This is the time of year to consider if the winding up process should be initiated to minimise or eliminate 2017 fees which for a master/feeder fund could be over US$10,000 per year incurred in January 2017.
In order to close down a fund from a Cayman perspective such that 2017 annual fees (to the Registrar of Companies and/or the Cayman Islands Monetary Authority (“CIMA”)) will not arise, it would be necessary to accomplish this by year end. The viability of this will depend on the timing of the fund’s final redemption and completion of its final audit (where required). However, even if it is not possible to complete the process of liquidating the entity and cancelling its registration with CIMA before the end of 2016 it may still be possible to mitigate the 2017 annual fees; if the fund makes its final redemption and appoints a liquidator by year end it can apply to CIMA for the status of “licence under liquidation” (“LUL”). A registered fund placed into LUL status by 12.00pm (Cayman Islands time) on 30 December 2016 will not incur CIMA annual fees for 2017. The fund can then complete its final audit in 2017 and once the audit, FAR form and FAR filing fee have been filed with CIMA, the deregistration and voluntary liquidation of the fund can be completed.
For funds that have been unsuccessful in raising enough capital for sustainability or which have not launched, there may be the option to seek cancellation of its registration with CIMA without having to meet the standard requirement to file a final audit. Instead, an application for an audit waiver may be made (and other limited circumstances also apply). If the fund is eligible for a waiver it will enable the fund to proceed to dissolution in a more timely manner and it will, of course, save substantial costs (both on the audit front and in terms of 2017 annual fees in cases where the dissolution can be completed before the end of 2016).
An alternative to the voluntary liquidation procedure is to apply for the entity to be dissolved by way of strike-off. A strike-off is certainly more cost-effective and it is a simpler and quicker process. However, an entity dissolved by way of strike-off is open to being re-instated for a period of up to 10 years, thus making this approach less “final” than the voluntary liquidation option. As such, we would generally not recommend this approach where a fund has taken in external investors, has traded and/or has had complex dealings. Nevertheless, it may be an option for those funds which, for example, never got off the ground. If a strike-off is an appropriate option, the application must be completed by 9 November in order for the entity to be struck-off on the final strike date of the year: 31 December. This will then mean that 2017 annual fees will not arise.
Please let us know if you need further advice on the approaches that might be taken to dissolve your entities and/or mitigate on-going costs for 2017.