The liquidation of a company is the process of ending the business and satisfying the existing claims of the creditors. In most cases, liquidation will take place once the company has become insolvent, as soon as it can no longer pay its obligations.
Our team of Cayman Islands incorporation specialists can also help investors who are planning on closing an existing company and need to go through the liquidation phase, with or without court involvement. Professional assistance is recommended in most cases. The company representatives will need to make sure that all of the claims of the creditors are met before the legal entity can be struck off from the register. This will ensure that the company officially ceases to exist.
Investors who need to close down a Cayman Islands exempted company and must go through the liquidation phase can reach out to our agents.
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Types of company liquidation in the Cayman Islands
Company liquidation in the Cayman Islands can be broadly categorized as with or without court involvement. We highlight the main types below:
- voluntary liquidation: the one where the court is not involved and the process takes place as per the company’s internal resolutions.
- court-supervised liquidation: similar to the voluntary type, however, the liquidator is subject to court supervision.
- compulsory liquidation: in this case, a creditor issues a petition for the winding-up of the company; other parties can also commence the process.
- provisional liquidation: this can take place in case of a compulsory winding up when a petition is made to appoint a provisional liquidator.
Our Cayman Islands incorporation and liquidation agents will detail the specific characteristics of winding up a company in the Cayman Islands.
What are the characteristics of voluntary liquidation?
The process of voluntary liquidation is described in the company’s Articles of Association. Investors interested in setting up a Cayman Islands company should know that this process takes place following a special resolution adopted within the company. In this case, there is no formal court process and the appointed liquidator does not need to be a professional. He/she can be one of the company directors or the company’s accountant. The accounting obligations of the company will cease when the company liquidation process in the Cayman Islands officially begins
Please note that this type of liquidation can only proceed if the company director signs a statement within 28 days of the liquidator’s appointment. The declaration will state that the legal entity will be able to fully pay its debts within twelve months following the date on which the liquidator was appointed. Should the directors fail to sign this document, then the company will be under liquidation supervised by a court.
One of our agents who specialize in Cayman Islands incorporation can provide additional details about this particular form. Because of its characteristics, it is not a long-term option. One of our agents can analyze the particularities of the case and recommend a suitable manner in which the company should handle liquidation.
Role of liquidator in voluntary liquidation
As previously mentioned, in the case of voluntary company liquidation in the Cayman Islands, the shareholders appoint the liquidator during an Extraordinary General Meeting (EGM). Alternatively, he/she can be appointed through a written resolution signed by all shareholders.
From the specific date of the special resolution to wind up the company in Cayman Islands, the liquidator takes over all management powers from the directors. However, directors may still perform specific duties if necessary for the company liquidation process or if they have permission from the shareholders.
The liquidator collects all assets of the company to pay off all the company’s debts and obligations. He/she must also confirm the legitimacy of creditors and shareholders.
It is possible for the liquidator to distribute some assets directly to creditors or shareholders, without converting them to cash. After paying all debts, any leftover assets are dealt with according to the company’s governing documents and instructions from shareholders.
Once there are no remaining assets or liabilities, the liquidator prepares a report. He/she must detail how the procedure of company liquidation in the Cayman Islands was conducted and how the assets were distributed.
The liquidator must publish a notice in the Cayman Islands Gazette, specifying the details of the final general meeting (FGM) of shareholders. He/she is responsible for scheduling the FGM at least 21 days after the notice is published. The purpose of the FGM is to formally conclude the company liquidation process in the Cayman Islands.
Our team can offer more details about how to close or set up a company in the Cayman Islands.
What are the principles for compulsory liquidation?
Several parties can request the compulsory winding up of the company in the Cayman Islands. These can include one or more creditors (prospective creditors included) or the Cayman Islands Monetary Authority when the legal entity is subject to regulation.
The following situations are examples in which court compulsory liquidation can be ordered:
- when the company issued a special resolution that required this manner of winding up; investors who are interested in the Cayman Islands incorporation can select this specific manner of terminating the activities of the business;
- the company has its business suspended for one year;
- when the company passes its date for winding up, as included in the Articles of Association;
- when the company is unable to pay its due debts;
- when the court issues a special decision for this purpose; if needed, our lawyers in the Cayman Islands can provide legal representation.
Both in the case of the voluntary and the compulsory liquidation, all of the company’s assets are collected are distributed to the creditors for satisfying their claims. Once this is complete, the liquidator is released and the final step is to dissolve the company. One of our Cayman Islands company formation agents can provide investors with more information about these steps.
Striking off a company in the Cayman Islands
Another way to close a company in the Cayman Islands is to apply to the Registrar of Companies to be removed. The Registrar has the authority to strike off a company, especially if it appears that the company is no longer operating. However, this processis not suitable for companies with valuable assets. When a company is struck off, its assets become the property of the British state.
Members can request to have the company restored to the register within 2 years of its striking off. In some cases, the court may extend this period up to 10 years if it deems it appropriate.
Please note the striking-off process does not address any outstanding liabilities to creditors. Unlike liquidating a company in the Cayman Islands, the striking-off process does not entirely close off creditors’ options. They might still pursue claims related to the company’s assets even after it has been struck off.
Our Cayman Islands company formation specialists can offer more details about this procedure.
Statistics about terminated companies in the Cayman Islands
According to the Registrar General, many entrepreneurs chose to wind up their company in the Cayman Islands in 2023:
- Approximately 4,730 companies were struck off;
- 3,920 were Cayman Islands exempted companies;
- Approximately 105 were nonresident companies;
- Approximately 239 were limited liability companies.
Contact our Cayman Islands incorporation specialists for more information about liquidation, the duties of the company directors as well as the rights of the creditors.