End of Life Options for Solvent Entities

Restorability

A voluntary liquidation generally provides more certainty for an entity’s dissolution, with certain statutory steps designed to locate creditors and provide for a transparent final accounting of the closure of the entity.

Importantly, upon a strike off, the entity can be restored to the register and notably, with the same directors and members as it had previously. These parties are then, once again, responsible for the entity and can be exposed to any contingent liabilities, including litigation. What this means is that a strike off provides less finality and therefore more uncertainty. The entity can come back to life as if it had never been struck off.

Voluntary liquidation, in contrast can provide for greater finality in some jurisdictions. There can be restricted time periods, or no time period at all, in which an interested party can restore an entity to the register. For example, in Hong Kong, Ireland and

Singapore, a liquidated entity can only be restored to the register for a period of two years from when it was dissolved. This is compared with 20 years from where an entity has been struck off. Further, and importantly, in the Cayman Islands (“Cayman”), a liquidated entity cannot be restored to the register at all, which is a significant advantage in terms of clarity of position.

Because a voluntary liquidation results in greater certainty in respect of restoration and therefore a clearer position on contingent liabilities, transaction parties often view it, for this reason alone, as better from a risk management perspective.

Treatment of Contingent Assets

Another consideration is the ownership of assets discovered post-dissolution. The law in a number of these jurisdictions is silent when it comes to dealing with assets of struck off entities, and the jurisdictions that do reference this scenario (Bermuda, the British Virgin Islands (“BVI”), Cayman, Dubai, Hong Kong and the UK) provide that the assets may ultimately be passed to the State.

In most jurisdictions, this is different to a voluntary liquidation scenario where there are generally tried and tested procedures for the former voluntary liquidator to follow where they are unable to distribute the assets to the ultimate beneficiaries or further assets come to light post-dissolution. For instance, Bermuda, Cayman, Hong Kong and Singapore allow the former liquidator to deal with the assets for a period of time post-dissolution, after which they should be remitted to a specific local government department to hold on trust, with the ultimate beneficiaries having the right, for a specified period, to submit a claim to these assets. Therefore, the risk of assets, which should be available for stakeholders, passing instead to the State is diminished.

Costs and Processes

Strike off procedures are generally simple and involve the submission of certain filings and certifications.

While the voluntary liquidation process is more involved, it is also relatively straightforward across most jurisdictions. It is important to understand that it is not a court supervised liquidation, but a statutory process.

It starts with the appointment of a voluntary liquidator, usually either following a meeting or resolution of the board or members. While the time period involved from start to finish can vary and will depend on the complexity / quantum of the remaining assets, it typically takes approximately four to five months to dissolve a no asset, no liability Cayman company, with a similar timeframe in Bermuda, Hong Kong, Ireland, Singapore and the UK. The process takes approximately three months in the Netherlands and can be significantly quicker in BVI, Dubai, Jersey and Luxembourg.

Costs for a strike off are relatively low, usually a few thousand dollars. Costs of a liquidation are higher but should rarely exceed US$10,000 for a straightforward liquidation. In the context of the size of the transactions undertaken by structured finance and investment fund vehicles, the overall costs of a voluntary liquidation are often seen as de minimis given the factors set out above.

Strike Off or Voluntary Liquidation?

Ultimately, while a little more costly; a voluntary liquidation is often the most beneficial route to take. It is important for officers, managers and members of an entity to consider carefully the implications of not taking the voluntary liquidation route to dissolve an entity. This decision can ultimately affect all stakeholders for a number of years post-dissolution. Strike offs may be best when a vehicle has been dormant and not undertaken any activities, but in our experience most market participants would seek a voluntary liquidation if a transaction had been undertaken.

The Maples Group has unparalleled and trusted experience in each of the key financial centres around the world including Bermuda, BVI, Cayman, Delaware¹, Dubai, Hong Kong, Ireland, Jersey, Luxembourg, Singapore, the Netherlands and the UK, and is able to efficiently manage the voluntary liquidation of all types of entities. We can assist clients with voluntary liquidations and end of life solutions in the jurisdictions in which we incorporate entities, either in the capacity as voluntary liquidator or, if relevant, assisting with a third party referral.

For more information, please contact Marc Randall regarding voluntary liquidation and dissolution services or Nick Herrod regarding legal advice on voluntary liquidations and dissolutions.

^{1 Delaware does not have a comparative formal voluntary liquidation process, but broadly the same result can be achieved through hiring valuation and liquidation professionals to conduct the necessary steps.}