Cayman fund clients often ask how to lower their operating costs. Typically, the question arises during the initial capital raising and track record building stages. It also comes up at other times. Here, some Cayman funds try to minimize ongoing fund administration, custodian and investment management fees to give a better picture of returns. The aim of this is to attract new subscribers or impress existing investors. Alternatively, the Cayman fund may be seeking to initially reduce operating costs and regulatory expenses as a precursor to a winding up of the Cayman fund. Whatever the case may be, a few options are available to Cayman funds.
Continuing as an exempt fund
If the Cayman fund is currently registered as a fund with the Cayman Islands Monetary Authority (“CIMA”) and expects to use the next three years to build a performance track record, it may contemplate an application for deregistration as a fund with CIMA and continuing as a fund exempt from CIMA registration. Of course, this will involve the surrender of the CIMA fund registration certificate, payment of prescribed deregistration fees and amendments to the Cayman fund’s offering document and constitutional documentation. Once deregistered as a fund with CIMA, no auditor appointment will be necessary for the coming year. This means less audit fees. It may also result in lower fund administration fees which can be negotiated downward due to the level of the Cayman fund’s activity. Lastly, custodian fees and annual CIMA registration fees may be avoided.
Discontinuing the Cayman fund
If efforts are made to continue the Cayman fund but energies exerted to raise capital are unproductive, then the management of the Cayman fund may reconsider its feasibility. If the decision is made to terminate the Cayman fund, then the normal options of strike off (generally pursued when the Cayman fund never actively traded) and voluntary liquidation exist. In the case of the voluntary liquidation of a corporate Cayman fund, various notices are published, in connection with which statutory deadlines must be met.
If you are thinking about terminating your Cayman fund, it is good practice to start planning the termination prior to 31 December. This is especially the case to avoid a loss of contacts at service providers due to scheduled vacation or their unavailability resulting from attendance to a high volume of other clients. You may even be assigned a person unfamiliar with your fund at the last minute. This could lead to some inconveniences and deadlines could be missed. So, a plan is important.
Cost of voluntary liquidation
When doing your Cayman fund termination plan, you are not restricted to utilising any particular person as a voluntary liquidator, unless, perhaps, the fund documentation designates a specific party. Generally speaking therefore, you are free to “shop around”. The aim of shopping around is to appoint a person who has relevant experience with Cayman fund liquidations and who can do so at a fixed rate which is reasonable to the Cayman fund. This cost is important since it may impact the total amount that would otherwise be paid to redeeming investors.
Start planning now
If you have reached the conclusion that your Cayman fund will not continue as a fund exempt from CIMA registration and the structure is no longer sustainable, then it would be a good idea to start planning from now, rather than wait until the year end. In this case, please feel free to contact email@example.com for further guidance and an estimate on termination costs.
About the Author
Alric Lindsay is a Cayman Islands corporate/funds lawyer and acts as a voluntary liquidator to Cayman Islands fund structures. Alric is also an independent fund director approved by the Cayman Islands Monetary Authority and licensed under The Directors’ Registration and Licensing Law. Alric can be contacted at firstname.lastname@example.org