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In January 2026, The Legal Services Act 2020 (LSA) came into effect. Section 24 of the LSA ostensibly protects Caymanians and Cayman businesses from the unauthorized practice of law, with hefty fines and potential prison terms for violators. The problem? The definition of legal services was so broad as to (arguably) include foreign attorneys, including US lawyers, who regularly assist with cross-border disputes between the US and Cayman Islands. The concern was so great that clarifications were implemented during a transitionary period that ended on July 1, 2026.

Thankfully, amendments to the LSA now allow for traditional cross-border legal dispute activities, including the preparation of evidence by foreign lawyers if instructed by Cayman counsel; assistance by foreign lawyers with the preparation of Cayman legal documents provided the foreign lawyers do not hold themselves out as practicing Cayman law; and an exclusion from the LSA for foreign lawyer participation in arbitrations, even if seated in the Cayman Islands. In short, the LSA now accomplishes its mandate to modernize and protect the Cayman legal system without trampling on the legitimate needs of litigants to retain foreign counsel in complex cross-border disputes.

Sablone Advisory has decades of experience “at the intersection of law and finance,” specifically handling complex cross-border private funds and corporate disputes that implicate both US and offshore law. Give us a call, drop us a note, or stop by to hear how Sablone Advisory can help.

The Aquapoint decision issued by the Privy Council flew under the radar but could signal a sea change in the way Commonwealth courts interpret contract terms and fund agreements. 

In summary, the case addresses redemption rights in a Cayman Islands Exempted Limited Partnership (ELP). One of the Limited Partners claimed that, prior to entering into the ELP, he was assured by the General Partner that he could withdraw ten percent of his shares after a certain point. This oral assurance contradicted the ELP’s (customary) terms which give the General Partner complete discretion over withdrawals. The ELP documents also included the usual integration clause disclaiming all prior agreements and assurances and stating the parties may only rely upon the written terms of the fund documents.

Those of us who regularly address extra-contractual statements under US and UK (Commonwealth) law know that it is far more likely that US courts will allow parol evidence as to the terms of an agreement in the presence of an integration clause; Commonwealth courts, however, typically treat contracts as ironclad and hold parties to the express written terms, usually eschewing equitable principles and rarely holding that pre-contract behavior can alter written contract terms.

Thus, it was surprising that the Privy Council allowed a just and equitable winding-up of the ELP in Aquapoint based upon prior oral assurances stating “[i]t may well be that, as a matter of contract law, the entire agreement clauses prevented [the LP]  from placing reliance on the assurances … [c]ontractual provisions of this sort are highly relevant to the issue whether those considerations do come into play, but they are not decisive.” (emphasis added)

Does this decision herald a new openness to overriding express terms in favor of equitable considerations for investment funds structured as ELP’s in The Cayman Islands and other offshore jurisdictions? Only time will tell, but it is worth keeping an eye on this developing area of Commonwealth Law. In the meantime, fund managers should be extra cautious regarding assurances that are not reflected in the fund documents and retain legal counsel who understand the legal and equitable principles of investment fund vehicles both on- and offshore.

Sablone Advisory has decades of experience “at the intersection of law and finance,” specifically handling cross-border private funds disputes that implicate both US and UK Law. Give us a call, drop us a note, or stop by to hear how Sablone Advisory can help.

Posts about legal use of AI usually recite instances of lawyers utilizing AI to draft briefs that contain fake citations thus landing said lawyers in a heap of trouble as judges tend to frown about such chicanery. Last month, however, Judge Rakoff, of the United States District Court for Southern District of New York, issued a much more topical decision on attorney/client privilege and AI which has not received nearly enough attention.

The quick facts are that the target of a criminal investigation queried an AI engine (Anthropic’s “Claude” in this case) regarding possible defenses and then shared the generated strategies with his attorney. The government sought production of the AI content, and the defendant resisted on the grounds of attorney/client privilege and work product doctrine. Judge Rakoff rejected both arguments and ordered the materials to be produced to the government. While addressing three prongs of the privilege analysis, the most far-reaching portion of Judge Rakoff’s reasoning was finding a lack of confidentiality as explicitly stated in Anthropic's terms of service.

While this case addressed the use of a public AI tool by the client, the reasoning applies to attorneys in equal measure. Extending this analysis, a lawyer who allows a public AI tool to ingest privileged material to generate work product would forfeit the privilege due to the lack of confidentiality as specifically detailed in the terms of service (which even lawyers never read). This is not a new problem. I authored a piece for the American Law Journal in 2013 titled “Partly Cloudy with a Chance of Sanctions” highlighting the risk of utilizing insecure cloud providers to store client data. The new AI tools magnify the risk of privilege waiver exponentially, however.

What can you do to prevent an intentional waiver that might result in losing a case, malpractice, sanctions, or even disciplinary action?

Lawyers: Exercise extreme caution using any technology into which privileged or confidential material is exposed. Do not use public AI tools to analyze privileged material. If utilizing AI, subscribe to safe platforms where the terms of service specifically protect the confidentiality of the material. Utilize best practices and obtain client consent to using AI safely and appropriately.

