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Megan Wright
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The Cayman Islands Monetary Authority (“CIMA”) has changed the application form for the registration of Virtual Asset Service Providers (VASPs) through the REEFS portal. Additionally, CIMA has issued an update to the Rule and Statement of...
The Cayman Islands Monetary Authority (CIMA) has announced updates to liquidation and deregistration procedures for funds in the Cayman Islands.
When terminating, liquidating or deregistering your CIMA regulated fund - mutual fund or private fund (Fund) in the Cayman Islands - there are a number of options to consider, as well as filing and administrative procedures to follow to ensure compliance and avoid unnecessary penalties. We have outlined these below and included the most recent updates by CIMA and the Department for International Tax Cooperation (DITC).
CIMA Regulatory Updates
In August 2022, CIMA revised its rules for deregistration of funds. The new procedures eliminate the interim "License under Termination" (LUT) or "License under Liquidation" (LUL) status. Funds remain fully registered until deregistration is complete, requiring full payment of annual fees together with any penalties until the process concludes.
DITC Portal Changes
The DITC updated its portal in February 2022, to allow entities to deactivate Cayman Financial Institutions (FIs) directly through the DITC Portal. The designated Principal Point of Contact (PPoC) is now required to submit a deactivation form along with sufficient evidence. The DITC will inform the PPoC once it is approved or declined. The portal update also included technical modifications to the Common Reporting Standards (CRS) XML Returns and modification to the previous rules for submitting CRS data in order to better align with the Organisation for Economic Cooperation and Development (OECD) standards.
Termination and Liquidation Considerations
A Fund may be terminated and dissolved by either voluntary liquidation (also referred to as "winding-up") or by "strike-off". Where a Fund has formerly been operational, it is generally recommended that it be terminated by way of voluntary liquidation.
- Voluntary Liquidation: Entities with ongoing business activities, assets, or liabilities may opt for a members voluntary liquidation. This process involves appointing a voluntary liquidator and ensuring all assets are appropriately distributed before the entity is dissolved. The process generally takes around three months to complete.
- Strike-Off: In cases where an entity has not traded, is inactive and has no assets or liabilities, a strike-off might be a faster and less costly option. However, it is important to note that this method does not absolve the entity of potential future liabilities, and any assets not settled before the strike-off will be transferred to the Financial Secretary.
For more information on winding up a Cayman company, see our Guidance Notes below:
Required Documentation
The following documents are required for CIMA Deregistration of a Fund:
- Either the original or an electronic certificate of registration with CIMA, or an affidavit if the original certificate is lost.
- A certified resolution indicating when the Fund ceased or will cease business operations.
- An affidavit that confirms the reason for ceasing business activities and that all investors have either been fully redeemed or have received their final distributions.
- Audited financial statements or a partial-year audit, unless an exemption from this requirement is granted.
The Fund must be in good standing with CIMA, ensuring that all fees are paid and all necessary filings are up to date and pay the requisite registration fee.
Additional Requirements for Deregistered Funds
Fund operators should note that, after a fund has been deregistered with CIMA, it must still complete additional filings, including Foreign Account Tax Compliance Act (FATCA) returns, CRS submissions and economic substance declarations in addition to deactivation of its registration on the DITC portal.
The following steps must be completed before a Cayman Islands fund can be fully liquidated or dissolved:
- Submit the final FATCA return to the DITC;
- File the final return, a declaration, and a compliance form with the DITC forCRS requirements;
- Ensure all economic substance exemption notices are filed and up to date;
Cancel the fund's registration with the US Internal Revenue Service (IRS) by way of surrendering its global intermediary identification number (GIIN)
Economic Substance
It is important to note that the International Tax Co-Operation (Economic Substance) Act will continue to apply to a Fund until its termination is complete. Prior to completing its termination, a Fund must ensure that all of the requisite economic substance filings have been made and are up to date.
Deregistration for Directors of a CIMA Fund
Any directors of a Fund who are registered with CIMA (and do not act for any other CIMA regulated entity that requires their ongoing registration with CIMA) need to formally deregister their individual registration to avoid incurring annual fees for the following year. A director who fails to deregister will incur annual fees and potentially penalties until they formally deregister with CIMA.
Timing Considerations for Deregistering your Cayman Fund
To avoid incurring fees for the following year, entities should aim to complete the termination, liquidation, and deregistration processes before the end of the current fiscal year. A Fund which undergoes the voluntary liquidation procedure would need to account for a period of three months to complete the process prior to and submit all requisite notices with the Registrar of Companies by January 31, 2025, to prevent being charged 2025 Registry fees.. The deregistration process with CIMA must be completed by 31 December 2024 to avoid 2025 fees. Once the dissolution is complete and all requisite filings have been made, the Fund may proceed with the surrender of its GIIN to the IRS and its deactivation of with the DITC. A Fund must have completed its termination procedure and be dissolved by 31 December 2024 and completed its deactivation process to avoid FATCA/CRS filings for the 2025 period.
For more information or assistance with terminating, liquidating or deregistering your Cayman Islands Fund, please contact your usual Stuarts attorney or reach out to one of our experts below.
Dispute Advisory Services
Stuarts Litigation and Dispute Resolution attorneys provide commercial advice before proceedings are commenced or defended to enable the client to assess whether it is in their commercial interest to engage the Court’s winding-up jurisdiction. We believe in providing advice that goes directly to the issue of how much a creditor/contributory is likely to recover, whether there are funds available and, in relation to defending petitions, whether it is in the commercial interests of the company to resist the petition.
Insolvency and Restructuring Services
Stuarts' Insolvency and Restructuring attorneys provide independent legal advice and representation across a wide range of insolvency related matters in the Cayman Islands. We are proud of our track record of delivering customised and cost-effective advice to clients around the world in a commercially sensitive and highly responsive manner. We represent investment funds in their capacity as contributories or creditors, who want to petition for the winding up of Cayman Islands companies or partnerships. Our insolvency lawyers also represent directors and Cayman Islands companies who want to defend winding-up petitions and liquidators/ provisional liquidators who have been appointed by the Court.
