There are no publicly available data points to track the size of the debt finance market in the Cayman Islands. On account of the territory’s status as a leading international finance centre, market activity is usually directly correlated to the performance of the leading international economies and, in turn, the number of purely domestic transactions are closely correlated to the national economy.

Some indication of the macro-economic conditions in the last year can be seen in the year-on-year change in the number of companies and other entities that are registered in the Cayman Islands, most of which are engaged in cross-border transactions rather than in the domestic market. The number of entities registered in 2024 was 16.3% higher than the number of entities registered in 2023.

A diverse mix of lenders ‒ local and international banks, direct lenders and debt funds ‒ participate in the market. However, lending terms and practices do not differ materially among these groups, and no significant trends have emerged in the types of lenders involved in recent transactions.

While the global market remains cautiously optimistic, a challenging geopolitical environment as well as global trade policy and inflationary pressures are likely to continue to influence market dynamics. Longer diligence cycles with deeper risk assessments are anticipated, as well as a greater focus on force majeure. Both lenders and borrowers will need to adapt to these evolving conditions to effectively navigate the debt finance landscape. 

The Cayman Islands remains strongly positioned to navigate global volatility and maintain its leading status among offshore jurisdictions. This resilience is underpinned by a robust legislative and regulatory framework, a tax-neutral environment, flexible structuring capabilities, a well-established legal system rooted in English common law, as well as a widespread familiarity with the use of Cayman Islands structures in debt finance transactions.

Domestic debt finance transactions (referring to financing for businesses that operate within the Cayman Islands) tend to consist of general corporate lending and real estate finance, with facilities made available by international and domestic banks, as well as private lenders (corporate and individual). These transactions tend to be simpler and involve relatively moderate amounts of financing compared to cross-border financing transactions.

International transactions in which Cayman Islands entities participate cover all types of financing seen in the world's leading financial markets, including acquisition finance, leveraged finance, project finance, fund finance, asset-based finance, trade finance, structured finance (including securitisation) and venture debt. Cayman Islands entities are used in numerous capacities, including as issuer, borrower, lender, investment vehicle, asset-owning vehicle, guarantor, and as collateral agent.

With respect to both domestic and international transactions the Cayman Islands is considered a creditor friendly jurisdiction. This is illustrated by a number of statutory provisions that protect the rights of creditors. By way of example, the Companies Act (as revised) moratorium on judicial proceedings that comes into effect upon the appointment of a provisional liquidator for a Cayman Islands company does not prevent a secured creditor from enforcing its security. Furthermore, under Section 140(2) of the Companies Act and Section 38(1) of the Limited Liability Companies Act (as revised), rights of set-off and netting remain effective and enforceable upon the winding-up of an entity, subject to any applicable subordination and security arrangements.

The Cayman Islands’ status as a leading jurisdiction for cross-border financing results from a number of factors, including:

• political and economic stability as a British Overseas Territory that has focused on the international financial services sector for several decades;
• a combined common law and statute-based legal system that reflects many principles of the laws of England and Wales, with English case law being persuasive (although not binding) before the courts of the Cayman Islands;
• the absence of income tax, corporate tax or capital gains tax, as well as no withholding tax or government fees imposed on any cash flows in the Cayman Islands; and
• a substantial and sophisticated financial and legal services community based in the territory, comprising professionals with extensive experience in other leading financial centres.

See 2.1 Debt Finance Transactions.

Under the laws of the Cayman Islands, there are no specific requirements as to the content or form of the loan documentation used for either cross-border or domestic transactions. Except in limited cases involving certain types of security, there is no requirement for documents to be filed with any government body, for documents to be executed before a notary, or for other formalities regarding execution to be complied with in order for documents to give rise to valid and enforceable obligations.

Under Cayman Islands law, there is no restriction or prohibition on a Cayman Islands entity entering into loan or security documentation governed by the laws of another jurisdiction. Other than for domestic financing, it is common for parties to a debt transaction to use documentation governed by the laws of New York, England and Wales or another jurisdiction with which the foreign lender(s) or other foreign counterparty(ies) have a connection.

Subject to certain reservations, if a Cayman Island entity enters into loan documentation governed by a foreign law, its obligations under that documentation ‒ which are legal, valid, binding and enforceable under foreign law ‒ will also constitute legal, valid, binding and enforceable obligations under Cayman Islands law.

In the authors’ experience, the terms of bank loan facilities do not vary significantly as a function of the types of investors participating in the transaction.

When entering into a cross-border transaction with a Cayman Islands counterparty, it is necessary to consider whether jurisdiction-specific terms may be appropriate in the transaction documents. Such terms will depend on the type of transaction and collateral, and may include the following.

