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12 November 2020
Cayman Islands vehicles which are considering termination may wish to initiate the process now to minimise or eliminate 2021 annual fees. This article contemplates corporate vehicles, but similar considerations apply to partnerships.
The first process available to terminate a vehicle is a voluntary liquidation. Once a vehicle has been dissolved using this process, it cannot be reinstated. Terminating entities can avoid paying 2021 government fees to the Registrar of Companies (ROC) if the vehicle's final general meeting and all ROC filings have been made by the end of January 2021. In order to meet this deadline, the voluntary liquidation process should be commenced in early December 2020 at the latest to allow sufficient time to meet the various statutory notice periods. Of course, it is always preferable to begin the process as soon as possible. Fees for local services providers, such as registered office fees, may still be due until the vehicle is finally dissolved.
If there is sensitivity in ensuring dissolution is completed prior to year-end (ie, so that the vehicle will not exist in 2021), there is now some urgency in commencing a formal voluntary liquidation.
The second process available is a strike-off. A strike-off is a more cost-effective and less time-consuming option but has the downside that it can be undone for a period of 10 years after the strike-off date at the initiation of any member or creditor aggrieved by the strike-off. For this reason, this option is not normally recommended where the entity in question has taken in external investors and/or traded.
If a strike-off is a viable option, all relevant materials must be filed before 31 December 2020 to avoid 2021 ROC fees. Fees for local services providers, such as registered office fees, may still be due until the entity is finally struck off. To strike off a vehicle prior to year-end (ie, so that it will not exist in 2021), all relevant materials must generally be filed by 12 November 2020.
Terminating Cayman entities that are registered with the Cayman Islands Monetary Authority (CIMA) as either mutual or private funds can also save on 2021 annual fees due to CIMA, other regulatory filing fees and obligations and the risk of incurring an administrative fine if they move quickly. For regulated mutual funds, there are two options available to do this:
While CIMA has yet to release formal policies and procedures in connection with the deregistration of private funds, broadly similar processes are likely to apply.
With the recent implementation of the Monetary Authority (Administrative Fines) (Amendment) Regulations 2020, CIMA may impose administrative fines upon individuals and entities licensed and/or regulated in the Cayman Islands which are in breach of certain prescribed regulatory laws, including the Mutual Funds Law (Revised) and regulations and rules issued thereunder, such as the Rule on the Cancellation of a Certificate of Registration of a Regulated Mutual Fund. Breaches are categorised in the Monetary Authority (Administrative Fines) (Amendment) Regulations 2020 as 'minor', 'serious' or 'very serious', with the administrative fine ranging between US$6,098 and US$1,219,512(1) depending on the nature and category of the breach and whether it was made by an individual or an entity.
Regulated mutual funds should note that the Rule on the Cancellation of a Certificate of Registration of a Regulated Mutual Fund requires them to commence their application for deregistration within 21 days of the date on which they cease to carry on business or before 31 December of the year in which they cease to carry on business. A breach of this requirement is categorised as a minor breach, resulting in a US$6,098 fine, which CIMA has no discretion to waive. The fine may be imposed within six months of CIMA becoming aware of the breach, including on a continuous basis (unless the breach is remedied or the fine is paid in full) up to a maximum of US$24,390. Failure to deregister may also result in breaches of other provisions of the Mutual Funds Law (Revised) and CIMA guidance causing the fund to be at risk of a breach of the Monetary Authority (Administrative Fines) (Amendment) Regulations 2020 and incurring a fine from CIMA.
For further information on this topic please contact Dave Sherwin or Ridhiima Kapoor at Ogier by telephone (+1 345 949 9876) or email (email@example.com or firstname.lastname@example.org). The Ogier website can be accessed at www.ogier.com.
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