Who is affected?
The Law, currently, only applies to directors of covered entities, referring to companies that:
- are registered as a regulated mutual fund under the Mutual Funds Law (2013 Revision); or
- fall under section 5(4) AND paragraph 1 and 4 of the Fourth Schedule of the Securities Investment Business Law (2011 Revision).
It does not apply to trustees (who are regulated under the Banks and Trust Companies Law (2013 Revision)) or limited or general partners of partnerships. It also applies to entities currently with the designation “Licence Under Termination” with the Cayman Islands Monetary Authority (“CIMA”) where directors are still appointed to the board. However, most notably, the Law does not apply to covered entities which are in voluntary or official liquidation.
When does the law come into effect?
The Law came into force on 4 June 2014 and requires registration to have been applied for within 3 months thereof and applications for licensing within 6 months thereof. Directors may continue to act until CIMA approves applications for registration or licencing.
How will the law be implemented in reality?
This will be overseen, primarily, by CIMA who will be writing to the registered office of each covered entity and providing them with a list of unique identification numbers for all of the directors that are associated with the covered entities of that registered office. There is then an obligation on the registered office to communicate this information to each director. The registered office will also be required to provide details of the correct website address at which to register.
The process will involve registering and paying the registration fee, and for professional directors applying for a licence, paying the license fee, which is more expensive than the registration fee. Thereafter, annual fees must be paid and, if licensed evidence of insurance needs to be provided.
There are significant penalties, with late payment fees accruing monthly.
Why was the law implemented?
The Law was enacted following responses to CIMA’s proposals set out in its Corporate Governance Consultation Paper dated 14 January 2013 and following feedback provided to a July 2013 CIMA consultation on a proposed Statement of Guidance on Corporate Governance for CIMA regulated mutual funds.
What does this mean as it pertains to liquidation?
- If you are a director of a covered entity still in liquidation: There will be little or no impact. If you are a director of a covered entity that is in liquidation and you are approached by the registered office or CIMA, please confirm with the relevant liquidators that they have liaised with CIMA to ensure their records are properly updated. The registered office will have invariably been changed to the offices of the liquidators or is in the process of being changed. You do not need to register in this instance.
- Covered entity to be placed into liquidation in the next three months: If you place the covered entity into liquidation within three months from 4 June 2014 it is likely you will not need to register in respect of the entity being placed into liquidation.
- Covered entity to be placed into liquidation after three months: You will need to seek registration in respect of this entity as you will not be in a position to pass any resolutions recommending a winding up or make a valid declaration of solvency. This will require the covered entity to be brought under the supervision of the court incurring the additional costs associated therewith. It is also likely that any subsequently appointed liquidator will be obligated to report this deficiency in registration to CIMA.
Directors should consult with their advisers and carefully consider the timings of their liquidations especially over the next three months.