• Qualifications to representations and warranties: appropriate qualifications may be added to the representations and warranties with respect to matters such as the enforceability of contractual terms (for example, under Cayman Islands law a liquidated damages or default interest clause may not be enforceable to the extent it is considered to be a penalty),the circumstances in which Cayman Islands stamp duty will be payable and the steps that can be taken to “perfect” the priority of any security interests.
• Legal opinion requirements: a requirement may be added that the counterparty procure a legal opinion from Cayman Islands counsel regarding its power and authority to enter into the transaction, the enforceability of the transaction documents, the creation of any security interests and other relevant matters, such as the submission by the counterparty to the jurisdiction of any relevant court in which enforcement proceedings might be brought.
• Perfection of security interests: terms may be added that require the counterparty to take any steps necessary to perfect the priority of security interests over collateral situated in or constituted under the laws of the Cayman Islands, for example, giving notice of a security interest over a limited partnership interest in an exempted limited partnership to the registered office of the partnership.
• Provision of “self help” documents: terms may be added that require a counterparty to provide any “self-help” documents that are customarily provided with respect to certain types of collateral, for example the delivery of an executed but undated share transfer instrument with respect to any shares that are part of the collateral package.

Cayman Islands law does not require a guarantee arrangement to be governed by Cayman Islands law. Except for certain very limited types of collateral, there is also no requirement that any security arrangement be governed by Cayman Islands law. For collateral that is not situated in or constituted under the laws of the Cayman Islands, it is common for transaction parties to use guarantee and security documents governed by the law of the facility agreement or other principal loan document.

The types of security interest that are typically granted under security documents governed by Cayman Islands law include charges (fixed or floating), mortgages (legal or equitable) and security assignments. With respect to any security document, Cayman Islands conflict of law principles will determine the law applicable to priority issues in respect of the security interest created thereunder. The applicable law will depend on the subject matter of the relevant asset subject to the security interest.

If Cayman Islands law is the applicable law, then the transaction parties will need to consider how security interests are “perfected” as to priority. There is no system for perfecting a security interest by means of a notification to, or official filing or recording in, a register in the Cayman Islands, except in the case of security over:

• interests in Cayman Islands exempted limited partnerships;
• interests in Cayman Islands limited liability companies;
• Cayman Islands real estate;
• aircraft registered in the Cayman Islands;
• ships registered in the Cayman Islands; and
• chattels located in the Cayman Islands.

Priority of a security interest over other types of asset will, as a matter of Cayman Islands law, be determined in accordance with common law principles and will depend on the type of property over which security has been granted. For collateral other than property described in the preceding paragraphs, the general principles of priority include the following.

• Secured creditors rank ahead of unsecured creditors, provided that preferred creditors under the Companies Act will rank ahead of other unsecured creditors, uncrystallised floating charges, and in certain limited instances, fixed security. In practice, preferred creditors generally have little impact on the claims of other creditors given the limited nature of preferred debts.
• A legal interest:
1. takes priority over subsequent equitable or legal interests;
2. takes effect subject to any prior fixed equitable interest of which the grantee of such legal interest is aware or which has been perfected under Cayman Islands law; and
3. acquired by a bona fide third party for value and without notice overrides prior equitable interests.
• As between competing equitable interests, the first in time usually prevails, except, most notably, in the following case.
1. It is a floating charge, in which case it will, upon crystallisation, rank after:
1. the rights or interests of any third party (including fixed security interests and rights of set-off and netting) incurred or granted prior to crystallisation, unless such rights or interests are incurred or granted outside the ordinary course of the business of the chargor or the third party concerned has  express notice that a term in the relevant security document restricted or prohibited the incurrence or grant of such right or interest; and
2. any execution or attachment completed or any distress levied before crystallisation.
2. The secured property is a debt or other chose-in-action, in which case priority is dictated (subject to certain exceptions) by the date that notice was given to the relevant obligor in accordance with the rule in Dearle v Hall (1828) 3 Russ 1.
3. A security interest has been perfected under Cayman Islands law, in which case priority is determined by the date of such perfection.
• Security over the shares of a Cayman Islands company will take subject to any lien provisions contained in the articles of association of that company (unless disapplied in accordance with those articles of association).
• The priority as between creditors (whether secured or unsecured) may be varied by agreement among the parties.

Cayman Islands law recognises agent and trustee relationships, therefore there is no need to consider alternative security structures, such as parallel debt structures, to enable the finance parties to appoint a security agent or trustee to hold the security granted under a financing on their behalf.

Certain types of Cayman Islands entities are required by law to maintain a register of mortgages and charges detailing the security granted by it. It is important to note that entry of a security in this register does not determine the priority of that security or perfect the security interest. Failure to keep the register up to date will result in penalties for the directors, managers or officers responsible. Creditors of such company are able to request an inspection of the register of mortgages and charges.

