As independent directors, our clients often have questions about and throughout the lifecycle of the liquidation process. If you are thinking of being appointed as the voluntary liquidator over your Cayman entity, considering all the risks and responsibilities before embarking on the process is a prudent course of action for a number of reasons.

A liquidator owes a duty to maximize the returns of those with an economic interest: creditors and shareholders alike. Accepting the role of liquidator to voluntarily wind up a Cayman Islands' entity comes with personal and legal responsibility both during the winding up process and for a number of years after. Liquidators can be fined USD 10,000 if convicted of failing to meet specific legally mandated deadlines and filing requirements throughout the winding-up cycle.

It is important to remember final dissolution does not mean the end of the liquidator's responsibilities. Below, we highlight the core steps and some potential pitfalls to bear in mind during your planning and decision-making process.

  • Risk transfer from offshore to onshore
  • Risk transfer from the fund to you personally, in your capacity as the liquidator
  • You become ultimately responsible for ensuring that the statutory process has been completed correctly, this includes meeting all regulatory filings such as CRS and FATCA

    • Material penalties can be imposed against you if convicted of failing to meet specific legally mandated deadlines and filing requirements throughout the winding up cycle
  • You become responsible for ensuring:

    • All the necessary documents and notifications have been filed correctly and in a timely manner
    • All remaining assets and creditors have been appropriately dealt with
    • All documents have been filed including all the final regulatory and tax reports
    • The final general meeting is held
  • Your responsibility does not expire upon completion of the liquidation, following the liquidation you will be responsible for:

    • Deregistration with the IRS and with TIA for FATCA/CRS
    • For CRS and anti-money laundering rules the liquidator has an obligation to ensure that the required books and records are retained for an additional six years after winding up
  • Even after all of the above has been satisfactorily completed, the liquidator's role may not be finished. Further issues may involve:

    • Regulator enquiries, for example, stemming from the Tax Information Authority
    • Recovery of any past class action claims
    • Litigation against the manager, where, due to risk transfer onshore you may be exposed to contingent claims filed in your onshore jurisdiction against you, and as you are based in that jurisdiction, you may be limited in seeking to choose Cayman to defend against any contingent claims

If you are thinking about acting as a liquidator of a Cayman Islands entity, be sure to fully consider the obligations and potential liability prior to appointment; the more prudent option may be to appoint an experienced local service provider who can ensure the proper wind up of an entity and fulfill the continued obligations. 

Meet the authors:

Deanna Derrick and Lynden John are Cayman-based Intertrust Directors who regularly provide alternative investment funds with independent governance services including Directors, Advisory Board Members and Trustee services. Our Directors work tirelessly to keep clients and their advisors up to date on developments around topics of interest as they occur. Contact us using the details below to find out more about our services or for additional information regarding the contents of this briefing.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.