While 2022 began with renewed hope as the world began to bounce back after two unprecedented years of upheaval, it took just a few short weeks for that bubble to burst, with Russia’s invasion of Ukraine shaking the markets and raising the spectre of a global recession.
However, law firms throughout the Cayman Islands (Cayman), the British Virgin Islands (BVI) and Bermuda have risen to the challenge, enjoying a year of growth and landmark transactions.
‘Storm clouds are beginning to gather, but we have seen a notable uptick in distressed scenarios where a credit crunch is causing companies to seek urgent legal advice,’ states William Peake, newly-elected global managing partner of Harneys.
Insurance policies
Caribbean law firms demonstrated their resilience throughout the pandemic, and they have continued to thrive in unrelentingly challenging markets for businesses. ‘Although activity was lower this past year, the case for offshore structures in all sectors remains strong,’ states Christian Luthi, chair of Conyers. ‘Demand, in particular by multinational groups, institutional investors and private equity, remains robust.’ Brad Adderley, managing partner of Appleby’s Bermuda office, agrees: ‘It’s been a busy year – a very good year.’
‘Storm clouds are beginning to gather, but we have seen a notable uptick in distressed scenarios where a credit crunch is causing companies to seek urgent legal advice.’
William Peake, Harneys
Jonathan Green, global managing partner of Maples Group, says: ‘With the pressures in the markets, we are seeing capital being allocated towards private equity funds and longer-term opportunities, and have seen some significant fund raises in recent times.’
The insurance sector has stood out as a notable area of activity, with firms reporting strong years for their practices throughout all the Caribbean jurisdictions. Adderley highlights how Bermuda’s position as a leading insurance and reinsurance location has benefited firms active in the jurisdiction: ‘The insurance and reinsurance industries have been very vibrant and active. From new formations to interesting products to renewals, catastrophe bonds to other insurance-linked securities, we really can’t complain.’
Luthi concurs: ‘Insurance work is particularly strong for both the Bermuda and Cayman offices. As insurance rates have hardened, we’ve seen renewed interest in captives. Some of our larger groups are looking at how they can structure their affairs to take on some of that risk and lower the impact of very high rates.’
Recent highlights for firms in the insurance space include Conyers acting for Athene Holding on the reorganisation of its Bermuda subsidiaries following Apollo Global Management’s $7.2bn acquisition of a 65% stake in Athene, and Appleby acting as Bermuda counsel to Integral ILS on its increase of total investor commitments to over $1.4bn.
The strength of the insurance sector over the last 12 months has also led to new areas of work in the market, as Adderley comments: ‘The active insurance market has led to more insurtech, which has been great, which has in turn led to more general technology companies, including crypto companies, bringing work.’
Practices in the spotlight
The Caribbean has been at the centre of the crypto storm in 2022 with the collapse of the cryptocurrency exchange FTX drawing attention to the Bahamas and the region more generally. In the offshore world, Bermuda has led the way on crypto regulations for the last few years. Adderley notes: ‘Bermuda is one of the few jurisdictions which has proper regulation for crypto companies and, for crypto businesses doing insurance work of some sort, it is a natural place to be.’
The BVI has also seen its fair share of crypto-related work, particularly a recent spate of crypto fund registrations, with the BVI Financial Services Commission creating the Virtual Asset Service Providers (VASP) Act, which requires all BVI-registered VASP entities to comply with the jurisdiction’s anti-money laundering, counter-terrorist financing and anti-proliferation finance legislation, collectively known as the BVI AML regulations. Tanya Cassie-Parker, managing partner of Harneys’ BVI office, highlights the team’s work handling the first BVI freezing order against hackers concerning crypto fraud. This move reflects the team’s observations that the market is seeing an increase in contentious crypto mandates and digital asset tracing work.
‘We are seeing many investors and managers looking beyond the near term and focusing on the challenges of addressing longer-term environmental and social changes.’
Jonathan Green, Maples Group
While M&A transactions and capital markets work have slowed in comparison to previous years, the market has still seen some stand-out work, particularly connected to restructuring mandates. Firms in Cayman have also adapted to the new restructuring regime, which came into force in mid-2022, which aimed to streamline restructuring processes by introducing the restructuring officer role to the system, allowing companies to avoid the islands’ liquidation framework being invoked.
