According to Section 4 of the Aruba State Ordinance on the Supervision of the Credit System 1998 (SOSC), no enterprise or institution established in Aruba shall pursue the business of a credit institution unless it has obtained authorization to that end from the Central Bank. No enterprise or institution established outside Aruba shall pursue the business of a credit institution through a branch in Aruba, unless it has obtained authorization from the Central Bank to do so (Section 24(1) SOSC).

A “credit institution” under the SOSC means an enterprise or institution, not being an institution established by (an Aruban) State Ordinance, whose business is to receive funds repayable on demand or subject to notice being given, and to grant credits or investments for its own account (Section 1 SOSC). Only companies with an establishment, branch-office or representative office can obtain authorization to pursue the business of a credit institution, i.e. they must have some kind of permanent presence from which the business of a credit institution is pursued.

The SOSC prohibits any natural person or legal entity (other than a registered credit institution) from approaching the public (i) in order to attract funds in the course of his or its occupation or business which funds in total or for each case of separate attraction, respectively, are below an amount to be decided by Ministerial regulation, or (ii) in order to grant credits in the course of his or its occupation or business, or (iii) in order to act as an intermediary in any way in these cases (Section 48(1) SOSC). According to a Ministerial regulation of April 16, 2009, the amount below which it is prohibited to approach the public, either directly or indirectly, for the purpose of attracting funds in the course of one’s occupation or business is Afl. 1 million (approximately US$ 560,000).

Karel Frielink
Attorney (Lawyer) / Partner

(29 November 2011)

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The National Ordinance on the supervision of banking and credit institutions 1994 (Landsverordening toezicht bank- en kredietwezen, the “NOSB”) of both Curacao and St. Maarten prohibits any one (other than a licensed Credit Institution) from – directly or indirectly – soliciting funds from the public or extending credit to the public (art. 45 NOSB).

It should be noted that the Explanatory Memorandum to the NOSB bestows a wide scope on the term “public”, i.e. anyone other than a licensed Credit Institution. The Central Bank of Curacao and St. Maarten may grant individual exemptions from this prohibition. Investment institutions are generally exempted by operation of law.

The NOSB also prohibits anyone from conducting  the business of a credit institution (kredietinstelling) in Curacao or St. Maarten without a license issued by the Central Bank. A credit institution is defined as an enterprise or institution whose business for the greater extent consists of:

• solicitating repayable funds (“deposits”, whether term deposits or deposits which are repayable on demand, whether or not savings deposits, whether or not against the issue of debt instruments) (the “funding side”); and
• granting credit for its own account (the “application side”).  

If for instance a company intends to issue bonds it qualifies as a credit institution.

Karel Frielink
Attorney (Lawyer) / Partner

(17 September 2011)

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The National Ordinance on the Supervision of Investment Institutions and Administrators 2002 (Landsverordening toezicht beleggingsinstellingen en administrateurs, a.k.a. “NOSIIA”) of both Curacao and St. Maarten prohibits raising, or obtaining, pecuniary means or other property for the purpose of participating in an investment institution that has not been granted a license by the Central Bank of Curacao and St. Maarten, and prohibits  offering participating interests in such an investment institution in or from Curacao or St. Maarten respectively.

Investment institutions may be exempted from this prohibition if the moneys or goods to be exchanged for units of an investment institution are solicited or obtained solely from natural persons who, or legal entities which, in pursuit of their occupation or business, deal or invest in investment vehicles, or if the participating interests of an investment institution are offered solely to this category of natural persons and legal entities.

Furthermore, investment institutions offering their participating interests only or also to natural persons and/or legal entities considered by the Central Bank to have comparable skills and competency as the professional (market) operators to form their own balanced opinion about the offer being made, also may in individual cases be exempted from said prohibition.

Karel Frielink
Attorney (Lawyer) / Partner

(7 September 2011)

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Curacaoan special purpose vehicles (SPVs) are commonly used in both cross–border financing transactions as well as in Curacao domestic financing transactions. As far as cross–border transactions are concerned, (synthetic and cash) securitizations, repackagings, collateralized debt obligations (CDOs), collateralized loan obligations (CLOs), leasing transactions, MTN and other note issuance programs are among the most popular transactions involving a Curacao SPV.

There are a number of reasons that make Curacao an attractive jurisdiction in which to set up SPVs in structured financing transactions. The first of these is the favorable Curacaoan tax regime.

Investor considerations also often drive the choice of SPV location. Curacao is a so called associate member of the EU, which makes a Curacao SPV attractive to European investors. Based on domestic regulations in their home country many European investors are precluded from, or restricted when investing in debt instruments issued by vehicles established outside the EU (such as the Cayman Islands and Jersey). Curacao, part of the Kingdom of the Netherlands, is also a member of the OECD. The jurisdiction of residence of the SPV has become an increasingly important issue that may seriously affect the sale of securities to regulated EU investors.

Also seen from a reputational perspective, certain investors are less comfortable with investing in a tax haven SPV than in an SPV incorporated in the EU or an associate member state of the EU.

