The departure of a key person can lead to mass redemptions from a Cayman corporate fund. At that stage, the operators of the Cayman fund might consider the future of the Cayman fund. This includes whether the Cayman fund should be terminated by way of a voluntary winding up or whether new marketing efforts might result in recovery of the Cayman fund’s assets under management following a flurry of redemption requests.
Assuming that the operators of the Cayman fund determine that the Cayman fund is no longer viable, the Cayman fund may decide to proceed with a voluntary winding up. A brief overview is set out below.
Winding Up Origins
The liquidation of a Cayman corporate fund is referred to as a “voluntary liquidation” or “voluntary winding up” if it was commenced in accordance with any one of the following methods:
• when the period, if any, fixed for the duration of the Cayman fund by its memorandum or articles of association expires
• if the event, if any, occurs, on the occurrence of which the memorandum or articles of association provide that the Cayman fund is to be wound up
• if the Cayman fund resolves by special resolution that it be wound up voluntarily
• if the Cayman fund in general meeting resolves by ordinary resolution that it be wound up voluntarily because it is unable to pay its debts as they fall due.
Who will wind up the Cayman fund?
A voluntary liquidator will be appointed to wind up the affairs of the Cayman fund. Unfortunately, the name “voluntary liquidator” does not denote that the appointed person will provide his liquidation services for free. Instead, any person appointed as a liquidator of a Cayman fund in accordance with the relevant section of the Companies Law of the Cayman Islands will be remunerated and referred to as a “voluntary liquidator” unless and until he is appointed as an official liquidator pursuant to a supervision order of the courts of the Cayman Islands.
A voluntary winding up for a Cayman corporate fund is deemed to have commenced:
• at the time of the passing of the resolution for winding up
• on the expiry of the period or the occurrence of the event specified in the Cayman fund’s memorandum or articles of association,
(notwithstanding that a supervision order is subsequently made by the courts of the Cayman Islands).
Once a voluntary winding up of a Cayman fund is deemed to commence, a number of factors come into play:
• the Cayman fund will cease to carry on its business except so far as it may be beneficial for the Cayman fund’s winding up
• notwithstanding anything to the contrary contained in the Cayman fund’s articles of association, its corporate state and powers shall continue until the Cayman fund is dissolved
• the powers of the directors of the Cayman fund will cease automatically except to the extent (a) any power has been expressly reserved to the directors by a resolution passed at a general meeting of the Cayman fund or (b) the voluntary liquidator of the Cayman fund has delegated any power to the directors or otherwise sanctioned the continuance of any power of the directors of the Cayman fund
Generally speaking, the voluntary winding up of a Cayman fund may take 1-3 months. Regarding this, all efforts should be made to complete the winding up process within the calendar year of the Cayman fund’s decision to proceed with a voluntary winding up. (In the event that matters are more complex and the voluntary winding up of the Cayman fund continues for more than one year, the Companies Law requires the liquidator to summon a general meeting of the Cayman fund at the end of the first year from the commencement of the winding up and at the end of each succeeding year and such meetings shall be held within three months of each anniversary of the commencement of the liquidation. At each meeting, the liquidator must lay before the meeting a report and account of his acts and dealings and the conduct of the winding up of the Cayman fund during the preceding year.)
The reason for the liquidator’s drive to complete the voluntary winding up by the end of the same calendar year as his appointment is to avoid having the Cayman fund pay the statutory fees of Cayman authorities which become due in January of each year. In the case of the calendar year ending December 2014, the manager of any Cayman fund contemplating a voluntary winding up should be thinking about a liquidator appointment now. This will be of great assistance in meeting deadlines for the submission of statutory notices to creditors and of the Cayman fund’s final general meeting. Specific, upcoming target dates are 10 October, 24 October, 7 November and 21 November.
What Happens Next?
As soon as the Cayman fund’s affairs are fully wound up, the liquidator shall make a report and an account of the winding up showing how it has been conducted and how the Cayman fund’s property has been disposed off and thereupon shall call a general meeting of the Cayman fund for the purpose of laying before it the account and giving an explanation for it.
Following the approval of the liquidator’s report at the final general meeting of the Cayman fund, the liquidator will file a prescribed return with the Cayman authorities. Provided that neither the liquidator nor any other person (who appears to the courts of the Cayman Islands to be interested) makes an application to the courts (or where an application is made and the courts do not grant such a request) to defer the date at which the dissolution of the Cayman fund is to take effect, the Cayman fund will be deemed to be dissolved upon the expiration of three months from the registration of the said return.
If you are thinking about liquidating your Cayman fund, the next (important) move is yours. Either you bring about your liquidator’s appointment now to meet the Cayman fund’s filing deadlines…or fail to do so and be forced to pay 2014 fees of Cayman authorities.
About the Author
Alric Lindsay is a corporate lawyer and an independent fund director approved by the Cayman Islands Monetary Authority. Alric is also licensed as a professional director under The Directors’ Registration and Licensing Law. Alric also acts as voluntary liquidator to Cayman Islands entities. Alric can be contacted at .