Examples of recent transactional, capital markets and restructuring work include Conyers assisting Teekay with its internal restructuring to facilitate the $6.2bn merger of Teekay LNG Partners with investment vehicles managed by Stonepeak Infrastructure Partners, and the firm’s work advising Digicel Group Holdings on its $1.6bn sale of Digicel Pacific to Telstra. On the capital markets front, Harneys has been notably active, advising KE Holdings on its dual primary listing of class A ordinary shares on the Hong Kong Stock Exchange (HKSE) and acting as Cayman counsel for the Zibuyu Group on its Hong Kong IPO.
In the transactional space, real estate work has picked up following the return of tourists to the region. Peake comments: ‘On the M&A front, we have seen a revival of interest in sectors which were badly impacted by the pandemic such as leisure and tourism, with buyers sensing that, even in an inflated market, there is value in assets that have not rebounded to pre-pandemic levels.’ One example saw Appleby recently advising Lacovia strata on a redevelopment project in Cayman comprising 100 new condominiums and assisted with the development of ONE|GT, a first-of-its kind development in the Cayman capital.
At the other end of the property spectrum, firms have also felt the impact of the property crash in China with all firms reporting increases in work stemming from the region. ‘There has been a marked increase in pre-insolvency restructuring advisory work, particularly in relation to debt issued by China real estate companies, many of which are Cayman incorporated vehicles listed on the HKSE,’ states Peake. ‘This growth is a direct consequence of the well-publicised distress in the China property market.’ As an example, Harneys recently acted as BVI and Cayman counsel to Kaisa Group Holdings on its $2.77bn debt restructuring via schemes of arrangement in Cayman and Hong Kong, as well as Chapter 15 US bankruptcy recognition. The firm also advised a group of debt holders in property developer Evergrande Group on potential enforcement action and a possible debt restructuring package.
‘The insurance and reinsurance industries have been very vibrant and active. From new formations to interesting products to renewals, catastrophe bonds to other insurance-linked securities, we really can’t complain.’
Brad Adderley, Appleby
Other international trends have also had an impact on the Caribbean market; the fallout from the Ukraine war can be seen in workstreams, in which clients have had to adapt to new sanctions and the increasing international pressure to drop Russian clients. ‘Russia sanctions affected offshore markets quite significantly and we’ve now all become quite expert on sanctions analyses,’ states Luthi. ‘There were significant questions around assets – especially during restructuring deals – regarding whether they were “good” or “bad” assets that have been frozen. Resolving these issues will occupy professional time for many years in the Caribbean, especially given the number of Russian interests involved in structures in the BVI.’ Private client and regulatory teams have been dealing with the repercussions of sanctions against Russian individuals and assets, and Ogier’s Cayman team has advised a large number of investment funds, investment managers, fund administrators and other financial service providers on the Russian sanctions.
Regulatory concerns also remain a constant in the offshore world, with new legislation serving as an ever-present element of all work handled by firms throughout the Caribbean. As Nick Hoffman, managing partner of Harneys’ Cayman office remarks: ‘The same global headwinds that were present in 2022 will be evident in 2023. Continual pressures on the offshore market through increased scrutiny and regulation are not going away.’ This was evident in early 2022 when Cayman was added to the EU’s anti-money laundering blacklist, a list of countries deemed high risk under the AML Directive, which saw a flow of CLO work out of Cayman to other jurisdictions, and can also be seen in the increasing focus on crypto legislation. Consequently, firms have been expanding their expertise in this area in line with this demand and several teams have seen notable expansion through recruitment and partner promotions.
Maples’ Green points to the Cayman Islands, Delaware and Jersey finance teams supporting the first CLO migrations to Jersey. Another first-of-its kind deal saw the Cayman Islands and BVI corporate teams advise on the first Middle East unicorn company to trade on NASDAQ. Led by Chris Newton, a corporate partner based in the firm’s BVI office, the transaction resulted in a business combination with Queen’s Gambit Growth, a Cayman Islands special purpose acquisition company founded and led entirely by women.
Remote control
While law firms have had a successful year, questions remain around the shift in work practices stemming from the pandemic. ‘Do any of us think the workplace is ever going back to what it was?’ asks Adderley. ‘Are we ever going to get back to a 9-5, suit and tie community where everyone’s going to work and everyone’s commuting? I personally don’t think so.’ Firms across the region have taken differing approaches to the ‘new normal’, ranging from mandated office working, to hybrid working and working from home models.