During recent years Curacao has solidified its reputation as a particularly attractive jurisdiction for setting up securitization vehicles.

Karel Frielink
Attorney (lawyer) / Partner

(24 July 2011)

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The European Court of Justice, in its decision dated 23 December 2009 (Case C‑45/08; Spector Photo Group NV and Chris Van Raemdonck versus Commissie voor het Bank-, Financie- en Assurantiewezen (CBFA)), has clarified the elements of insider dealing following a request from the Court of Appeal of Brussels.

The European Court of Justice was to interpret the expression ‘use of inside information’ in Article 2(1) of EU Directive 2003/6 (the Market Abuse Directive or MAD). That provision provides that the Member States are to prohibit any person referred to in the second subparagraph thereof (a ‘primary insider’) who ‘possesses inside information from using that information by acquiring or disposing of, … for his own account or for the account of a third party, either directly or indirectly, the financial instruments to which that information relates’ or from trying to enter into such a transaction on the market. More precisely, the question is whether it is sufficient, for a transaction to be classed as prohibited insider dealing, that a primary insider in possession of inside information trades on the market in financial instruments to which that information relates or whether it is necessary, in addition, to establish that that person has ‘used’ that information ‘with full knowledge’.

The purpose of the Market Abuse Directive is to protect the integrity of the financial markets and to enhance investor confidence, which is based, in particular, on the assurance that investors will be placed on an equal footing and protected from the misuse of inside information. According to the Court, the MAD defines insider dealing objectively without the intention behind such dealing being referred to explicitly in its definition.

The Court concluded that the prohibition on insider dealing applies where a primary insider who is in possession of inside information takes unfair advantage of the benefit gained from that information by entering into a market transaction in accordance with that information. It is not necessary also to establish that the insider has “used” the information “with full knowledge”.

Karel Frielink
Attorney (Lawyer) / Partner

(30 January 2010)

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Generally, securities that must be held by a Netherlands Antilles bank on behalf of its clients will be held by a custodian. In most cases the custodian is either a foundation (‘stichting’) or a wholly owned subsidiary (NV or BV) of the bank.

The scope of the activities of the custodian will be limited to holding shares, bonds, notes, certificates and other securities. The insolvency risk of the custodian is therefore minimized. Alternatively, these securities can also be held in the name of the custodian by independent custody companies abroad, including brokers, agents and sub-custodians. In both cases, the securities will not form part of the assets of the bank and will not form part of the bank’s estate if the bank becomes bankrupt.

The custody of securities is regulated by a Custody Agreement between the bank and the custodian. Provisions are laid down therein to the effect that the bank guarantees compliance with custody obligations by the custodian in accordance with market practice.

The custodian shall not be responsible for any act, omission, or default of, or for the insolvency of, any broker, agent or sub-custodian provided that it has used reasonable care in the appointment, supervision and control of them.

Karel Frielink
Attorney (Lawyer) / Partner

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IMF: securitization can positively contribute to financial stability and sustainable economic growth

Although recent public opinion has focused on what went wrong with securitization, according to the International Monetary Fund (IMF), it is important to recognize the many benefits associated with sound securitization. Mobilizing illiquid assets and transferring credit risk away from the banking system to a more diversified set of holders continues to be an important objective of securitization, and the structuring technology in which different tranches are sold to various investors is meant to help to more finely tailor the distribution of risks and returns to potential end investors (click here or here for information on securitization in the Netherlands Antilles).

In Chapter II of its Global Financial Stability Report, ‘Restarting Securitization Markets: Policy Proposals and Pitfalls‘, the IMF makes the case that restarting private-label securitization markets, especially in the United States, is critical to limiting the real sector fallout from the credit crisis amid financial sector deleveraging pressures.

According to the IMF key policies should include:

• Authorities should continue to press for the minimization of incentives and rewards for rating shopping and ratings-related regulatory arbitrage, recognizing that credit rating agencies will continue to play a key role in the securitization process
• Disclosure and transparency standards should be improved along the intermediation chain
• Securitizer compensation should be better linked to the longer-term performance of the securitized assets, and recent changes to accounting standards go a long way toward this goal
• Securitization products should be simplified and standardized to the extent possible to improve liquidity and reduce valuation challenges

This approach of the IMF seems to make sense, provided the right balance can be found between allowing financial intermediaries to benefit from securitization and protecting the financial system from instability that may arise if the origination and monitoring of loans is not based on sound principles. Instead of making a lot of noise or just increasing regulation because the public opinion so demands, regulators should actually change the rules of the game in a sane direction to reduce risks as much as possible.

Karel Frielink
Attorney (Lawyer) / Partner

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In a parallel debt structure, a company (the borrower) acknowledges a debt to an appointed agent by promising to pay the agent an amount equal to the sum of the borrower’s obligations under the (syndicated) loan agreement with the lenders. Thus an independent, parallel debt is created between the borrower and the agent for which it is (further) agreed that this debt (not only becomes due and payable but also) will be considered paid and discharged at the same time and to the same extent as the underlying loans so that (of course) the borrower cannot be forced to pay the same debt twice. The parallel debt, for which the borrower grants the agent security, is incorporated in the credit agreement. The role of the agent is to hold security for the loan on trust for the lenders, the beneficiaries.

