Voluntary liquidation of Cayman entities before 31 December 2020, and the new administrative fines
As 2020 closes, anyone holding a Cayman company or limited partnership that no longer trades should decide whether to keep it, not least to avoid the annual government registration fee due in January 2021 and, in some cases, administrative fines. Voluntary liquidators of a Cayman company or an exempted limited partnership must hold the final general meeting or file the final dissolution notice by 31 January 2021. Funds registered with the Cayman Islands Monetary Authority should begin liquidation and file with CIMA before 31 December 2020. CIMA may now impose tiered administrative fines for breaches of nine regulatory laws.
4 November 2020
General voluntary liquidation
As 2020 draws to a close, persons with Cayman Islands companies and/or limited partnerships should consider whether they wish to continue to own Cayman entities that they have established but no longer operate, in particular in order to avoid the annual government registration fee falling due in January 2021 and, in certain cases, administrative fines. The voluntary liquidator of a Cayman company or an exempted limited partnership (ELP) must hold the company's final general meeting, or file the ELP's final notice of dissolution, on or before 31 January 2021.
Voluntary liquidation: CIMA-registered funds
Investment funds registered with the Cayman Islands Monetary Authority (CIMA) should begin voluntary liquidation and file with CIMA so that their status changes from "active" to "licensed in liquidation" before 31 December 2020, avoiding the annual fee payable to CIMA in 2021. For investment funds registered with CIMA, including private funds, it is also important to consider CIMA's requirement for a final "stub" audit for 2020, carried out before liquidation. In a small number of cases CIMA grants a liquidating fund a partial exemption from the annual audit.
As an alternative to voluntary liquidation, some investment fund managers may be considering closing one or more CIMA-registered funds before the end of 2020 and wishing to deregister with CIMA, or at least to enter "licence terminated" status, in order to avoid or reduce the annual registration fee payable to CIMA in 2021; they should contact CIMA promptly.
New administrative fines for breaches of the regulatory laws
As previously reported, the Monetary Authority Act gives CIMA powers under the following laws (and their related regulations and rules):
Anti-Money Laundering Regulations (2020 revision) (as amended)
Banks and Trust Companies Act (2020 revision) (as amended)
Companies Management Act (2018 revision) (as amended)
Directors Registration and Licensing Act, 2014 (as amended)
Insurance Act, 2010 (as amended)
Money Services Act (2020 revision)
Mutual Funds Act (2020 revision) (as amended)
Private Funds Act, 2020 (as amended)
Securities Investment Business Act (2020 revision) (as amended)
Breaches fall into three (3) categories: (1) "minor", (2) "serious" or (3) "very serious". The process involves issuing a notice of breach to the party concerned, which then has thirty (30) days to reply to the notice and to remedy a "minor" breach to CIMA's satisfaction. If CIMA is not satisfied that the minor breach has been remedied, a fine is imposed. For "serious" or "very serious" breaches, CIMA has discretion whether to impose a fine, up to the maximum for the relevant category.
Category of breach
Cayman dollars
US dollars
Minor
5,000 US dollars
6,100 US dollars
Serious (individual)
CI$50,000
61,000 US dollars
Serious (corporate)
CI$100,000
122,000 US dollars
Very serious (individual)
CI$100,000
122,000 US dollars
Very serious (company)
CI$1,000,000
1,220,000 US dollars
As the table above shows, fines range from CI$5,000 for a minor breach to CI$100,000 for a serious breach by an individual, and to CI$1 million. A continuing minor breach may be fined repeatedly, up to a maximum of CI$20,000 (US$24,400).
CIMA will impose a fine within six (6) months of becoming aware of a minor breach, or of receiving information from which a breach may reasonably be inferred. There is a two (2) year limitation period for imposing a fine for a serious or very serious breach. As the table above shows, fines range from CI$5,000 for a minor breach to CI$100,000 for a serious breach by an individual, and to CI$1 million. A continuing minor breach may be fined repeatedly, up to a maximum of CI$20,000 (US$24,400).
Beyond considering voluntary liquidation in what remains of 2020, it is therefore important that every entity regulated by the laws listed above understands and meets all filing deadlines for the rest of 2020 and into 2021, complies with its continuing notification obligations, and maintains adequate systems and controls in accordance with the applicable regulations and the guidance CIMA issues from time to time.
For specific advice on the voluntary liquidation of Cayman entities, or on liquidating investment funds before 31 December 2020, and on complying with the regulatory laws so as to avoid the risk of administrative fines, please contact us:
Telephone: 021-68819098