Fund managers considering winding down a Cayman fund, for whatever strategic reason, should act sooner rather than later, particularly in light of recent guidance issued by CIMA on 17 August regarding updated deregistration procedures.
Geoff Ruddick, Partner, Paradigm Governance Partners, notes that some key deadlines are coming up, which must be met if the process is to be completed in 2022 – thus avoiding paying certain 2023 regulatory fees.
“There are different methods of terminating a vehicle, but the process can take time. If it drags into 2023, the vehicle will again incur annual government registration and registered office fees. Our advice is: get good advice, but also act quickly,” he said.
The most common method used when terminating a vehicle is voluntary liquidation. At the beginning of this process, all investors should have been, or are in the process of being, redeemed, all assets being liquidated and distributed to investors.
Within 28 days of resolutions being passed to wind up an entity, documents need to be filed with the Registrar and placed in the Cayman Islands Government Gazette. Notices can only be filed on certain dates, however.
The process is different for an exempted company or exempted limited partnership, and legal advice will be needed. For the former, it can require a two-step process. The date of its final general meeting will also need to be published at least 21 days before the meeting. If assets are in the process of being liquidated, this must be completed by that date. By the time of the meeting, the company must have no assets or liabilities.
All this means that if the meeting needs to occur in 2022, the last date for filing the notice with the Gazette is November 25, for publication on December 5.
Following consultation with the industry, CIMA recently published revised regulatory procedures for the deregistration of Cayman Islands regulated funds. This relates to both funds registered under the Mutual Funds Act (Revised) and the Private Funds Act (Revised). The principal changes in the new registration procedures specifically relate to the timing of the deregistration process and the elimination of the option to place a fund in License under Termination (LUT) or License under Liquidation (LUL) status.
Historically, a fund could be placed in LUT or LUL once it had made a determination to cease trading or to liquidate but before it had completed its final distributions and filed its final audit. In essence, this element needed to be completed prior to 31 December in any year and the fund could avail of reduced CIMA license fees for the subsequent year. The fund would then have a certain period of time by which it would need to conclude its final audit and submit the final deregistration documentation.
However, under the new deregistration procedures, although CIMA should be notified of a funds intention to deregister withing 21 days of that determination, the fund must complete and file its final audit (or seek and be granted an audit waiver from CIMA), and be in good standing before the deregistration documents may be submitted. It is anticipated that the new deregistration process will lend itself to a more expeditious approval process.
Importantly, following this update, the new deregistration procedures will apply to any new deregistration applications with effect from 17 August 2022. CIMA has confirmed that any funds that had previously submitted LUT / LUL applications under the old procedures will be permitted to take advantage of the fee reductions under those procedures, provided that they meet the filing requirements associated with LUT or LUL status.
In summary, the fact that LUT/LUL options are no longer available will mean funds will be liable for registration fees until the deregistration takes place.
With CIMA now able and willing to issue fines for missing deadlines and regulatory filings, here at Paradigm Governance Partners, we are keen to help. We have developed a series of handy guides and other advice around upcoming deadlines to help our clients and partners stay on top of things.