Liquidators of Cayman Islands entities that are reporting financial institutions under Common Reporting Standard (CRS) and Foreign Accounts Tax Compliance Act (FATCA) regulations are required to comply with CRS and FATCA reporting obligations up to the year of dissolution.
The last CRS and FATCA reporting period for entities dissolved in 2019 will be the year ending 31 December 2019. However, if the entity is placed into Voluntary Liquidation in 2019 and dissolved in 2020, the liquidator will be required to comply with reporting obligations for the reporting period ending 31 December 2019 and 31 December 2020.
Entities placed into Voluntary Liquidation after this date will still save on annual fees for 2020, but may incur increased liquidation costs, depending on the circumstances due to the increased CRS and FATCA reporting.
There are two primary options to wind up entities:
- Voluntary liquidation
- Strike off
Under the Companies Law, Voluntary Liquidation is a formal process approved by shareholders that involves, among other things, appointing liquidators, calling for claims and holding of the final meeting of the company. This process is slightly more expensive than Strike Off, but the formal winding up of the company ensures that the affairs are finalized and the company will not be restored.
Previously, the date of dissolution was less important because once the final meeting was held before the end of the year, the entity was able to achieve efficiencies and savings.
Under section 127 and 151 of the Companies Law (2018 revision) (“the Companies Law”), the liquidator will file the final return with the registrar of companies within seven days of the final meeting. The registrar of companies will then register that return within three days of receiving it. Upon expiration of three months from the date of registration, the company will be deemed to be dissolved.
Consequently, if you wish to realize efficiencies and savings on annual fees and limit CRS and FATCA reporting obligations to 2019, the optimal time to place the entity into Voluntary Liquidation is August 2019 with the final meeting being held in September 2019.
The Strike Off method is best suited to a company that is inactive with no assets, liabilities or creditors. Under section 156 of the Companies Law, a company not operating may be struck off as follows:
- Removal of a defunct company
- A request on behalf of the company
If the focus of your attention is a CIMA regulated entity, then there will be extra nuances involved, including a change of status and audit waivers.
The Benefit of Liquidating the Company and Not Pursuing Strike Off
A Strike Off is suitable for companies that have not traded or have not traded for a long period of time because any member or creditor can apply to have the company restored to the registrar, particularly in circumstances where there are any dissatisfied stakeholders, including creditors or members of the company.
Following an order for the restoration of a company to the registrar, the company shall be deemed to have continued in existence as if its name had not been struck off the register. The liability, if any, of any director, manager, officer or member of the company, continues and may be enforced as if the company had not been dissolved.
In contrast, the ability to restore the company is not available to creditors or members after the conclusion of a Voluntary Liquidation, and so the advantage of placing the company into voluntary liquidation is that it removes the spectre of restoration.
In essence, the main factors to consider in determining whether to place a company in voluntary liquidation or strike off are the nature and extent of the assets and liabilities, and whether or not there is a risk of any members or creditors seeking a restoration of the company in the future.