Share charges or equitable mortgages over shares regularly form a crucial part of security packages in numerous forms of secured lending transactions to Cayman Islands entities.
A recent decision by the Grand Court of the Cayman Islands in the case of Yeung Ka Man v OP Multi Strategies Investment Fund [2025] CIGC (FSD) 20 has provided valuable reassurance for secured creditors, reinforcing a secured creditor's right to enforcement of an equitable share mortgage or share charge, notwithstanding issues in the deliverables provided by the mortgagor.
This article explores the significance of the Grand Court’s decision, the practical implications for lenders and the continued robustness of share charges as effective security in Cayman Islands financing transactions.
Equitable mortgages over shares and share charges
Share charges or equitable mortgages over shares provide significant benefits to secured parties in lending transactions, providing for enforcement rights in the event of default, such as taking ownership of the shares or selling the charged shares in order to be repaid.
Both a share charge and an equitable share mortgage involve the security grantor retaining the registered title of the charged shares and, as such, the two terms are used interchangeably in this briefing. In the case of Yeung Ka Man v OP Multi Strategies Investment Fund [2025] CIGC (FSD) 20 (Yeung Ka Man v OP Multi Strategies Investment Fund), the Grand Court of the Cayman Islands reinforced a secured creditor's right to enforcement of an equitable share mortgage, notwithstanding issues in the deliverables provided by the mortgagor.
Cayman Islands share charges typically require the applicable chargor or mortgagor to provide certain deliverables to assist with enforcement. These deliverables typically include undated share transfer forms which are executed by the applicable chargor or mortgagor. The secured party (or its nominee(s)) are typically authorised to complete the share transfer forms following the occurrence of an event of default or an enforcement event and therefore effect a transfer of the charged shares.
Enforcement of security
In Yeung Ka Man v OP Multi Strategies Investment Fund, the secured party, HSBC, made a loan to Hong Kong company Sino-Ocean Capital Holding Limited (the Borrower). In connection with the loan, HSBC took security over the shares in OP Multi Strategies Investment Fund (OPM), held by Glory Class Ventures Limited (the Mortgagor) which was a subsidiary of the Borrower. Pursuant to the Cayman Islands equitable mortgage over shares, the Mortgagor delivered an executed but undated share transfer form relating to the shares it held in OPM upon completion.
The Borrower defaulted on payment and HSBC sought to enforce the Cayman Islands share charge. HSBC appointed Yeung Ka Man and Wing Sze Tiffany Wong of Alvarez and Marsal as joint and several receivers over the shares (the Receivers). The Receivers dated the executed share transfer form and provided it to OPM and requested that it rectify the register of members to reflect the fact that the shares held by the Mortgagor had been validly transferred to the Receivers.
OPM refused to transfer the charged shares, arguing that the share transfer form was executed by a director of the Mortgagor who had resigned in the intervening period. OPM argued that the share transfer form was therefore invalid at the time of transfer. The Receivers brought an action in the Grand Court to have the register of members of OPM rectified and for the shares in OPM to be transferred from the Mortgagor to the Receiver.
The Grand Court’s decision
The Grand Court found that the executed but undated share transfer form remained valid as the director of the Mortgagor was authorised to execute the share transfer form at the time it was executed.
The Grand Court further added that it would be inconsistent with the commercial efficacy of the share charge for it to become unenforceable due to a change in the status of a director after the share transfer form had been executed, as it would undermine the value of the security. Accordingly, the Grand Court ordered that the register of members of OPM be rectified to reflect a transfer of the shares in OPM to the Receivers.
Protecting the interests of secured parties
The decision of the Grand Court in Yeung Ka Man v OP Multi Strategies Investment Fund clarifies the position for secured parties and confirms that:
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notwithstanding resignations of directors after undated share transfer forms are executed, such share transfer forms continue to be valid and enforceable, and
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there is no requirement that the secured party obtain new share transfer forms signed by directors who remain on the board at the time of enforcement
How can Ogier help?
Ogier's Cayman Dispute Resolution team acted for the successful plaintiff in this matter.
Read more about equitable security over shares in a Cayman Islands exempted company in Security over shares of a Cayman company.
For more information on the enforcement of equitable security over shares in a Cayman Islands exempted company, read: Enforcing security over shares of a Cayman company.
