With Q4 fast approaching, if managers and operators are considering winding up a Cayman Islands regulated mutual fund (a "Fund"), it would be prudent to start the process as soon as possible with a view to completing it by year-end and minimising and/or precluding 2018 annual fees.
Funds that are registered with the Cayman Islands Monetary Authority ("CIMA") must submit a deregistration application and satisfy all deregistration requirements. Unless the Fund qualifies for an audit waiver (only granted in limited circumstances), this includes the filing of a "stub audit" up to the date a third party liquidator has been appointed or, if no third party liquidator has been appointed, to the date of final distribution or to the date that the final net asset value was calculated, with subsequent events notes to confirm that the final distribution has been paid to investors. Once the deregistration application is submitted, the Fund will be removed from active status and placed in Licence Under Termination ("LUT") status with CIMA. During the first six months of LUT status, the operator is required to provide CIMA with comprehensive and ongoing updates as to the status and progress of the winding down. After this six month period, CIMA will contact the Fund to collect outstanding documents and/or fees and failure to provide them in a timely manner may result in CIMA taking administrative action to cancel the Fund's registration.
The stub audit requirement means that, in addition to filing the core deregistration requirements and supporting affidavit before 31 December, the Fund must file the stub audit with the accompanying Fund Annual Return ("FAR") Form and pay to CIMA the FAR filing fee on or before 31 December in order to complete the deregistration application and avoid half-year CIMA fees being charged for 2018. Given the possible timing hurdles this may present for some funds, it is imperative that the Fund engages with its auditors and offshore counsel early in the wind down process to maximise regulatory and service provider cost savings for the Fund.
Following CIMA confirmation of deregistration, the Fund can focus on the administrative wind down process. If the wind down of a Fund is not completed before the end of January 2018, the Fund will be liable for annual government fees as well as ongoing service provider fees.
Consequently, once a considered assessment has been made to terminate a Fund, it is important that sufficient time and resources are allocated to complete the wind down process and minimise and/or preclude annual fees for the following year.
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.