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Striking off a Cayman Islands entity is simpler and less expensive than voluntary liquidation, but companies must understand the risks that are often overlooked

In most cases, winding up an entity in the Cayman Islands is a case of choosing one of two options: voluntary liquidation or a strike-off.

Striking off an entity is significantly cheaper, quicker and less complicated - and is popular for these reasons.

But a strike-off brings associated risks not present with voluntary liquidation, and thus is not appropriate for all winding-up cases. Here we examine 10 factors to keep in mind when considering a strike-off as an option.

1. A Cayman entity strike-off shouldn't be complicated

Strike-offs are generally used in straightforward winding-up cases, often when an entity has never traded or is dormant and hasn't had assets or liabilities for some time. That makes it relatively simple and considerably less expensive than voluntary liquidation. In general it costs about half the price.

2. Legal counsel isn't necessary for Cayman entity strike-offs

Strike-offs are usually so straightforward that lawyers aren't required. The entity's registered office in the Cayman Islands can complete the entire process and will have access to all necessary information and statutory registers. If you do engage a lawyer, the registered office will still be responsible for filings with the Registrar of Companies.

3. Be aware of the risks when striking off a Cayman entity

Though quick, uncomplicated and relatively cheap, a strike-off isn't as comprehensive as voluntary liquidation. So there are risks to consider. In many cases they won't apply - but when they do, you should weigh them carefully against cost and efficiency.

4. A struck-off Cayman entity can be reinstated

One of the most notable risks is reinstatement of the entity. For two years after strike-off, a company member or creditor can apply to have the entity restored to the register. By contrast, a company dissolved by voluntary liquidation cannot be reinstated.

5. Striking off a Cayman entity doesn't eliminate liability

Another risk is continued liability. Directors, officers, managers and members of the struck-off Cayman entity are still liable for its debts and obligations for up to 10 years. That liability can be enforced as if the entity had not been struck off. In other words, strike-off does not bar creditors who may surface later from pursuing claims. However, properly administered voluntary liquidation does.

6. Ignored assets are vested to the government

If you strike off a Cayman entity but forget about one of its assets - often property - that asset will vest to the benefit of the Cayman Islands government.

7. Keep in mind the Cayman entity's relationships

Before striking off any entity, you need to understand its place in your wider company structure. For example, an entity may be a shareholder in (or general partner to) another entity. Striking it off could cause potentially serious issues for the active entity.

8. Consider deadlines when striking off a Cayman entity

With any kind of winding up, the best policy is always to act early. Invoices may have to be paid and other requirements met before a Cayman entity can be struck off. In terms of hard deadlines, the Registrar administers strike-offs on the last business day of each calendar quarter - at the end of March, June, September and December. But the filing cut-off dates are earlier. In 2022 you need to file by 19 August for a September strike-off, or 11 November for a December strike-off. Start preparing well in advance.

9. Have your Cayman entity paperwork in order

Ensure the entity has no assets or liabilities before beginning the process. This will have to be confirmed to the Registrar for the strike-off filing. In addition, most entities' financial years will end on 31 December. That means an Economic Substance Notification for 2022 will have to be filed, preferably before the Cayman entity is struck off.

10. Consider the alternative

If you are concerned that a strike-off isn't suitable, consider voluntary liquidation instead. It's more complex, but reduces future potential risk for directors, investment managers, shareholders and other stakeholders. Learn more about voluntary liquidation here.

Why Intertrust Group?
  • Kim Charaman is a liquidations specialist with more than 15 years' experience overseeing Cayman entity strike-offs and voluntary liquidations.
  • Intertrust Group can take care of the entire strike-off process, including preparing documents and filing with the Registrar.
  • Intertrust Group is a publicly listed company with 70 years' experience providing world-class administration and company secretarial services to clients around the world.

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Disclaimer

Intertrust NV published this content on 11 July 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 11 July 2022 08:03:08 UTC.