Clients: Do not expose confidential material to any AI tool without first seeking advice from counsel. Approach the use of AI as you would any web tool (such as Google) and assume that it might have to be produced in litigation absent explicit legal advice. Proactively query counsel as to their use of AI and ensure that the legal team, if using AI, is doing so on a secure private platform.

Sablone Advisory has decades of experience representing clients in the eDiscovery and data space. Give us a call, drop us a note, or stop by to learn how Sablone Advisory can help navigate the complex and ever-evolving interplay between technology and law.

CNBC reported that Blackstone has restricted withdrawals from its flagship Blackstone Private Credit Fund (BCRED) after redemption requests hit 10% in Q2. Even more disturbing is that Switzerland's Partners Group is restricting redemptions from one of its European private equity vehicles. Partners warned that withdrawals are spreading (contagion?) from private credit to private equity.

Our view is that this is a natural consequence of investors valuing liquidity over returns in the current market. We saw a related phenomenon when we handled Madoff claims for institutional investors. At the time, nobody knew Madoff was running a Ponzi scheme; rather, investors viewed their position as a liquidity hedge against closed private funds. It was only after mass redemption requests meant to cover cash needs caused by other, non-performing or illiquid, assets that Madoff's scheme unraveled. In such an environment, even well-run, high-performing funds can become infected precisely because they provide a cash reserve that investors seek to draw down during a liquidity crunch creating a "run on the bank" cascade.

Sablone Advisory is monitoring the market closely and has decades of experience “at the intersection of law and finance.” Take advantage of the lessons we learned representing institutional investors, fund managers, liquidators, investment banks, insurance companies, and high net worth individuals during the credit crisis. Give us a call, drop us a note, or stop by to hear how Sablone Advisory can help.

Finance markets are abuzz with the creation of a new credit default swap (“CDS”) product to hedge against private credit losses.

Veterans of the 2008 credit crisis may recall that CDS were originally used to “insure” against defaults in the bond market. Typically, bond purchasers would hedge against default by utilizing a limited amount of CDS to protect them against losses. Smart traders soon realized that they could purchase so-called “naked” CDS, meaning they purchased CDS without holding the underlying bonds of the reference entity. This meant that investors could profit from a bond default of a private or public entity. Voila! A back-door method to short the bond market was created and the popularity of CDS exploded.

Instability in the private credit markets has caused many of the major private credit funds to limit or freeze redemptions (see earlier posts). It is not surprising, then, that large investment banks, such as JP Morgan Chase, are working with S&P Global to launch an index of CDS funds that include Apollo, Ares, and Blackstone as reference entities. These index funds will serve not only as a hedge for private credit investors, but as a mechanism for investors to bet against private credit. This could result in a bevy of investors looking to short private credit through the purchase of these index funds, potentially fomenting the collapse of some private credit funds by spooking existing investors, thus leading to a wave of redemption requests.

What can you do?

If you are a private credit investor, consider whether a hedge against private credit positions is appropriate, especially where your redemption rights have been suspended or limited by the fund. Review the specific terms of any index fund to determine whether it will provide a commercially reasonable hedge against your position.

If you are a private credit manager, take note that Wall Street is creating a product that bets on your failure. This can become a self-fulfilling prophecy in the financial marketplace, so take proactive steps to stem investor revolts, free-up liquidity, and communicate with investors in a collaborative fashion to meet their needs and find common solutions.

Both managers and investors should consider retaining qualified counsel to review CDS terms, fund documents, management contracts, and side letters to determine rights and create a plan to address market turmoil. Sablone Advisory has decades of experience “at the intersection of law and finance.” Take advantage of the lessons we learned representing CDS providers and investors during the credit crisis. Give us a call, drop us a note, or stop by to hear how Sablone Advisory can help.

With geopolitical events dominating the news cycle, many of us may have missed warning signs. The Cliffwater Notes (pun intended) version:

• Cracks are forming in the massive private credit markets

• Cliffwater invoked its cap on redemptions this month, cashing out only 50% of requests.

• Black Rock and Morgan Stanley also invoked caps on redemptions.

• Blackstone’s credit fund recorded its first ever net withdrawal (redemptions outpacing deposits).
  

The turmoil in private credit can quickly spread to other asset classes as investors seek liquidity from even well-performing investments and (as the WSJ notes) credit funds redeem their own investments (such as in CLOs) to provide cash for redeeming investors. This is all eerily reminiscent of the 2008 credit crisis when a downward spiral of investor need for liquidity from asset classes with non-liquid positions created droves of so-called Zombie Funds with marked value but no actual market or liquidity.

What can you do?

If you are an investor, review your documents now to determine all of your rights. These may include not only redemption opportunities but also transparency, management, and even removal rights that may be leveraged to improve liquidity. Determine which is more important – immediate liquidity or long-term gain and then make a plan to meet your needs.

