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VOLUNTARY LIQUIDATION versus STRIKE-OFF

Updated: Apr 9

While a strike-off is less expensive and generally faster to effect than a voluntary liquidation, there are limitations to a strike-off (explained below).


It should be noted that a company which has been struck off can in some circumstances be reinstated for up to 10 years, whereas with a voluntary liquidation, there is further protection and provides finality, as all matters are to be dealt with in an appropriate manner to mitigate the risk of future claims being pursued against the company or its directors. Once dissolved through a voluntary liquidation process, the company cannot be reinstated.


THE VOLUNTARY LIQUIDATION PROCESS


There are a few methods of commencing a voluntary liquidation, but the most common method is by the passing of a shareholder special resolution that the company commences voluntary liquidation, which also names the liquidator. Whilst are no specific qualifications required to act as voluntary liquidator, we recommend that a professional liquidator (such as IMS Liquidations Limited) be appointed, to ensure efficiency. Our appointment also means the directors of the company will not have to perform unfamiliar duties. On the appointment of a voluntary liquidator, the directors' powers cease and vest with the voluntary liquidator.


The Cayman Islands Companies Act (as revised) sets out the process for a voluntary liquidation, which is broadly as follows:

  • the directors consider, and subject to shareholder consent, approve the appointment of a proposed voluntary liquidator;

  • the directors provide a declaration of;

  • the shareholder(s) pass a special resolution appointing the voluntary liquidator;

Timing of the Voluntary Liquidation Process


Assuming the company had 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 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 before the end of November 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).


STRIKE-OFF


A strike off is where a company is removed from the Companies Register, after which the company ceases to exist. The Registrar of Companies may, following a request from the company, strike the company from the Companies Register where it has reasonable cause to believe the company is not carrying on business or is not in operation.


A strike-off is most appropriate where a company has never traded or has ceased trading and the directors are certain that the company has no assets or liabilities for the following reasons:

  • any property belonging to the company when it is struck from the Companies Register will vest in the Cayman Islands Government;

  • any shareholder or creditor of the company who is aggrieved by the company having been struck off can petition the Court in the Cayman Islands to have the company reinstated so that formal liquidation or other actions can be commenced;

  • a strike-off does not affect the liability (if any) of the directors, managers, officers or shareholders of the company, and any such liability continue and may be enforced as if the company had not been Struck-off; and

  • a director who signs a false confirmation, either negligently or fraudulently, for the purpose of the strike-off off may become liable to the shareholders and/or creditors of the company should they suffer any loss or damage as a result of the company being struck off.

A strike off is very straightforward and is less expensive than a voluntary liquidation, and the legal steps can generally be effected within a couple of weeks in some instances, with the Registrar dissolving the company within three to six months. As a safety measure, all relevant documents should be filed via its registered office prior to 1 November of the current year in order for an effective Strike-Off date of 31 December of the current year to avoid incurring fees with the Registrar in the following year. The next available effective strike-off date is 31 March of the following year, therefore, annual fees and expenses for the next year may be payable, so accruals for such expenses should be considered prior to filing the Strike-Off application.


Email our liquidations specialist, Carlos Bourgy at CBourgy@ims.ky, or get in touch with your usual IMS contact for assistance with Voluntary Liquidations or Strike-off.

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