Voluntary Liquidation Update

A series of amendments to the Companies Law (2007 Revision) was passed on 1 March 2009. As such, the Companies Law (2009 Revision) now requires that the following additional documents are filed with regulatory authorities in the Cayman Islands:

Voluntary liquidator’s consent to act;
Notice of voluntary winding-up; and,
Director’s declaration of solvency.

Once a company has ceased trading, it is best practice to place that company in liquidation. The following documents are required to be filed with regulatory authorities in the Cayman Islands when liquidating a Cayman Islands entity:

Directors’ resolution
Shareholder resolution appointing liquidator;
Voluntary liquidator’s consent to act;
Notice of voluntary winding-up;
Director’s declaration of solvency;
Gazette notices;
Sworn affidavit; and,
Liquidator’s report.

Directors’ Resolution
Once a company has ceased trading, the directors will pass a resolution recommending that the shareholder(s) place the company into voluntary liquidation.

Shareholder Resolution
The shareholder(s) will then pass a resolution placing the company into liquidation and appointing a liquidator. The resolution is then filed with the Cayman Islands Monetary Authority (CIMA) and the Registrar of Companies (RoC) advising of the liquidation.

Voluntary Liquidator’s Consent to Act
The liquidator is also now required to sign a consent to act as voluntary liquidator upon commencement of the liquidation. The liquidator will then file the consent to act with the RoC and CIMA, advising of the liquidation (if the company is a regulated entity).

Notice of Voluntary Winding-up
Upon commencement of the voluntary liquidation, the liquidator is required to file a notice of the voluntary winding-up with the RoC and CIMA, in cases where the company is conducting regulated business in the Cayman Islands.

Director’s Declaration of Solvency
All directors of the liquidating company are now required to sign a declaration of solvency and file with the RoC within 28 days from the commencement of the liquidation. Failing that, the liquidator is required to apply to the Court for a supervision order for the company to be placed in official liquidation.

The declaration must confirm that the directors have made a full enquiry into the company’s affairs, and to the best of the directors’ knowledge and beliefs, the company is able to pay its debts in full, together with interest, within a period not exceeding 12 months.

Gazette Notices: Notice to Creditors
A notice is placed in the Cayman Islands Gazette advising any potential creditors of the liquidation and giving them at least 21 days to come forward with any claim. This will protect the company and its directors of any claims after the deadline expiration.

Gazette Notices: Notice of Final General Meeting
A notice is placed in the Cayman Islands Gazette advising all interested parties of the date of the final meeting to outline how the liquidation was conducted. No later than seven days after the final general meeting, the liquidator must file a return with the RoC advising that such meeting was conducted and requesting that the company be dissolved.

Sworn Affidavit
The liquidator is also required to file a sworn affidavit from the company advising CIMA that the company was not wound up in a prejudicial manner to the investors or creditors. The liquidator is also required to return the original certificate of registration to CIMA for cancellation.

Liquidator’s Report
The liquidator has a duty to ensure that the company’s assets are properly realized and the investors and creditors are paid prior to the termination of the company. The liquidator will work with the administrator and investment manager to ensure that all creditors are paid and the investors properly redeemed. The liquidator’s report will outline steps taken during the liquidation process and will be filed with CIMA at the end of the liquidation (for regulated entities).

The liquidation process normally takes three to four months. dms Corporate Services will facilitate the drafting of all the above documents.

Strike Off
An alternative to voluntary liquidation is striking off the company from the RoC. This is a relatively simple process, wherein once confirmation is received that there are no assets or liabilities in the company, the directors can pass a resolution requesting that the company be struck from the RoC.

The strike off method does not bring closure to the company, as at anytime within a ten year period a creditor or investor can apply to the Cayman Islands Court for the company to be restored and put forward any potential claim. The strike off method is left to the discretion of the directors as it’s they who will have to assume the liability in the instance of restoration.

We are happy to answer any questions on the procedures outlined above. Should you have any comments or queries, please contact your company director or Bernadette Bailey-Lewis as detailed below:

Phone: 345-946-7665
Fax: 345-946-7666
Direct: 345-749-2596
e-mail: bbailey-lewis@dms.com.ky

NB: This document provides general guidelines on the voluntary liquidation and the striking of a Cayman entity. It is not a substitute for any advice from your legal counsel.

Additionally, in cases where there are discontented creditors or members, a company may apply to the Registrar of Companies for up to two years after the striking off to have the company restored to the register. The Governor may permit an extension of 10 years if the court feels that it is right to do so. The striking off process, therefore, does not resolve creditors' options in the way that a properly executed liquidation process would. As in this case, the creditors who wish to challenge distributions made to the shareholders prior to liquidation, may be able to raise claims well after the striking off.