Cayman Islands entities are often interposed at various levels of the borrowing structure, such as in parent guarantor, subsidiary guarantor or security provider roles. It is important to consider whether the Cayman entities constitutional documents contain restrictions or limitations on its ability to borrow, guarantee or provide security. If such restrictions exist, it will be necessary to consider whether the Cayman entity will require consent for the transaction (either from its directors (or similar governing board) or its shareholders (either as a whole or from a specific class) or if it would be appropriate to amend its constitutional documents, which is often a consideration where the Cayman entity will be subject to a charge over its shares.

The Cayman Islands does not have statutory rules which would prohibit a company from providing financial assistance, such as guarantees. However, directors of a Cayman Islands company are bound by their duty to act in the best interests of their company, and so where a Cayman company is providing a guarantee, the corporate benefit for that company must be considered. Similar to English law, where a Cayman company is a parent guaranteeing or providing support for a subsidiary (a down-stream guarantee), there is a presumption that the guarantee will indirectly benefit the parent. More analysis will need to be taken where the guarantee provider is guaranteeing the obligations of a parent (an up-stream guarantee) or another group company (a cross-stream guarantee). The analysis relating to and confirmation of corporate benefit should be clearly addressed in the guarantee provider’s director resolutions. In addition, there should be consideration of whether a shareholder resolution should also be obtained to prevent any shareholders from raising a challenge in the future.

Intercreditor arrangements are common in debt financings involving Cayman entities, however these will rarely be governed by the laws of the Cayman Islands and will usually follow the governing law of the financing documents. The most common methods of documenting intercreditor arrangements seen in the Cayman Islands are standalone subordination deeds or intercreditor deeds, pursuant to which certain creditors agree to contractually subordinate certain claims.

Upon insolvency, the property of a Cayman Islands company is applied to satisfy its liabilities on a pari passu basis. This means that subject to any contractual agreement between creditors, creditors of the same class are treated equally in the distribution of the company's assets. The collection and distribution of a Cayman entity’s assets are without prejudice to secured creditors. Secured creditors are able to enforce any right to be paid as a priority from secured assets (which do not strictly form part of the liquidation estate). The order of priority of payment out of realised assets on insolvency is as follows:

• preferential debts, including certain sums due and payable on behalf of employees, certain taxes due to the Cayman Islands government;
• all unsecured debts (other than those which are subject to subordination or deferral agreements);
• amounts due to any preferred shareholders;
• debts incurred by the company in respect of the redemption or purchase of its own shares; and
• any surplus remaining to the shareholders of the company.

Contractual subordination is recognised by law under Section 140(2) of the Companies Act (as revised) of the Cayman Islands. Under this Section, any agreement between the company and the creditors that contractually subordinates or defers such creditor's claim to the company's assets in favour of the claims of other creditors will be recognised and given effect during the distribution of the company's assets in insolvency.

The options for enforcing security depend on the terms of the security documentation and the nature of the secured asset.

For example, in the context of security over shares by way of an equitable charge, there may be scope for receivership, an express power of sale, taking possession, and/or foreclosure.

Generally, security can be enforced without the need to bring any action in the Grand Court of the Cayman Islands.

However, court assistance may be available for receivership appointments, foreclosure, and stop notices, as well as orders for rectification of the shares register, to assist with enforcement.

Generally, foreign money judgments (and some forms of in personam non-money judgments) are enforceable in the Cayman Islands at common law (and, in the case of judgments from Australia, under the Foreign Judgments Reciprocal Enforcement Act (1996 Revision)).

At common law, a foreign money judgment is enforced by suing on it as if it were a debt. A writ of summons is filed in the Grand Court seeking the amount due under the foreign judgment. Thereafter, the claim follows the standard procedure for debt claims, although claims of this nature are more likely to be suitable for expedited determination through the summary judgment procedure.

The Grand Court will not generally review the substantive merits of the foreign judgment. Generally, defences to enforcement concern issues of procedural fairness or public policy, such as the foreign judgment being obtained by fraud, the foreign court not being competent to issue the judgment (for example, because it lacked jurisdiction under Cayman conflict of laws rules), the foreign judgment being contrary to natural justice, or enforcement being contrary to public policy.

The foreign judgment must also be final and conclusive under the rules of the foreign court. A foreign judgment may be considered final and conclusive even if there is a pending appeal, but each case depends on its facts and a stay pending appeal may be possible.

Once the foreign judgment is recognised and domesticated, it can be enforced by the same means as any other domestic judgment. This can include receiver appointments, charging orders, garnishee proceedings, and writs of sequestration.

