Terminating a fund domiciled in the Cayman Islands, a simple approach

9 August 2023 - For Investment managers looking to dissolve or wind down a Cayman-domiciled entity before 31 December 2023, this article sets out the three stages of this termination process: (1) regulatory notification; (2) audited financial statements; and (3) voluntary liquidation.

Regulatory Notification

Any registered mutual or private fund that is winding down must notify the Cayman Islands Monetary Authority (CIMA) within 21 days of either (1) a decision being made that the fund has ceased trading (per section 6.1 of the Rule on Cancellation of Licenses or Certificates of Registration for Regulated Mutual Funds and Registered Private Funds), or (2) the appointment of a liquidator.

Funds undertaking ordinary solvent wind-downs will stay registered until the final payments to investors have been made, and the required documents are submitted. While funds remain registered, they continue to be subject to all of the obligations of registered funds, including the submission to CIMA of annual audits, Fund Annual Returns, and annual fees.

In circumstances where a mutual fund or a private fund applies to be deregistered on the basis of ceasing to carry on business, the following conditions must be satisfied and documents must be provided to CIMA:

1. A fund must be in good standing with CIMA. Good standing requires the fund to have paid all prescribed fees, submit all required audited financial statements and clear any outstanding queries with CIMA;
2. The original certificate of registration, if any, or an affidavit from the operator of the fund in the case of a lost original certificate. However, if an electronic certificate was issued, this requirement is not applicable;
3. The prescribed fee payable for the surrender of the certificate of registration;
4. A certified copy of the resolution signed by the operator and/or the investor(s) indicating the date on which the fund will cease or has ceased to carry on business as a fund (meaning there is no ongoing investing with a view to receive profits or gains from the acquisition, holding, management or disposal of investments, but not including the disposal of assets for purpose of redeeming investors from a fund); and…
5. An affidavit from the operator(s) confirming the reason for cessation of business, and that all participating investors have been properly and completely redeemed and have received their respective final distribution out of the fund’s assets.

Audited Financial Statements

The fund will be required to submit audited financial statements either (a) from the date of the last financial year-end to the date of final distributions to investors; or (b) from the date of the last financial year-end to the date of the final NAV calculation, with the subsequent events note confirming that final distributions have been made to investors post year-end. In certain circumstances, an audit waiver or an extended last audit period of up to 18 months from the date of the last financial year-end for which an audit has been filed, may be granted.

Each application will be considered on a case-by-case basis. The relevant Regulatory Procedures do not commit CIMA to a timeframe within which de-registrations are processed; however, operators should expect a timeframe of at least 3-6 months from the filing of all required documentation.

Voluntary Liquidation

Following a successful de-registration of a fund, a voluntary liquidation of the company operating the fund can be seamless with the right preparation and guidance. The advantages of good time management when planning a liquidation include:

• Saving on annual license fees due to the Cayman Islands Registrar and CIMA;
• Removing further compliance obligations with respect to Foreign Account Tax Compliance Act (FATCA)/Common Reporting Standards (CRS) or Economic Substance filing to the Cayman Department for International Tax Cooperation (DITC); and
• Making potential savings on the preparation of further audited financial statements.

The voluntary liquidation of a Cayman-domiciled entity is accomplished by way of a statutory process conducted in accordance with Cayman Law. A company will commence liquidation when the shareholders resolve that it is in the best interest of the company to wind up. The appointed liquidator will then need to take the following necessary steps to conduct an orderly dissolution of the Company, namely:

• Advising the Registrar of Companies of the liquidation by submitting the required documents;
• Placing notices to the creditors of the company in the Cayman Islands Gazette advising of the liquidation and publication of the final meeting notices of the company;
• Following-up on outstanding issues with the administrator/client/bank to wind up the company;
• Paying creditors on behalf of the company (if required);
• Holding the final meeting to finalize liquidation;
• Filing of final return with the Registrar of Companies; and…
• Forwarding final dissolution documents to the client.

As experts in entity life cycle management, Citco Corporate Solutions companies support corporate and fund clients in need of liquidation services, providing them with pragmatic and simple guidance to successfully complete these legal processes. Our team of experienced professionals can conduct voluntary liquidations whilst ensuring that the winding up of an entity will be handled quickly, equitably, transparently and in accordance with Cayman Law.

Please note that the information provided within this article does not constitute legal advice. If you require further clarification, please seek independent legal advice before taking any action.