There are two ways a Cayman Islands (‘Cayman’) exempt company’s existence can come to an end. It can be wound up (i.e. liquidated) or it can be struck off the register of companies by the Cayman Companies Registrar. Here we explain why it is better to wind up the company under the Companies Law (2016 Revision) (‘Law’) than to have it struck off and set out the five main steps in the process. If your company is ready to be dissolved, if you start the voluntary winding up process as soon as possible you may be able to complete the necessary steps required before the end of 2017 and save the 2018 annual statutory and registered office fees.
Why is Winding-up better than waiting to be struck off?
Some companies that are no longer carrying on business or have ceased operations prefer to terminate their company by allowing it to be struck off the register under s.156 of the Law as this involves no time or cost to the company. However, termination in this way leaves the risk that, for a period of up to ten years after the strike-off, creditors, shareholders or other claimants can revive the struck-off company. They can do this by applying to the courts to obtain satisfaction of their claims (under s.159 of the Law). Furthermore, s.160 of the Law states unequivocally that:
“the striking off the register of any company under this Law shall not affect the liability, if any, of any director, manager, officer or member (i.e., a shareholder) of the company, and such liability shall continue and may be enforced as if the company had not been dissolved.”
A formal winding up of the company ensures that the liability of all officers, directors and other stakeholders to creditors and other claimants of the company is finalised.
Solomon Harris fixed fee service
Solomon Harris offers a fixed fee for Cayman legal services in relation to the voluntary winding up of a Cayman company, when:
- the company is solvent;
- the client appoints a non-professional Liquidator; and
- the company has no assets or liabilities in regard to which legal advice is required.
The fixed fees for Cayman company Voluntary Liquidations are as follows:
- For a company not regulated in Cayman – US$3,000 plus expenses per company;
- For a company regulated in Cayman – US$4,000 plus expenses per company.
Discounts may be available where several Cayman companies are to be wound up simultaneously.
Step 1: How do I start?
If you would prefer to conduct the process by yourself, to start the liquidation process you need to prepare the following documents and take the following steps:
1. Balance Sheet: Prepare an up-to-date Balance Sheet of the company.
2. Resolutions: Pass the following Resolutions:-
(a) directors pass a resolution recommending voluntary liquidation either at a board meeting or by unanimous written resolution;
(b) members (shareholders) pass a special resolution to put the company into voluntary liquidation either with a two-thirds majority at an extraordinary general meeting or by unanimous written resolution;
(c) members (shareholders) pass a resolution to appoint one or more liquidators and to fix the liquidator’s remuneration.
Once the shareholders pass the special resolution to wind up the company it must cease to carry on its business, except in so far as it needs to continue for the beneficial winding up of the company.
Step 2: What happens when a liquidator is appointed?
Any person, including a director or officer of the company, may be appointed as its voluntary liquidator. Once a liquidator is appointed the directors’ powers cease and the liquidator has sole control over the company’s affairs. The appointment takes effect on the filing with the Cayman Registrar of Companies of the liquidator’s consent to act. The liquidator must administer the company’s assets for the benefit of the its shareholders and creditors and must exercise a high standard of care in carrying out his duties. Before the company is dissolved, the liquidator is personally liable to the company and after dissolution he is personally liable to the creditors and to the shareholders. For that reason a liquidator will typically expect to be indemnified by the shareholders of the company against any personal liability he may incur other than liability arising from his actual fraud or willful default. The liquidator’s remuneration and all fees and expenses properly incurred by him are payable out of the Company’s assets in priority to all other claims. After the ‘commencement of the winding-up’ any share transfer or alteration in status of a shareholder is void unless approved by the liquidator.
Step 3: What does the liquidator do?
1) Notices and Filings
Within 28 days of the commencement of the voluntary liquidation the liquidator files the following with the Registrar of Companies:
(a) notice of the special resolution to wind up the company;
(b) the liquidator’s consent to act;
(c) the director’s declaration of solvency in which they declare that after making full enquiries and, to the best of their knowledge and belief, the company will be able to pay all its debts within not more than 12 months of the ‘commencement of the winding-up’. If a declaration of solvency is not filed then the liquidator must seek court supervision of the liquidation (s.124(1) of the Law).
A failure by a director or liquidator to comply with any of the above filing obligations is a criminal offence giving rise to a fine of CI$10,000 (approximately US$12,195).
The liquidator also arranges publication of notice of the winding up in the Cayman Islands Gazette and if the company is carrying on a regulated business serves notice of the winding up on the Cayman Islands Monetary Authority (‘CIMA’)
In addition, the liquidator must notify all possible creditors that the company is being liquidated and invite those creditors to submit claims by a specified date (usually 30 days prior to the Final General Meeting (see below). Failure to do so may mean the liquidator incurs personal liability. It is advisable for liquidators to publish notice of the liquidation in newspapers circulating in the area where the company carries on business.
2) Prepare final accounts
The liquidator will take the following steps to prepare final accounts for the company:
(a) Take possession of the Company’s books and records;
(b) Settle a list of shareholders showing their liabilities for any shares not fully paid up;
(c) Recover any assets due to the company. (The liquidator must be the sole signatory of any bank accounts.);
(d) Settle any claims made against the company;
(e) Ensure all obligations due under any agreements made by the company have been fulfilled;
(f) Distribute the assets of the company in the following order:
(i) costs of liquidation;
(ii) preferred debts (taxes etc. due to the Cayman Government; certain wages/salaries; and where the company holds a ‘class A’ banking licence, certain deposits);
(iii) secured debts;
(iv) other debts; and
(v) remaining assets to the shareholders in accordance with the company’s Articles of Association; and
(g) Prepare final accounts showing how the winding up has been conducted and the disposal of any of the company’s assets.
Step 4 :Hold Meetings
a) Annual Meetings: If a voluntary winding up continues for more than a year, the liquidator must summon a general meeting of the company at the end of the first year (calculated from the commencement of the winding up) and put before the meeting a report and account of his acts and dealings and the conduct of the winding up during the preceding year. Where the winding up carries on for more years, then such meetings must be held within three months of each anniversary of the commencement of the winding-up. A liquidator who fails to comply commits an offence and is liable on conviction to a fine of ten thousand dollars.
b) Final General Meeting: Once final accounts have been prepared, the liquidator will:
(a) Give the shareholders 21 days’ notice of a final General Meeting of the company;
(b) Arrange publication of the notice of that meeting in the Cayman Islands Gazette; and
(c) Hold the final General Meeting of shareholders to approve final accounts and liquidator’s actions.
Step 5: Dissolve the company
Once the Final General Meeting has been held, the liquidator will take care of the following final steps:
(a) File a return with the Registrar of Companies no later than 7 days after the meeting in the prescribed form certifying that the final General Meeting has been held and request Certification of Dissolution;
(b) Forward any remaining assets to shareholders; and
(c) Obtain the Certificate of Dissolution from the Registrar of Companies and send copies to all relevant parties concerned with the company and its transactions.
The company is dissolved three months after the return regarding the final General Meeting has been filed with the Registrar of Companies.
For further details or specific guidance, please contact your usual Solomon Harris attorney or firstname.lastname@example.org to see how we can help.
The information contained in this article is necessarily brief and general in nature and does not constitute legal advice. Appropriate legal or other professional advice should be sought for any specific matter.