Cayman Islands fund finance: key considerations for method and evidence of delivery of the investor notice

In the context of a subscription facility involving the grant of capital call security by a Cayman fund (typically structured as a Cayman Islands exempted limited partnership), Cayman investor notices are now a routine and accepted part of the deal documentation. The obligation for the fund to deliver such notice to its investors at (or shortly after) closing is, for the most part, no longer a source of discussion between principals or counsel.

This briefing touches on a number of the legal, commercial and practical points for lenders and their counsel when considering the method and evidence of delivery of the Cayman investor notice. This is by no means an exhaustive list and there will be deal-specific issues that arise that will need to be considered on a case-by-case basis. However, below are some points for consideration when approaching these negotiations.

Actual / constructive notice

Almost every limited partnership agreement (LPA) will contain specific provisions on how the parties (that is, the general partner and the limited partners) may serve notices on each other. These provisions will be fact-specific but as a starting point, the method of delivery of the investor notice (whether by way of investor portal, e-mail or even overnight courier / hand-delivery) should align with any requirements set out in the notices section of the LPA.

LPA notices provisions will often include a concept of “deemed receipt”. This is when the notice is deemed received by the recipient following a certain time period, which may differ depending on the method of communication used, such as email, courier, hand-delivery.

This deemed receipt concept can provide the lender comfort that constructive notice has been given to the investors following the expiry of any relevant time period (provided the notice is delivered in accordance with the notices provision). However, a notice that is deemed to have been received by an investor may not constitute actual notice – by which we mean that the terms of the notice are, in fact, brought to the attention of the investor.

The best outcome for the lender (both from a legal and commercial standpoint) will be that the fund's investors are actually on notice and aware of the grant of the security interests. As a result, special consideration should be given as to how actual notice can be achieved, or the chance of actual notice increased, when negotiating the method and evidence of investor notice delivery.

Market consensus is clear that investor acknowledgements are no longer required (unless there is a fact-specific basis for requiring these, as further discussed below) and there is no indication of this changing any time soon. However, lenders can still consider requiring a method (and evidence) of delivery which will improve the likelihood of achieving actual notice. Subject to any commercial considerations, these could include:

• direct emails (attaching the notice) from a known contact at the general partner to named contacts at the investor

• sending of notices by recorded delivery and / or

• investor portal notifications / emails with a subject line clearly referring to the grant of security in favour of the lender

Acknowledgement of notice

As mentioned above, the market position remains that acknowledgements of the investor notice are rarely provided. However, occasionally the notices provision of the LPA will require some form of acknowledgement from the recipient (the investor) in order for a notice to be effectively received or deemed received.

In these instances, lenders will want to ensure that any such requirements are sufficiently covered off by the agreed method (and evidence) of delivery.

In one recent transaction, a fund LPA stipulated that a notice received by email was not deemed received until the sending party had received a confirmation of receipt from the recipient. In contrast, no such confirmation of receipt was required in order to satisfy deemed receipt of a notice sent by overnight express courier.

Acting for the lender, we agreed a form of email that the fund would send to its investors (appending the executed investor notice) and requesting their emailed confirmation of receipt. It was further agreed with the fund that should any investors not respond with a confirmation of receipt within several business days, then the fund would be obligated to send the notice via overnight express courier to any non-responding investors.

In this way, the lender ensured that not only were the requirements of the LPA notices provision satisfied but also that it had strong evidence to demonstrate that actual notice was given to the investors.

Single investor funds – smaller investor pools

As the fundraising environment continues to face headwinds, we continue to encounter an increasing volume of financings to funds comprised either of single investors or smaller investor pools (five or fewer investors).

In structures which rely on limited investor pools, the method and evidence of delivery of the investor notice take on increased importance to ensure that the lender has the expected priority of its security interests. In the case of subscription financings to single investor funds it would not be uncommon for the lender to require that:

• the investor notice must be countersigned by the investor in order to acknowledge receipt, and
• the investor must provide an investor letter to the lender acknowledging and agreeing to the fund's proposed grant of capital call security

The investor portal

The investor portal, now by far the most common form of fund / investor communication, has become an unavoidable part of discussions surrounding the method and evidence of delivery of the investor notice.

As discussed above, if the investor notice will be communicated via an investor portal then special consideration should be given as to how to improve the likelihood of actual notice being achieved.

From a logistical perspective, evidence of delivery of the notice will be subject to the operational flexibilities of the investor portal but will often include:

• a screenshot of the investor portal showing the posted notice
• an extracted spreadsheet showing the full list of recipients of the posting (including identifiable names and email addresses)
• a copy of the automatically generated email received by investors from the investor portal notifying them of the posting and / or
• a confirmation from the investor portal administrator (usually provided by way of email via the fund's legal counsel) that no bounce backs were received in response to the posting of the notice on the investor portal

Finally, from a documentation perspective, LPAs will increasingly contain specific references to the investor portal in the notices provision. As with any other proposed method of delivery of the investor notice, these provisions will need to be reviewed and considered.

In the situation where the LPA notices section does not contain a specific reference to communication by way of investor portal, the view is usually taken that the email limb of the notices section would effectively cover off such communication (provided that the investor portal can generate an email notification to investors notifying them of the posting). In such a scenario, this should be expressly confirmed by the fund.  

How Ogier can help

Ogier’s experienced fund finance experts in the Cayman Islands advise clients across the whole range of fund finance matters, including capital call facilities. For any questions on this content or to discuss a specific fact pattern, contact the Ogier team.  

Related resources: Ogier CAYLUX - Fund finance and the investor notice

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Disclaimer

This client briefing has been prepared for clients and professional associates of Ogier. The information and expressions of opinion which it contains are not intended to be a comprehensive study or to provide legal advice and should not be treated as a substitute for specific advice concerning individual situations.

Regulatory information can be found under Legal Notice