In (international) legal literature some authors have expressed doubts with respect to the legal validity of arrangements such as these, based for instance on the view that a contract should have a causa propria (proper cause) in order to be valid. This means that any party assuming a contractual obligation must have some purpose or interest in doing so. These authors doubt if according to this legal concept the acknowledgement of parallel debt is legally sound.

Although as of yet no case law is available regarding parallel debt structures, it is generally assumed that, unlike some other (civil law) jurisdictions, such (contractual) arrangements are legally valid under Dutch Caribbean law. This offers several possibilities and advantages. When parties opt for such an arrangement under Dutch Caribbean law, there is, for instance, no need to re-register security upon the transfer of loan participation. In some other jurisdictions parallel debt arrangements are not recognized and any loan transfer in these jurisdictions is likely to require re-registration of the mortgage or other security in the name of the new lender(s), requiring the payment of further registration costs and notarial fees.

Dutch Caribbean Law is very flexible with respect to structuring transactions and provides for many (statutory and contractual) options and arrangements.

Karel Frielink / Ursus van Bemmelen
Dutch Antilles Attorneys / Lawyers

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Any Notes (including rights representing an interest in a Note in global form) that are offered as part of their initial distribution or by way of a re-offering in the Netherlands Antilles, shall, in order to comply with the Netherlands Antilles National Ordinance on the supervision of banking and credit institutions 1994, only be offered, sold, transferred or delivered in the Netherlands Antilles to credit institutions licensed in accordance with the Ordinance or that are in possession of an individual exemption granted by the Central Bank of the Netherlands Antilles.

Insofar as services and/or products that are offered through electronic media are concerned, the rules of the Netherlands Antilles National Ordinance on Electronic Agreements must be complied with, i.e., specific information regarding the services and identity of the provider of the services must be stated. As far as unsolicited offers are concerned, those receiving such unsolicited information should be offered the possibility to object to future provision of suchlike information to them.

Karel Frielink
Attorney (Lawyer) / Partner

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From a legal point of view, establishing a fund in Curaçao is very attractive under the corporate law in force since March 1, 2004, whereby a private limited liability company (besloten vennootschap) can be established very quickly and flexibly. Virtually everything is possible with this new legal entity. There is no minimum issued share capital requirement. Incorporation may be done within a day does not require any prior governmental approval. It is possible to split voting rights and dividend rights. There is no statutory requirement to have shares with a par value. The set up and maintenance costs of a private limited liability company are low. There is no annual government fee, only a one time fee for incorporation (US$ 175, incorporated in the notary’s fee) and an annual subscription fee for the chamber of commerce. The articles of association may be in Dutch, English, Spanish or Papiamentu. Other languages are also allowed, as long as the public notary understands it.

There is no requirement from the point of view of corporate law for a fund to have any employees and it may have a single managing director (which may even be a corporate entity) who may be domiciled in the Netherlands Antilles or elsewhere, provided that the fund performs its business outside the Netherlands Antilles. There are no specific statutory formalities to comply with concerning meetings of the board of managing directors (or board of supervisory directors). There are for instance no statutory regulations regarding the location of board meetings.

Transaction documentation does not have to be governed by Netherlands Antilles law and can be governed by any law. Moreover, (transaction) documents, including articles of association, can be drafted and filed in almost every language. Furthermore, there are no regulatory restrictions on commercial terms (including performance and other fee arrangements). Some people consider the civil law system of Curaçao as a weak link because of its differences to common law to which certain investors are used. However, civil law produces a more stable environment and more predictable rulings.

Often misunderstood, Curacao’s Civil Legal system can offer advantages over other established (Common Law) legislative frameworks as it provides a greater degree of stability and predictability through established legislation and a fixed ruling environment, as opposed to evolving jurisprudence. Curaçao forms an integral part of a larger whole, The Kingdom of the Netherlands and the European Union, providing a greater degree of comfort to investors in contrast to independent territories.

Investor considerations also often drive the fund location. The Netherlands Antilles is a so called associate member of the EU, which makes a Netherlands Antilles fund attractive to European investors. The Netherlands Antilles are also a member of the OECD. The jurisdiction of residence of a fund has become an increasingly important issue that may seriously affect the sale of securities to regulated EU investors. Also, from a reputational perspective, certain investors are less comfortable with investing in a tax haven fund than in a fund incorporated in the EU or an associate member state of the EU.

A current regulatory regime (National Ordinance Supervision of Investment Institutions and Administrators, National Ordinance Supervision of Trust Companies and new anti-money laundering rules) provides for comfort to investors and Curaçao is not listed on any blacklist (OECD, FATF). The regulatory regime focuses on full and transparent disclosure, both in the offering documentation and towards the regulatory authority. This enables prospective investors to take a well informed decision on whether or not to invest.

Karel Frielink
Attorney (Lawyer) / Partner

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