Reducing the Cost of Winding Down

Ideally, before either process is commenced, the entity should have completed its affairs, realised or distributed its assets and settled all liabilities.

Therefore, before beginning either process, it is generally necessary to ensure the following have been completed prior to year-end in order to remove certain fees and costs for 2027:

• all distributions to investors or owners have been completed (whether in cash or in kind).

• all creditors have been paid in full.

• if the entity is a fund regulated by the Cayman Islands Monetary Authority ("CIMA"), in order to avoid 2027 CIMA fees, the fund must have completed all required steps before submitting its application for de-registration, which include fully redeeming investors and completing the final 'stub' audit, prior to 31 December 2026.

How to avoid a final stub audit

Regulated mutual funds and private funds are generally required to submit audited financial statements annually in accordance with the Mutual Funds Act (as revised) and the Private Funds Act (as revised). However, where appropriate, a fund in good standing with CIMA may apply for an audit waiver permitting the submission of a voluntary liquidator's report in lieu of the final 'stub' audit. The voluntary liquidator's report covers the period following the last audited financial year and, if accepted by CIMA, can eliminate the need for a separate final audit.

CIMA may also, on a case-by-case basis, extend a fund's final audit period for up to 18 months from the last audited financial year end, providing additional flexibility when planning a voluntary liquidation.

Potential cost saving

A final stub audit can often represent one of the largest remaining costs of winding down a regulated fund.

Where a fund qualifies for an audit waiver, audit costs may be significantly reduced or avoided altogether, making it one of the most effective ways to lower the overall cost of a voluntary liquidation.

Obtaining an audit waiver not only reduces costs but also supports a more efficient deregistration process under CIMA's regulatory framework for mutual funds and private funds, introduced on 17 August 2022.

As a practical matter, an audit waiver permitting the submission of a voluntary liquidator's report in lieu of the final 'stub' audit will generally only be available where substantive winding-up activities remain to be completed during the voluntary liquidation, allowing the voluntary liquidator to independently review and report on those activities. Examples may include approving final service provider payments, settling outstanding liabilities, completing final investor distributions (whether in cash or in specie), or otherwise concluding the affairs of the fund.

Planning ahead is therefore critical. Appointing a voluntary liquidator before all substantive winding-up activities have been completed can preserve the opportunity to seek an audit waiver and avoid the cost and delay of a final stub audit.

IMS has extensive experience obtaining CIMA audit waivers and preparing voluntary liquidators' reports for both mutual funds and private funds. To discuss whether your fund may qualify, or to explore opportunities to reduce wind-down costs and streamline the CIMA deregistration process, please contact Carlos Bourgy using the details below.

Timing of the voluntary liquidation process

Assuming the entity is not regulated by CIMA and has no assets and no liabilities prior to commencing the voluntary liquidation, the process will generally take anywhere between 4 and 8 weeks from the appointment of the voluntary liquidator to the final meeting of the shareholder(s) and the submission of the voluntary liquidator's final return to the Registrar.

We recommend commencing the voluntary liquidation process no later than the end of November 2026 at the very latest (but preferably sooner) to avoid incurring fees with the Registrar of Companies in the following year, with the final general meeting held and all of the requisite documents filed prior to the end of 31 January 2027.

Strike-off

A strike-off is a simple and cost-effective way of removing a Cayman Islands entity from the Register where it has ceased carrying on business and has no remaining assets or liabilities. Once struck off and dissolved, the entity ceases to exist.

A strike-off is generally appropriate where an entity has never traded or has completed its affairs, and the directors are satisfied that:

• all assets have been realised or distributed;

• all creditors have been paid in full; and

• there is no realistic prospect of future claims.

Before proceeding, directors should be aware that:

• any remaining property of the entity will vest in the Cayman Islands Government;

• the entity may, in certain circumstances, be restored to the Register for up to 10 years following dissolution;

• a strike-off does not release directors, officers or members from any existing personal liability; and

• the striking of an entity off the applicable register shall not affect the liability, if any, of any director, manager, officer or member of the entity, and such liability shall continue and may be enforced as if the entity had not been dissolved.

A strike-off is generally quicker and less expensive than a voluntary liquidation and can often be completed within a matter of weeks, with dissolution typically occurring several months later.

