GUIDE Cayman Islands Company Voluntary Liquidation & Strike Off

Transcription

1 5 th Floor Genesis Building Genesis Close PO Box 446 Grand Cayman, KY Cayman Islands GUIDE Cayman Islands Company Voluntary Liquidation & Strike Off

2 Table of Contents Introduction 2 Voluntary Liquidation 3 Striking off by request 5 Striking off by default 6 Conclusion 6 1 P a g e

3 Introduction This guide sets out the three options for ending the life a solvent Cayman Islands company, namely: 1. Voluntary liquidation; 2. Strike by request; and 3. Strike off by default. The reader will find in this short document all of the basic information a prospective client may need in order to understand the advantages, procedural steps and costs associated with each of the three options. This guide does not deal with involuntary liquidation or court supervised liquidation. We invite you to refer to our separate guides on these topics. The following information is provided as a courtesy to our prospective clients and is not intended to be, and is not, a substitute for legal advice. This guide has been prepared on the grounds of the law and practice as at the date referred to below. SMCS LTD December P a g e

4 Voluntary liquidation The voluntary winding up of a company is the most secure of the 3 methods of ending the life of a solvent company. 1 Pre-liquidation phase 1. Board meeting: The Directors of the company will need to convene a board meeting to discuss and consider the rationale for winding up the company. They will also need to consider whether the company is suitable for a voluntary liquidation (which essentially amounts to whether the company is solvent). A simple majority resolution is passed to requisition an Extraordinary General Meeting ( EGM ) 2. Declaration of solvency: Each director must execute a solvency declaration. This must state that the company will be able to pay its debts in full, including interest, within a period not exceeding 12 months. Directors must have reasonable grounds to make such solvency statements. 2 If they do not have such grounds, they face criminal penalties. 3 It is recommended that a board meeting is held documenting these grounds. Each and every director must sign the declaration within 28 days of the appointment of the liquidator (see below) or else the liquidator must apply to court for an order that the liquidation be subject to court supervision. 3. EGM: The company prepares a notice of EGM setting out the resolutions to be considered at the meeting and attaching a proxy form. The meeting is called in accordance with the Articles. At the EGM, the members consider whether or not to pass a special resolution seeking the voluntary liquidation of the company. Liquidation phase 4. Special resolution: If the resolution in favour of voluntary liquidation is passed, the liquidation is commenced. The Special resolution should: a. Resolve to wind up the company b. Appoint a voluntary liquidator or liquidators c. Approve the liquidators fee d. Grant an indemnity to the liquidator. From this point in time, the company is under the control of the appointed liquidators and, unless any 1 The principal legislation is the Companies Law (as revised and amended) and the Companies Winding Up Rules (as revised and amended) 2 Section 124 (2) Companies Law 3 $10,000 fine and/or up to 2 years imprisonment 3 P a g e

5 resolutions state otherwise, director authority is terminated and their powers cease. 5. Notice of resolution to liquidate: Notice of the shareholders resolution should be filed at the Company Registry. 6. Appointment of a liquidator: Any person, director or officer of the company may act as liquidator. The liquidators must sign a consent form agreeing to act. This is filed with the Registrar of Companies. 7. Gazette notice 1: A first notice must be published in the Cayman Islands gazette advertising the fact that the company has been placed in voluntary liquidation. This is pro-forma and must contain the contact details of the liquidator for the purposes of any claims creditors may wish to make. 8. Advertisement in the press locally and overseas: In certain situations, for instance where the company traded overseas, it may be necessary to advertise the voluntary liquidation abroad. 9. Gazette notice 2: A second notice invites all creditors to submit a proof of claim (also known as proof of debt) by a certain date (which should be no less than 21 days from the date of publication) although this deadline is not binding on the creditors and is not a bar to the submission of claims. The notice will also give the date of the final meeting. If there are no assets or creditors, it is possible for this second notice to be published on the same date as the first however, where the issue of creditors is not clear, it may be safer to wait for responses before proceeding to the second notice. 10. Payment of claims: Any claims of creditors should be paid by the liquidators as they fall due since the company is solvent. If claims are not received by the date contained in the second notice, the liquidators determine if they pay the claim or not. 11. Preparation of account: The liquidators prepare an account of the liquidation from the date of the Special Resolution (i.e. their appointment) to the date of the final meeting. 12. Final meeting: A final shareholder meeting is held at least one month after the second notice. Liquidators final accounts are approved by shareholders or their proxy. A notice is then filed with the Company Registry within 7 days notifying the Registrar that the liquidation has been completed 13. Dissolution: Three months after the liquidators have submitted the final return, the company is deemed to be dissolved and ceases to exist. 4 P a g e

