Limited partner remedies in Cayman are different from, and in many cases wider than, shareholder remedies, which we considered here. They have been the subject of a number of recent Court decisions, including the Privy Council’s October 2024 decision in Kuwait Ports Authority and another v Mark Eric Williams and 2 others.
What is an Exempted Limited Partnership (ELP)?
An ELP is a partnership registered under the Exempted Limited Partnership Act (the ELPA). They were introduced in 1991.
An ELP has no corporate personality. It is comprised of one or more General Partners (GP) and one or more Limited Partners (LP). The GP is the equivalent of a company’s board of directors, conducts business on behalf of the ELP and holds the partnership’s assets on statutory trust for the benefit of the LPs. The LPs are akin to shareholders and have limited liability, although they can lose it if they take part in the conduct of the business (s.20(1) ELPA). The relationship between the partners is governed by a Limited Partnership Agreement (LPA).
At last count, 36,756 Cayman ELPs were registered (compared with 95,572 Cayman exempted companies). They are typically closed-ended funds.
Information rights
The publicly available information regarding Cayman ELPs is broadly the same as for companies (as outlined here). LPs also have a very broad statutory information right under s.22 ELPA, which provides:
“Subject to any express or implied term of the partnership agreement, each limited partner may demand and shall receive from a general partner true and full information regarding the state of the business and financial condition of the exempted limited partnership.”
It is important to check the LPA carefully to see whether s.22 has been excluded or modified, but if not, an LP is in a significantly better position than a shareholder in a Cayman company, whose only statutory information right is to a copy of the memorandum and articles of association.
s.22 has been considered in a number of recent cases (Dorsey Ventures v XiO (2019), Gulf Investment Corporation v The Port Fund LP (2020), Neoma Manager Mauritius Limited (2023), White Crystals v IGCF (2024)). Broadly speaking these cases have emphasized the breadth of s.22 and reasons proffered by the GPs for not providing information were not accepted.
Litigation claims
LPs’ ability to bring both direct and derivative claims was examined in the Kuwait Ports Authority cases (Grand Court 2022, Court of Appeal 2023, Privy Council 2024).
The Court of Appeal confirmed that an LP can bring direct claims against the GP, but the correct order on a successful claim will be an order restoring the partnership fund, not an order for payment directly to the plaintiff LPs.
The Privy Council issued twelve guiding principles for the application of s.33(3) ELPA, which provides that LPs may bring derivative claims “if any one or more of the general partners with authority to do so have, without cause, failed or refused to institute proceedings.” This included confirming that an LP does not require leave to bring derivative proceedings (again, contrast the position of a shareholder).
Winding up
The LPA will define the duration of the fund. Once the term has expired, the ELP will be in voluntary liquidation, with the GP as liquidator. The LPA may make provision as to how the liquidation is to be conducted.
We have acted on a number of ELP disputes where the term had expired, but the GP had failed to distribute assets in accordance with the LPA. The GP in such cases may have a conflict of interest, if it is continuing to charge fees whilst prolonging the life of the fund beyond that which the LPs agreed to. It may also be seeking to postpone independent scrutiny of its management of the fund. Whilst the reasoning is not entirely consistent between the different cases, cases where the Court has ordered a GP be replaced by independent liquidators include XiO Diamond Fund 1 LP (2020), Duet Real Estate Partners 1 LP (2020), ECM Straits Fund LP (2022) and One Thousand and One Voices Africa 1 LP (2024).
LPs should always check the LPA carefully as their right to bring claims or to seek winding-up may be affected by non petition clauses, arbitration clauses or jurisdiction clauses. The LPA is also highly likely to include indemnities, exclusion of liability and/ or advancement clauses in favour of the GP.
Every situation is different and taking specialist legal advice at an early stage will position unhappy LPs as strongly as possible for negotiations with the GP. If you would like to discuss these issues, please contact Katie Pearson on katie@claritaslegal.com, Mark Burrows on mark@claritaslegal.com or Alexia Adda on alexia@claritaslegal.com.
