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15 things that are often overlooked during Cayman company winding ups

9 October 2020

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Kim Charaman, liquidations specialist, has more than 15 years of experience overseeing Cayman company voluntary liquidations of all shapes and sizes. Here, she shares the Intertrust Cayman liquidation team’s insights on the things that businesses commonly forget to check, which can add roadblocks and stress to this process.

1. Retain a shareholder: A shareholder is required for a voluntary liquidation and all Cayman-exempted companies must always have one in place1. When redeeming participating shareholders, care should be taken to ensure that a shareholder remains or that the company issues a share to another shareholder.

2. Keep a share register: All Cayman-exempted companies (including master funds) must keep a share register, which evidences who the shareholder(s) are2. It’s possible for a fund administrator or registered office to be engaged to manage share registers, so operators should know who is responsible for maintaining all of the company’s share registers and monitor that the responsible parties have correctly updated them in preparation for the voluntary liquidation. There is also mandatory information that must be included in a share register.

3. Beneficial ownership reporting update check: Unless a company qualifies for an exemption from beneficial ownership reporting3 , a change to the shareholder can also result in a change to the beneficial ownership of the company, which may trigger an update to the beneficial ownership register of the company and a related filing with the Registrar of Companies. Additionally the basis for an out-of-scope exemption may no longer be applicable. If in doubt check with the registered office.

4. Update the register of director: The register of directors must be kept current and any changes to the directors of a company must be filed with the Registrar before proceeding. If the filing is not done within 30 days of making the change, it will incur a late penalty filing. And, for a voluntary liquidation, all directors must sign a declaration of solvency. The Registrar will check that the directors have signed, and that their appointment dates match their records. Similarly, for a strike off, the Registrar will check that the directors signing the strike off resolutions matches theirs. Should any updates be required, the registered office can assist.

5. Update the register of charges: Registered charges should be discharged, and the register of charges that is maintained at the registered office should be updated before proceeding. A copy of the register of charges can be obtained from the registered office.

6. Understand the ownership structure: Is the entity a shareholder or general partner to another entity? Check this before commencing the liquidation/dissolution. Dissolving an entity that still acts as a shareholder or general partner to another entity, for example, can create undue issues for the surviving entity. Understand the entire ownership structure and if applicable, the timing of winding up each entity. Also pay attention to things like share transfers, or if change of ownership needs to occur.

7. Check and verify your assets: Ensure that all the entity’s assets are known and accounted for prior to proceeding. Check all bank, custody and trading accounts. Check whether any counter-parties, affiliates or service providers are holding credits, retainers or other assets that belong to the entity.

8. Check for all possible liabilities: Check with all counter-parties, service providers and contracted parties to determine whether there are any outstanding liabilities or possible liabilities that may arise. This should also include any residual tax or regulatory filing obligations, which may be carried out after the entity is dissolved. If the dissolution will not be completed by the year end, check whether any additional fees will be incurred.

9. Terminate contracts: Don’t forget to properly terminate or novate agreements or contracts that the entity is a party to, and close all bank, trading and other accounts.

10. Keep on top of tax and regulatory reporting: Know if there is any remaining regulatory or tax related filings or reporting to be carried out in any jurisdiction and who will be responsible for it. Should an officer/operator of the entity be required to execute any related documents, it should be executed prior to the entity being dissolved. If the company carried out any relevant activity pursuant to the Economic Substance (“ES”) regulations since 2019, find out if there will be any residual ES reporting obligations to be fulfilled, who is responsible and  what fees may arise.

11. Be aware of residual CRS and FATCA reporting: In line with CRS4 and FATCA5 , filings are required for reporting FIs6 up to the year that the entity is dissolved. At a minimum, a CRS nil return is required for each year end, but FATCA nil returns are not mandatory. To avoid filings for the 2021 year end, the entity must be dissolved in 2020. An entity that is winding up, and has fully paid out all investors/or shareholders, can also complete the filings for the year end 31 Dec 2020 and 31 Dec 2021, as soon as the portal re-opens in 2020. There is no need to extend this into 2021 or 2022 and risk having to change the PPOC7 or AP8 or further changes to the regulations that can modify the reporting requirements. The entity should deregister after all filings have been completed and the certificate of dissolution is available. For CRS filings for the years ended 31 Dec 2019 onwards, there is a now a new CRS compliance form to be submitted. Check that the party responsible for the filing is aware of the new requirement and that any associated costs have been accrued.

12. Confirm your AEOI officers: Entities that are registered with the Cayman AEOI9 portal, must know who the principle point of contact and authorised person are. Only the principle point of contact can deregister an entity on the Cayman AEOI portal after all filings have been completed and the certificate of dissolution has been obtained. Only the authorised person can change the principle point of contact by logging into the portal. It is important to proactively manage who are in these roles and arrange for any outgoing appointees to be changed and filed on the AEOI portal.

13. Deregister with the IRS: If an entity is registered with the IRS, the entity should know who the responsible officer is as they will also have to deregister the entity with the IRS, after all FATCA filings have been completed.

14. Be aware of CIMA’s10 deregistration requirements: CIMA registered mutual funds must commence the deregistration process with CIMA on the earlier of i) 21 days from the date the fund ceases to carry on business or ii) before 31 Dec of the year the fund ceases to carry on business, by submitting the core requirements. CIMA now provides one year from the initial deregistration filing to submit all remaining documents (which will usually include the closing audited financial statements and FAR11 form, the payment of the FAR fee and the affidavit in the required form). Ensure that all fees due to CIMA have been paid. The registered office can check CIMA’s REEFs portal for any outstanding fees that the entity itself may owe. All directors of the company must also be in good standing with CIMA in order to complete the deregistration process.

15. Do Directors need to surrender their CIMA registration: Directors serving on a CIMA-covered entity should consider whether or not they need to surrender their registration with CIMA when the entity is deregistered, should they no longer be acting as a director on any CIMA covered entity. If this is not done before 31 December, fees for the following year will become payable on 15 January. Surrendering a registration is done by the director by completing the “surrender” section on the director online portal and paying the relevant surrender fee.

There are many factors, actions and details involved in a Cayman company wind up. Engaging the help of a wind up expert removes the burden and the risk of unanticipated fees.
To learn more about how Intertrust can help, or to complete the winding up process by year-end, reach out to our team below this month.

1 See section 37 (3) (b) of The Companies Law
2 See section 40 of The Companies Law
3 Legislation establishing a beneficial ownership regime in the Cayman Islands commenced on 1 July 2017. Under the regime, unless a company falls within one of the exemptions included in Section 245(1) of the Law, that company is required to establish and maintain a Beneficial Ownership Register
4 The OECD’s Common Reporting Standard as implemented in the Cayman Islands by the CRS Regulations.
5 US Foreign Account Tax Compliance Act as implemented in the Cayman Islands by the relevant ITC Regulations.
6 Unless it checked the box that it has no financial accounts by virtue of Schedule 1 to the CRS Regulations, Section VIII.C.1.a).
7 Principal Point of Contact
Authorised Person
9 The Cayman Islands Automatic Exchange of Information (AEOI) Portal is now offline and will be replaced by a new Portal called the DITC Portal which will eventually encompass all legislative frameworks.
10 Cayman Islands Monetary Authority
11 The Fund Annual Return (“FAR”) is filed with the audited financial statements by the auditor through the Authority’s electronic E-reporting system.  A fee of CI$300 (US$365.85) becomes due at the time when the FAR filing is submitted. The Authority does not provide invoices for FAR filings. This fee can be paid by the registered office or other service provider or directly to CIMA by the client.