If you are a manager, take proactive steps to stem investor revolts and get ahead of any wave. Provide liquidity above contractual obligations where it can be done responsibly. Consider giving up certain control or providing additional transparency in exchange for reduced redemption rights. Communicate and work with investors in a collaborative fashion to meet their needs and find common solutions.

Both managers and investors should consider retaining qualified counsel to review fund documents, management contracts, and side letters to determine rights and create a plan to address market turmoil. Sablone Advisory has decades of experience “at the intersection of law and finance.” Take advantage of the lessons we learned representing institutional investors, fund managers, liquidators, investment banks, insurance companies, and high net worth individuals during the credit crisis. Give us a call, drop us a note, or stop by to hear how Sablone Advisory can help.

Update: Ares Management and Apollo Global Management both had to limit redemptions this week in their private credit funds.

CNBC (March 25): "Comparisons to the build-up to the 2008 Global Financial Crisis are now intensifying as concerns over underlying loan quality grow."

Forbes (March 24) : "The private credit mess we've been talking about lately has raised a question no one wants to ask: Is 2026 shaping up to be another 2008?"

Sablone Advisory (March 18): "This is all eerily reminiscent of the 2008 credit crisis ..."

Beware tensions arising from layered rounds of PE/VC capital in startups. The problem is not new, namely that raising progressive rounds of capital over time results in varying rights in liquidity, preferred equity structures, and control among private investment funds, resulting in ever more complex cap tables. The new wrinkle is the increase in durational risk associated with IPO or M&A activities for many startups. As the exit timeline for investors stretches, additional capital raises become necessary, thus layering the cap table with ever more complexity and conflicting agendas. Ironically, the problem is most acute in successful startups that have a good product, a strong sales record, and a bright future. While this issue has recently been highlighted in the AI startup space, it can affect companies in any industry.

How to manage the so-called “cap table tensions?”

For startups/founders: Approach capital raising in a deliberate manner. When desperate for an operational runway, it is enticing to take the most cash at the soonest moment. Consider the terms, especially control and preferred equity rights, carefully and weigh them against the company’s needs. The best deal may be one that gives you long-term flexibility rather than short-term gain. Rebalance these considerations at each capital raise iteration.

For private investment funds: Consider not just your investment in the company, and the rights for which you bargain, but also the obligations of the company to previous stakeholders and potential future round investors. This may sound elementary, but simply bargaining for preferred rights does not erase the tensions that will impact the investment when it is time to exit. As in any investment, contractual rights do not always mitigate real world conflicts that can negatively impact value and liquidity over time.

Both founders and private investment funds should retain qualified counsel, not just to close deals, but also to monitor the structure of the investment and provide advice as to the rights and obligations of the growing number of stakeholders as they evolve over time.

Sablone Advisory has decades of experience representing private investment funds and startups “at the intersection of law and finance.” Give us a call, drop us a note, or stop by to hear how Sablone Advisory can help navigate this complex investment structure.

Global insolvency professionals have long utilized the US Bankruptcy Code’s Chapter 15 to obtain discovery and bring affirmative actions in the United States. As a quick primer, Chapter 15 governs cross-border bankruptcy matters and creates a mechanism for US courts to recognize foreign insolvency proceedings. Once a Chapter 15 Petition is properly filed and recognized, the full toolbox of US bankruptcy and litigation procedures are made available to the foreign representative (typically a liquidator or trustee).

A split has developed among US federal courts of appeal as to whether the bankruptcy code’s general jurisdictional requirement, that the foreign debtor have a domicile, place of business, or property in the United States, applies to Chapter 15. The Second Circuit (New York) says yes. The Eleventh Circuit (Florida) says no. Last month, the US District Court for the Southern District of Texas (Houston) chimed-in and followed the Second Circuit’s lead. In re Siu-Fung Ceramics Holdings Limited and SF Siegfried Lee, Case No. 24-33299 (Bankr. S.D. Tex. Feb 10, 2026) denied Chapter 15 recognition because the debtor did not have a domicile, place of business, or property in the United States. This sets up a potential appeal to the Fifth Circuit (Texas) which might ultimately result in the US Supreme Court having to adjudicate the split between the federal circuits.

Why this Matters: If you are a foreign insolvency professional, liquidator, or trustee, make sure you know the rules in the jurisdiction in which you file for Chapter 15 recognition. Even in the circuits that require a domicile, place of business, or property, it is a relatively low bar to clear. For example, a debtor who has transferred assets to a US bank account likely holds “property” in the US, thus satisfying the stricter jurisdictional requirements. Even this low bar requires proper evidence and pleading, however.

Alternate Mechanism: If you are a foreign insolvency professional and need discovery or testimony from US entities, consider utilizing 28 U.S.C. §1782 which allows for discovery in aid of foreign proceedings without the need for a Chapter 15 Petition.

How We Can Help: Sablone Advisory has decades of experience representing offshore liquidators and other insolvency professionals in Chapter 15 and Section 1782 actions in the United States. Give us a call, drop us a note, or stop by to hear how Sablone Advisory can help advance your foreign insolvency with the proper legal action in the United States.