Strike-offs are processed quarterly on 31 March, 30 June, 30 September and 31 December. Once the necessary documents have been accepted for registration, the entity's status will be updated to "Strike-Off Pending" until the effective strike-off date.

Strike-off or voluntary liquidation?

Whilst a strike-off is a quick and cost-effective solution for dormant entities with no assets or liabilities, a voluntary liquidation provides a more structured and comprehensive wind-down.

A voluntary liquidation is generally the preferred option where an entity has traded, has an operating history, holds assets, has creditors, or there is any possibility of future claims. Unlike a strike-off, it provides a formal statutory process to settle liabilities, distribute assets and conclude the entity's affairs, offering significantly greater certainty and finality.

Which option is right for you?

Use the practical checklist below to help determine the most appropriate wind-down option for your entity.

Strike-off may suit you if:

• The entity has never traded or has remained dormant

• There are no remaining assets

• There are no outstanding liabilities or creditors

• There is little or no risk of future claims

• The objective is to achieve the lowest-cost exit

Voluntary liquidation may suit you if:

• The entity has traded or has an operating history

• Assets remain to be realised or distributed

• Creditors or contingent liabilities remain

• There is a possibility of future claims or disputes

• Greater legal certainty and finality are required

• The entity is a regulated investment fund requiring an orderly CIMA deregistration

Whilst a strike-off is an excellent solution for simple, dormant entities, a formal voluntary liquidation will generally be the preferred option where an entity has traded, has an operating history, holds assets, has creditors, or there is any possibility of future claims.

Why IMS?

Cayman specialists

Our team specialises in Cayman Islands voluntary liquidations, fund deregistrations, audit waivers and cross-border restructuring appointments. We combine technical expertise with a practical, commercial approach to deliver efficient and cost-effective outcomes.

Independent and conflict-free

Unlike many firms, IMS does not provide audit services. This significantly reduces the likelihood of conflicts of interest and enables us to accept appointments quickly, providing clients with a seamless and efficient onboarding process.

One firm. Multiple solutions.

IMS provides far more than voluntary liquidations. We can also act as independent directors, provide registered office services, assist with CIMA audit waivers and deregistrations, and support cross-border restructuring and formal liquidation appointments, delivering a coordinated Cayman solution under one roof.

Fixed and transparent pricing

For straightforward solvent wind-downs, we offer clear fixed-fee pricing with no hidden surprises. Where additional work is required, we discuss the scope and agree the fees upfront.

Practical, commercial advice

Every wind-down is different. Rather than applying a "one size fits all" approach, we work with directors, investment managers, legal advisers and service providers to identify the most practical and cost-effective solution, whether that is a strike-off, voluntary liquidation or another restructuring option.

Responsive and efficient

We understand that wind-downs are often time-sensitive. Our team is committed to responding promptly to enquiries, issuing proposals quickly and progressing appointments efficiently to help clients meet regulatory deadlines and avoid unnecessary costs.

How else can IMS help?

While our foray into the wind down of entities marks a significant milestone, it is only one facet of IMS' extensive service offerings. We provide a team with over 200 years of combined experience in providing:

• Insolvency and restructuring – appointment taking in official liquidations, voluntary liquidations, fund de-registration and liquidator's reports in lieu of audit, etc. We can also provide parachute directors for distressed entities;

• Independent non-executive directors to funds and other bespoke governance services (hedge, PE, VC, etc.), structured finance vehicles, Web3 / Blockchain and associated entities;

• Registered Office Services;

• AML Officers (CO, MLRO & DMLRO) to registered funds;

• Captive / re-insurance – formation and management of captive insurance and reinsurance companies, to include assistance with licensing;

• Trusts / Foundations – formation and management of trusts/foundations, acting as trustee, protector, enforcer etc;

• Corporate Services – establishment of Companies, Trusts, Foundations & Partnerships; and

• Vessel registration and acting as representative person to the shipping registry.

Further information

For more information, please get in touch with a member of our team who can provide you with a customised proposal and quote to get you started.

Gary Butler
Managing Director and Legal Counsel
gbutler@ims.ky

Carlos Bourgy
Head of Restructuring and Insolvency
(+1) 345 326 3613
cbourgy@ims.ky