June 2024
A Cayman Islands solvent company may be dissolved either (i) by voluntary liquidation; or (ii) strike off.
Pursuant to the Companies Act (as revised) (Companies Act), a Cayman company is regarded as solvent if it can pay its debts as they fall due in the ordinary course of business. This is particularly important in relation to voluntary liquidation. If during voluntary liquidation or after the process is complete, the relevant company was not solvent, the directors may face harsh consequences, including fines and/or imprisonment.
Strike-off
In certain circumstances, the directors of a company may apply to the Registrar of Companies (Registrar) to have the company struck off the Company Register of the Cayman Islands.
This procedure is only appropriate where the company:
- is not conducting any business and ideally have never operated; and
- has no (or only nominal) assets and liabilities.
Although the procedure to strike off a company is more straight forward and less expensive than a voluntary liquidation, a struck- off company may face potential issues in the future. Such issues include, but are not limited to:
1. any aggrieved creditor or shareholder applying to court to have a struck-off company reinstated within two years of the date of its strike-off (or up to 10 years if the Cabinet of the Cayman Islands allows) as permitted under the Companies Act. As a result, a strike- off does not ensure the end of the company’s life.
2. to reinstate the company, it will need to pay annual fees and penalties for the period from strike-off to reinstatement.
3. as a result of reinstatement, the court has the power to award damages to any person to return them to the position they would have been in, had the company never been struck off.
4. any director, manager or shareholder of the company will remain liable for any claim as if the company had not been struck off.
5. any property belonging to a struck-off company will immediately become vested in the Financial Secretary for the benefit of the Cayman Islands. Therefore, it is imperative that all assets are transferred prior to strike-off.
The Registrar may also strike off the company where it has reasonable cause to believe that the company is not carrying on business or is not in operation. The Registrar strikes on a quarterly basis for non-compliance on the following dates: 31 January; 30 April; 31 July; and 31 October.
For a strike-off determined by the directors of the company, the application for a strike must be received by the Registrar at least 8 weeks prior to the quarterly strike date. For 2024 the remaining strike dates are 28 June, 30 September and 31 December. Following the strike-off date, the Registrar will list the company as ‘struck’.
Solvent Voluntary Liquidation
The Companies Act (sections 116 to 130) provide that a solvent Cayman company may be dissolved voluntarily in the following circumstances:
1. when the fixed duration of the company as set out in its memorandum and articles of association (M&A) expires;
2. a specific event has occurred, which under the company’s M&A requires it to voluntarily liquidate;
3. the shareholders resolve by special resolution to voluntarily liquidate the company; or
4. the shareholders at a general meeting resolve by ordinary resolution to wind-up the company as it is unable to pay its debts as they fall due.
The most common trigger for voluntary liquidation is by a special resolution of the shareholder(s). Once passed, the directors need to determine whether the company is solvent (and will continue to be solvent for up to 12 months following the commencement of winding up) or insolvent (or ‘doubtfully solvent’).
If the directors determine that the company will be solvent, a voluntary liquidation (solvent) will be appropriate. If it is determined that the company is not or will not be solvent or is ‘doubtfully solvent’ the company will need to liquidate via court supervision.
Insolvent Voluntary Liquidation
A company may proceed to voluntarily liquidate if it appears to be doubtfully solvent at the commencement date or becomes insolvent at any time during the liquidation process. Should this occur, the liquidator will need to apply to the court to bring the liquidation under court supervision. At that point a creditor can oppose the existing liquidator becoming the official liquidator appointed by the court – at least one of the official liquidators would need to be a Cayman Islands licensed insolvency practitioner.
How can we help?
If you have a dormant entity, are looking to consolidate your group structure, or the company is insolvent, please get in touch with us on info@nelsonslegal.com or contact the author of this article, Laura Oseland directly (loseland@nelsonslegal.com) so that we can help you complete the process efficiently and effectively for all stakeholders.
This guide gives a general overview of this topic. It is not legal advice, and you may not rely on it. If you would like legal advice on this topic, please get in touch. Our regulatory team will be happy to assist you with any questions or queries you have regarding your regulatory requirements in the Cayman Islands.