Outside of insolvency proceedings, the main rescue and reorganisation procedures in the Cayman Islands are schemes of arrangement and restructuring officer appointments.

A scheme of arrangement is a statutory form of compromise between a company and its creditors (or a class of them) that may be used by a company to restructure its liabilities. Provided that the appropriate class consents are obtained and the scheme is approved by the Grand Court, creditor rights may be adjusted in a variety of ways (for example, by converting debt into equity or otherwise). The design and implementation of the scheme is supervised by the Court and certain aspects, especially the determination of the voting class composition, can be contentious.

The fact that a scheme process is in train does not, in and of itself, impose any moratorium on the enforcement of debt claims against a company. If a moratorium is desirable, a company may apply to the Court for the appointment of restructuring officers. The appointment of restructuring officers may be possible where the Court is satisfied that the company is or is likely to become insolvent and intends to present a compromise or arrangement to its creditors (whether by way of a formal scheme of arrangement or otherwise).

The restructuring officer process gives rise to a moratorium on claims against the company. However, it does not affect the ability of secured creditors to enforce their security.

Once a winding-up order is made in respect of a company, its unsecured creditors generally rank pari passu and must submit their proof of debt in the liquidation, which will be adjudicated by the Official Liquidators (there is a right to appeal the adjudication to the court). The unsecured creditor will then receive their liquidation dividends in due course.

Statute provides for certain (limited) classes of preferred creditors (such as employees) who have priority over the general body of unsecured creditors, but the relevance of such preferred creditors to most Cayman Islands liquidations is negligible. Within the category of unsecured creditors, ordinary or trade creditors (ie, creditors whose debts arise independently of any status they may have as shareholders) have priority over creditors whose debts are derived from their shareholders status (eg, share redemption debts).

Secured creditors fall outside this priority regime. A secured creditor's ability to enforce a fixed charge is unaffected by the commencement of winding up and may be exercised without referring to the official liquidators. Alternatively, a secured creditor may allow the Official Liquidators to realise the secured property and satisfy the secured debt with the proceeds.

Any agreement between the company and any of its creditors that  subordinates or otherwise defers their claims in favour of other creditors will be recognised in insolvency. Contractual set-off and netting (or non-netting) arrangements will also be enforced.

There are certain potential claw-back claims that might be brought by official liquidators under Sections 145-147 of the Companies Act. These concern instances of preferential treatment of creditors (Section 145), fraudulent dispositions at undervalue (Section 146), and fraudulent trading (Section 147).

The Cayman Islands is a tax neutral jurisdiction. Currently, there are no revenue, profit, income or capital taxes imposed under Cayman Islands laws on companies or other entities incorporated or formed in the Cayman Islands, nor on foreign companies or entities that carry on business in, or from within, the Cayman Islands.

There are no exchange controls in the Cayman Islands that prohibit or restrict payments to or from the territory. Additionally, no withholding taxes, deductions or other levies are imposed on payments from Cayman Islands companies or other entities to counterparties outside the territory.

Stamp duty is payable under the Stamp Duty Act (as revised) in respect of any transaction document that is executed and delivered in the Cayman Islands, any original transaction document brought into the Cayman Islands or any stamped transaction document admitted in proceedings before a Cayman Islands court.

There are no notable regulatory considerations in the Cayman Islands that apply exclusively to debt finance transactions. However, parties must  comply with general regulatory requirements, including with respect to sanctions, anti-money laundering and countering the financing of terrorism, and tax reporting (which is aligned with the FATCA and CRS frameworks).

In a debt finance transaction in which the lender is a Cayman Islands entity, it is also necessary to consider whether, by participating in the transaction, the lender must comply with the economic substance requirements under the economic substance framework introduced by the International Tax Co-Operation (Economic Substance) Act (as amended) (the “ES Act”).

Under the ES Act, a “relevant entity” is required to satisfy an economic substance test if the business carried on by that entity is a “relevant activity” as defined in the ES Act. Subject to certain limited exceptions, most entities will qualify as a “relevant entity” within the meaning of the Act. The types of relevant activity listed in the ES Act include “financing and leasing business.” If a Cayman Islands lender enters into a debt financing transaction that constitutes a “financing and leasing business,” the lender must satisfy the relevant economic substance requirements set out in the Act and comply with the associated notification and reporting obligations.

To satisfy the relevant economic substance requirements set out in the Act, a Cayman Islands lender must demonstrate that it conducts “core income generating activities” within the Cayman Islands in relation to its business, is appropriately managed and directed in the Cayman Islands, and has adequate expenditure and presence (staff and facilities) in the Cayman Islands.

There are no issues not already covered elsewhere in this chapter.