‘Russia sanctions affected offshore markets quite significantly and we’ve now all become quite expert on sanctions analyses.’
Christian Luthi, Conyers
Adderley continues: ‘I like to take the view that if you had a good year during Covid when you didn’t actually see each other every day, why do I now have to treat someone differently as a result of the “now we can get back to the office” mentality?’ Adderley also questions the value of office spaces and their necessity in the future: ‘Does someone need to have a new office when you’re not in the office every day and do you want that expense, to have a proper bricks and mortar office compared to something else which can be smaller, more efficient and more modern, which maybe helps the culture?’
Navigating this new need for flexible working with business culture and employee connection is a tricky balancing act. Adderley notes: ‘I think we all agree that loyalty to your employer, or loyalty generally, is not as high as it used to be in the past. If you don’t see your boss, or you’re not in the office, does that mean people are more likely to change jobs, as you don’t really associate yourself as a member of a group?’
The issue is further compounded by the impact of the pandemic on the ability of firms to attract lawyers to the region. As Luthi states: ‘One of the new challenges for offshore firms is attracting staff to the region and retaining those that do move. In BVI and Cayman, where the lawyers are largely expats, it became a big issue that the pandemic led to fewer flights and made it harder for people to see family. Flight options are still down, especially in BVI, and that has definitely been a challenge for recruiting.’
The offshore world does, however, remain a highly competitive field and a challenging one for those who haven’t futureproofed, as Luthi points out: ‘There is significant competition in the space – those firms that have over-extended or paid too much for talent will no doubt suffer. It’s also likely the smaller firms will struggle.’
Easy as ESG
Elsewhere, diversity and ESG are increasingly hot topics and, as boardrooms focus more and more on governance initiatives, Caribbean firms are adapting their advice to the global stage. ‘Simply put, a law firm cannot succeed as an echo chamber,’ states Peake. ‘A coterie of “yes people” is dangerous to any business. Clients demand more than just top-class lawyering; that is a given. They demand ingenuity and initiative, and diversity drives [are] responses to those needs.’
Luthi adds, ‘As is often the case, once an idea gains currency, companies can’t afford to ignore it, even if the hard regulatory requirements aren’t there yet. If you’re in extraction, energy, shipping or aircraft, you absolutely have to grapple with the ‘environmental’ part of ESG. In terms of the social and governance pieces, we’ve been developing our ability to serve our clients on other soft regulatory and policy issues.’
‘The same global headwinds that were present in 2022 will be evident in 2023. Continual pressures on the offshore market through increased scrutiny and regulation are not going away.’
Nick Hoffman, Harneys
Green notes: ‘We are seeing many investors and managers looking beyond the near term and focusing on the challenges of addressing longer-term environmental and social changes. We are proud to work with a broad range of clients who are directing private capital towards sustainable and ESG-focused initiatives to mitigate these types of issues.’ Green points to a number of ESG-related mandates, including Maples’ Japanese fund practice, led by funds and investment management partner Nick Harrold providing Cayman Islands counsel to longstanding client, CFIM, on the launch of a new green fund in Japan. The publicly offered fund enables retail investors to obtain a broad and diversified exposure to global assets, and the ability to participate in the financing of projects that contribute towards climate change and promote sustainable infrastructure.
Beyond the world of legal policy and advice, firms are also increasingly having to adapt their own practices to live up to the ESG expectations of the market and the workforce alongside the new working practices stemming from the pandemic. According to Adderley, the two are inextricably linked: ‘Working from home and the flexibility that allows directly addresses ESG. I would find it disingenuous to, on the one hand, be saying I believe you should be in the office 24/7, five days a week and working on the weekend, but on the other to say I’m also ESG-friendly.’
Looking into 2023, the ability to adapt remains a key challenge for offshore firms. Says Peake: ‘We are excited about the year ahead. There’s a certain amount of hubris attached to predicting trends accurately and, to some extent, the key is adaptation, which takes so many forms in a global firm.’ Luthi agrees: ‘The year ahead will be one of caution. After two years of Covid, we were all budgeting quite aggressively for 2022 but that was set back by the war and unanticipated high rates of inflation. However, we still have our strategic objectives, and commercial and political changes could be a very positive development.’ LB