Re-domiciliation of a Company to the Cayman Islands

The re-domiciliation of a company to the Cayman Islands is in demand among international groups that need to change the corporate domicile without breaking the legal history of the business. Such a procedure does not mean the closure of the foreign company or the registration of a new entity: the legal mechanism of Transfer by Way of Continuation makes it possible to retain the legal personality, the assets, the obligations, the contractual history and the corporate continuity, having continued the activity already as a Cayman exempted company.

The Cayman Islands are used in the structures of holdings, investment funds, venture projects, fintech groups, M&A transactions and the management of cross-border assets, and so the question of how to transfer a business to the Cayman Islands requires a legally verified approach. In the article, the conditions of re-domiciliation, the requirements of the Companies Act, the package of documents, the role of the General Registry and CIMA, the procedure for checking creditors, contracts, licences, beneficial ownership and economic expediency will be disclosed.

The Re-domiciliation of a Company to the Cayman Islands: What Transfer by Way of Continuation Means

The international procedure for changing the personal law of a legal entity is regulated by the twelfth part of the Companies Act. The legislation enshrines for foreign structures the possibility of retaining the continuity of their existence without carrying out liquidation procedures. The corporate manoeuvre is legally arranged as a continuation of activity. The foreign organisation submits an official application to the General Registry. The Registrar of Companies carries out the legal examination of the documents. Upon correspondence to all the criteria, the company is registered as an exempted company limited by shares. The re-domiciliation of a company to the Cayman Islands entails a change of the applicable corporate law with the full retention of the legal identity of the entity.

The legal mechanism excludes the necessity of closing the old business with the subsequent transfer of the assets onto the balance sheet of a new enterprise. The law clearly separates re-domiciliation, liquidation and reorganisation. The corporate structure passes under the jurisdiction of the islands in an unchanged form. 

The stability of the operational processes is ensured by the direct norms of the legislation. The twelfth part of the Companies Act guarantees the automatic transfer of all the legal relations of the organisation into the new legal field.

The state register records the following basic elements of the continuity of the business:

• property rights to all types of tangible and intangible assets;

• debt and contractual obligations towards counterparties;

• the procedural status of a plaintiff or a defendant in unfinished judicial disputes;

• the corporate history, including the dates of the taking of determining decisions and appointments.

After the completion of the verification measures, the registrar enters a record into the register of companies. From this moment, the commercial organisation is endowed with the full legal capacity of a local legal entity. The final transfer of the company to the Cayman Islands takes place, which is confirmed by the issuance of a special certificate. The fact of the change of domicile is subject to mandatory publication in the official government gazette (Cayman Islands Gazette). In the publication, the former name of the organisation and the country of its initial origin are indicated. The business obtains the possibility to conduct activity all over the world, using the flexible instruments of English common law. 

When the Re-domiciliation of a Company to the Cayman Islands Is Possible: the Requirements for a Foreign Company

The legislation establishes separate criteria of legal capacity for foreign organisations planning a change of the jurisdiction of registration. It is impossible to implement this process unilaterally: the company must confirm that the law of the country of initial incorporation allows the continuation of the legal entity outside the limits of that jurisdiction. After the transfer to the Cayman Islands, its corporate form must correspond to one of the models provided for by the Companies Act. Usually, for a commercial business an exempted company limited by shares is used, but with a different initial structure a company limited by guarantee or a company with unlimited liability is also possible. If a share capital is required for the chosen form, it is fixed or adapted in the constituent documents upon the continuation of the company. Therefore, the absence of capital in the former structure does not mean an automatic prohibition of re-domiciliation, but requires the correct arrangement of the Cayman model.

The international transfer of a foreign company to the Cayman Islands is possible only when the laws of the state of departure allow or do not prohibit the cross-border continuation of activity. If the foreign law blocks the departure of the legal entity, the local registrar will refuse to accept the documents. Additionally, the company is obliged to guarantee that immediately after the completion of the procedures on the islands, it will cease its existence in the former register. Double registration in two different countries is not permitted. 

The General Registry of the Cayman Islands blocks the entry for commercial organisations that are at the stage of restructuring or bankruptcy. The full registration of a foreign company in the Cayman Islands requires impeccable legal cleanliness. Before the submission of the application, a check of the financial health of the business is carried out.

The legislation contains a closed list of stop-factors hindering re-domiciliation:

• the presence of submitted petitions or rendered judicial decisions on compulsory liquidation;

• the organisation being under the management of a receiver or a judicial administrator;

• the operation of any settlement agreements restricting the rights of creditors;

• the absence of official corporate approvals on the part of the directors and shareholders.

How the Re-domiciliation of a Company to the Cayman Islands Proceeds: the Documents, the Director's Affidavit and the Submission to the General Registry

The official arrangement of the cross-border transition begins with the collection of the evidential base for the state registrar. The state protects its financial system from compliance risks, and so the procedure requires confirmation of the absolute lawfulness of the business. The applicant is obliged to prove that the organisation is not hiding from obligations towards counterparties in the country of departure. All the documentation drawn up in a foreign language is subject to official translation by the forces of a certified translator. The central state body accepts only a complete set of documents that has passed preliminary legalisation. A correctly organised procedure for the re-domiciliation of a company to the Cayman Islands excludes the submission of disparate forms.

The main element of the package of documents is the personal statement of the director under oath. This attestation imposes personal responsibility on the top manager. In the event of the detection of hidden signs of bankruptcy or the falsification of information, the courts of the islands bring the management to criminal responsibility. The law provides for a punishment in the form of a large monetary fine in the amount of 15,000 Cayman Islands dollars and deprivation of liberty for a term of up to 5 years. The state registrar thoroughly verifies the balance of assets and liabilities, drawn up as at the latest practical date before the sending of the files. 

The submission of the documents and the passing of the verification stages are carried out in a strict sequence through the official channels of the General Registry.

What Happens After the Transfer of a Company to the Cayman Islands

The issuance of the official certificate of continuation of activity moves the organisation into the jurisdiction of English common law, but imposes operational obligations on it. From the date of the recording of the entry in the register, a rigid timeline begins to operate for the adaptation of the internal documents. The company is obliged within 90 days to adopt a special resolution of the shareholders for the approval of the new version of the articles of association and the memorandum of association. Until the moment of the official approval of the new documents, the local Companies Act has absolute priority over any old foreign provisions. The transfer of the corporate status to the Cayman Islands taking place requires the immediate adjustment of the management system to the requirements of the local legislation.

The status of an exempted company provides an international holding with significant administrative preferences. The corporate structure is exempted from the necessity of maintaining a register of participants open for public viewing. The organisation obtains the right to express its authorised capital in several world currencies and to issue shares without a nominal value. The law exempts the directors from the obligation to hold annual general meetings of shareholders in the territory of the islands.

The official completion of the registration actions launches the processes of maintaining the compliance status of the company. The administration of the international standards of transparency is handled by the Department for International Tax Cooperation.

The mandatory elements of post-re-domiciliation control include the following procedures:

• the annual submission of reporting in the form of a declaration on the nature of the activity outside the limits of the islands;

• the sending of notifications on economic presence for the check of the conduct of the relevant types of activity;

• the identification of persons holding a share of 25 percent or exercising actual control;

• the uploading of information about the ultimate owners onto a secure centralised government platform.

The Cost of the Re-domiciliation of a Company to the Cayman Islands and the State Duties

The formation of the budget for the cross-border transfer of the corporate status is based on the fixed tariffs of the General Registry. The state registration fee for the continuation of activity fully corresponds to the duty established for the establishment of a new exempted company. The basic parameter for the calculation of the state duty is the size of the declared authorised capital of the foreign structure. For the convenience of international settlements, the official tariff grid of the authority is rigidly tied to the fixed exchange rate of the Cayman dollar to the American currency. Financial planning must take into account that the cost of the re-domiciliation of a company to the Cayman Islands directly depends on the scale of the structure of the capital.

The official scale of fees of the General Registry provides for the following parameters:

• with an authorised capital of up to 42,000 Cayman Islands dollars, the fee constitutes 700 island dollars (853.66 US dollars);

• for a capital from 42,001 to 820,000 Cayman Islands dollars, the duty equals 1,000 island dollars (1,219.51 US dollars);

• in the range from 820,001 to 1,640,000 Cayman Islands dollars, the payment will constitute 1,984 island dollars (2,419.51 US dollars);

• with a volume of capital from 1,640,001 Cayman Islands dollars and higher, the maximum fee is levied in the amount of 2,568 island dollars (3,131.71 US dollars).

If the company chooses the preliminary administrative track for the reservation of the corporate name, a separate fixed payment is paid. The legislation establishes a fee for preliminary registration in the amount of 1,500 Cayman Islands dollars, which is equivalent to 1,829.27 US dollars. The indicated duties for the re-domiciliation of a company to the Cayman Islands cover exclusively the state registration actions. The final price of the re-domiciliation of a company to the Cayman Islands includes the accompanying costs for the preparation of the evidential base. This includes the expenses for the payment of the services of treasury providers, the drawing up of professional legal conclusions, notarial certification and the legalisation of documents.

The main items of additional operational expenses are distributed along the following directions:

• the annual maintenance of the mandatory registered office in the territory of the islands;

• the payment for the services of a certified translator for the translation of the constituent documents into English;

• the administrative fees for the initial submission of data into the beneficial ownership disclosure system;

• the mandatory payments for the audit and the preparation of notifications on economic presence to the tax authorities.

For companies planning a reverse departure from the jurisdiction, a special tariff barrier applies. The de-registration in connection with the continuation of activity in a foreign state is subject to a duty that constitutes three times the size of the company's annual standard fee. 

Conclusion

A thoroughly prepared re-domiciliation of a company to the Cayman Islands requires of the management strict observance of the post-registration obligations towards the state regulators. During the first months after the relocation, the business is obliged to adapt the articles of association to the local legislation, to disclose the ownership structure on the beneficiaries' platform and to adjust the system of reporting to the tax authorities. The full-fledged fulfilment of the requirements for economic presence and transparency guarantees the stable development of the holding in a reliable and worldwide-recognised legal haven.