6 Time frame The time which will elapse between the appointment of the liquidators and the filing of the notice with the Company Registry can be as short as 5 weeks where there are no assets or creditors and the notices are published simultaneously. Where notices are published separately, 10 weeks is more realistic. On the basis that the company is not dissolved until three months after the filing of the final return, the minimum time within which a company can be wound up is approximately 4 ½ - 5 months. Each case will depend on its own facts. Fees Costs are dependent upon complexity. In straightforward voluntary liquidations, the costs are roughly as follows: Liquidators fees between US$4,000 to US$7,000 Legal fees approximately US$3,000 to 4,500 Government disbursements of approximately US$1,250 If the liquidation continues after the calendar year end, the company will be liable for the annual government fees in the usual way. All costs, charges and expenses properly incurred in the voluntary liquidation, including the remuneration of the liquidator, will be payable out of the company s assets in priority to other creditor claims. STRIKE OFF (BY REQUEST) Strike off is an alternative to a voluntary liquidation. One or more directors (or the sole shareholder) prepare an affidavit and write a letter to the Registrar of Companies inviting him or her to strike the company from the Register pursuant to section 156 Companies Law. The letter will contain assurances that the company is inactive and has no assets or liabilities and will be accompanied by an administrative fee of UD$ The affidavit and letter will be preceded by appropriate resolutions of the company directors. Time frame Dissolution occurs when the Registrar accedes to the companies request. This may be processed in a matter of weeks however it can take several months depending on the workload of the Registry. 5 P a g e

7 Costs Legal fees are generally in the region of US$1,000 plus disbursements. Any outstanding annual fee may also need to be paid. Additional considerations Although this method is cheaper and faster than liquidation, this method is only really suitable for companies that have never traded or have not traded for a long time since any shareholder or creditor can apply (under section 159 Companies Law) for the company to be restored within the following 2 years (or such longer period as the Governor in Cabinet may allow provided such period does not exceed 10 years). In addition, striking a company from the Register does not affect the liability of directors, officers and members of the company. Such liabilities shall continue as if the company had not been dissolved. Finally, any property belonging to the company is vested in the Financial Secretary for the benefit of the Islands. In contrast, during a liquidation, once liabilities have been satisfied, the balance of assets is distributed amogs shareholders. STRIKE OFF (BY DEFAULT) A final option is to discontinue paying annual fees and thereby allow the company to lapse. Failure to satisfy annual fees will cause the Registrar to strike the company from the Register although several years may pass before this takes place. Any assets held the company at the time of strike off will automatically vest in the Financial Secretary. As with strike off by consent, the liability of directors continue. CONCLUSION The primary advantage of voluntary liquidation is that directors, officers and members have protection (save in the event of fraud) since their liabilities cease upon final dissolution. The company cannot be reinstated. With this in mind, voluntary liquidation is often the most sensible option in spite of the increased (short term) costs. It is however recognized that different methods may be suitable depending upon the goals, history and financial position of the company in question. 6 P a g e

8 Contact us If you have any queries or require more information on any of our products and services please contact us and we will be more than happy to assist you. Phone: (345) / Fax: (345) Address: 5th Floor Genesis Building, Genesis Close, P.O. Box 446, Grand Cayman KY1-1106, Cayman Islands Additional Corporate Services Apart from standard company formation you may be interested in our other services and products. These are: Ship registration Aircraft registration Nominee shareholders Nominee directors Notarisation Apostilisation Certificate of Good Standing Certificate of Incumbency Standard Power of Attorney Change of Name Corporate Seal Mail forwarding per item Company search 7 P a g e