are rarely used in practice.
Luxembourg is one of the leading domiciles worldwide for international investment vehicles.