Fund Dissolution – Advance Preparation To Minimize Or Avoid 2021 Fees

This DMS Advisory reminds investment funds stakeholders of impending deadlines to be met, if they are contemplating formally closing a fund or a redundant vehicle via a voluntary liquidation or strike off. Now is the time to act to ensure that 2021 fees are not unnecessarily incurred.

HOW MUCH CAN BE SAVED?

Non-CIMA Registered Funds
In order to avoid 2021 annual Cayman Islands’ Registrar of Companies fees, a Voluntary Liquidator would need to have held the Fund’s final general meeting (FGM) before 31 January 2021. For a Limited Partnership, the final dissolution notice must be filed by this date.

CIMA Registered Funds
If the fund makes filings to be placed into ‘License Under Liquidation’ by 31 December 2020, the 2021 annual CIMA license fee should be avoided. For a Master – Feeder structure this saving would be in the region of US$7,000.

Funds which have not commenced the de-registration process by filing the requisite documents and paying a deregistration fee prior to 31 December 2020 would therefore be due to pay the full 2021 annual CIMA fee.

Funds which are confirmed by CIMA as being in ‘Licence Under Termination’ (having commenced but not yet filed all of the deregistration documents with CIMA such as completion of the final stub period audit) will be required to pay half fees for 2021.

What are the CIMA audit requirements for a CIMA registered fund?
CIMA will no longer automatically grant audit waivers for a final stub period audit. Upon the payment of a fee of US$610, audit waivers may be considered in the following circumstances:

• a fund has not launched but does not wish to be de-registered;
• a fund has not launched and is being liquidated or wishes to be de-registered;
• a fund has launched but has been unsuccessful in raising sufficient capital for sustainability;
• a fund is unable to obtain audited accounts due to events such as bankruptcy proceedings, legal or regulatory enforcement actions;
• a fund has been placed in compulsory liquidation and the Authority is satisfied with the appointment of the liquidator and the scope of the liquidator’s review;
• a fund is being voluntarily liquidated and a third party liquidator has been appointed under terms that require a review of the period since the last financial year end for which an audit has been filed;
• a fund is transferring to another jurisdiction within six (6) months of its last financial year end for which an audit has been filed, or is due to be filed;
• a fund is dissolving by way of a merger within six (6) months of its financial year end for which an audit has been filed, or is due to be filed; or
• all investors in a fund have agreed to forego the audit for a part of a financial year (of more than six (6) months) and no more than ten (10) investors existed at any time during the part-period.

CIMA will require submission of the audited financial statements from the date of the last financial year (for which audited statements have been filed) either to the date the fund ceased to carry on business in or from the Islands or to the date of commencement of winding up where a third party liquidator(s) have been appointed. If no third party liquidator(s) have been appointed, the audit must cover to the date of final distribution or to the date that the final NAV was calculated, with subsequent events notes to confirm that the final distribution has been paid to investors.

Administrative Fines
CIMA registered funds should be mindful of the updated breach categories pursuant to the Monetary Authority (Administrative Fines) (Amendment) Regulations, 2020. The Rule on the Cancellation of a Licence or Certificate of Registration of Regulated Mutual Funds requires funds to apply for de-registration within 21 days from the date the fund ceases to carry on business or before 31 December of the year the fund ceases to carry on business. Failure to do so is now categorized as a minor breach under the amended regulations, resulting in potential fines between US$6,000 to US$25,000 depending on how quickly the breach is remedied.

When should I start planning?
Where a voluntary liquidation is non-contentious, does not have to de-register with CIMA, and all investors have been substantially redeemed in accordance with the statutory process in the Cayman Islands, it is possible to complete a straightforward Voluntary Liquidation process in approximately 60-90 days. Act now and this can be achieved before 31 December 2020.

More complex voluntary liquidations will undoubtedly take longer. However, DMS is able to tailor proposals and take a commercial approach to best serve your needs.

What services does DMS offer?
Our liquidations team is comprised of experienced professionals who are fully supported by our in-house fund governance specialists.

• Voluntary Liquidation – We act as an Independent Voluntary Liquidator and prepare all statutory documentation as part of our process and do not charge hourly fees. No further legal input is required.
• CIMA de-registration – When a fund ceases to operate it may start the CIMA de-registration process. The first step is to remove the fund from “Active Status”. This process is referred to as ‘License under Termination’ (LUT). DMS Corporate Services is well placed to assist you in understanding, applying for this process and taking it to conclusion.
• Strike off – A strike off is more cost effective and can be quickly completed, however the Fund/Company could be resurrected for a period of ten years after the strike off date. This option is therefore not suitable for entities which have traded or taken on investors.
• SIBL Excluded Persons deregistration. Where a registered Securities Investment Business Law (SIBL) Excluded Person has now ceased carrying on securities investment business or is no longer in scope DMS can assist with the deregistration process.
• Distressed Funds Services. DMS is well placed to assist you with key issues such as illiquid assets, structured wind downs and investor distributions.

*in order for the Voluntary Liquidation to be concluded by 31 January 2021 to avoid 2021 Registrar of Companies fees.
These dates represent FINAL deadlines. DMS recommends that you act by 15th November 2020 in order to allow sufficient time to complete the Voluntary Liquidation process.

For a preliminary, complimentary consultation to help you understand the voluntary liquidation processes and time considerations, please contact us below: