Our experienced team of qualified liquidators and support staff provide wind down and liquidation services to the Cayman Islands, the British Virgin Islands, Delaware and other jurisdictions.
Investment funds, offshore holding companies and special purpose vehicles close down for a wide variety of reasons. For example, some may have not met the performance expectations of their founders and investors, others may have fulfilled the purpose of their existence, or a closed ended investment period may have finished. Others may be wound up because the participants see better investment opportunities elsewhere and some terminate in contentious circumstances sometimes across multiple jurisdictions.
It is easy to underestimate how much administrative work has to be undertaken to properly dismantle a structure that may have once enjoyed extensive and complex operations and investments.
Typically, such vehicles are subjected to a voluntary liquidation, which as the name suggests, is an option that a company or limited partnership, acting by its director(s) or general partners, can agree to pursue of their own accord, providing of course that the entity is still solvent.
Entry into voluntary liquidation is straightforward and usually entails passing a number of resolutions subject to the provisions set out in the governing documents.
Voluntary Liquidations of Redundant Shells
A shell liquidation is characterised by there being no assets or liabilities for a liquidator to deal with. The former investment manager/directors should have completely dealt with such issues, including disposing of assets, redeeming investors, settling creditors, terminating service providers, completing audits, terminating licenses etc. prior to the liquidation, allowing the liquidator to file the appropriate statutory papers and then convene a final meeting.
These liquidations and dissolutions are typically subject to relatively low fixed fees. However, stakeholders are increasingly insisting on the engagement of a liquidator who is truly independent of the entity’s historical transactions. In addition to the affairs of the entity being dealt with in a proper and complete manner, the voluntary liquidation process minimises the likelihood of any future claims being made against the entity or its directors by ensuring that all liabilities are extinguished and that the entity is dissolved and struck from the register.
Voluntary Liquidations with Remaining Assets and Issues
Considerable cost savings can often be achieved by placing an entity into voluntary liquidation, for example, by terminating service provider relationships which are no longer needed, including the audit and board fees, and by eliminating the need to pay ongoing annual filing and registration fees. It is not uncommon for the voluntary liquidation process to be used to monetise illiquid or slow to realise assets and gain the benefit of these cost savings, where the entity is in the process of winding down.
We have considerable experience of secondary market transactions to deal with remaining stub positions. Further savings can often be made depending on the number of underlying investors and investments by terminating service agreements with custodians and administrators.
The timeframe for the completion of a voluntary liquidation is usually no longer than 12 months, although this can be longer to facilitate the realisation of certain assets.
Most solvent liquidations are handled by existing service providers such as audit firms, affiliates of legal counsel or director firms. Although we do perform what are known as ‘clean shell’ liquidations, more often we are asked to take on entities that fall outside of existing service providers’ normal risk parameters and have residual issues that require additional experience or resources. Recent examples of some of our cases include:
• Resolution of material FIN48 tax issues resulting in significant distributions to investors;
• Closure of a fund group and establishment of a liquidating entity to hold illiquid assets for the longer term;
• Winding down a fund with distributions in specie and in cash to investors depending upon their wishes;
• Realising remaining assets during an ongoing regulatory investigation;
• Realisation of privately held and thinly traded securities;
• Resolution of a dispute between a fund’s founding partners to allow subsequent distributions; and
• A buy out in liquidation of minority shareholders by the investment manager.
Illiquid asset solutions – Asset Resolution Company SPC (“ARC”)
A particular focus we have is the use of our dedicated illiquid asset platform. ARC has been used to house illiquid assets, escrow amounts, undertake restructuring transactions and assume worthless positions to allow trading books and custodian relationships to be closed out. ARC has dedicated cells, bank accounts and brokers. Frequently we find we can resolve an illiquid asset problem for a fund which allows the existing service providers to continue the solvent liquidation process.