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EisnerAmper Cayman recently assisted a client in successfully deregistering and dissolving their fund by utilising a less commonly applied mechanism available to voluntary liquidators, which enabled the fund to dispense with the requirement for a final audit.
While this option is not appropriate for every scenario, it can be a valuable tool when applied correctly, particularly when operational challenges make obtaining an audit difficult.
Under the Mutual Funds Act and Private Funds Act, regulated entities must file audited accounts with the Cayman Islands Monetary Authority (CIMA). However, in cases where a fund is undergoing voluntary liquidation, it’s possible to apply for an audit waiver, governed by CIMA’s Regulatory Policy on Exemption from Audit Requirements for a Regulated Mutual Fund.
This waiver provides an alternative solution for funds that, due to certain operational or logistical issues, are unable to complete a full audit but still need to deregister and wind up their affairs.
According to Section 5.4.6 of CIMA’s Regulatory Policy, an audit waiver may be granted when a fund is being voluntarily liquidated and a third-party liquidator has been appointed. The liquidator is responsible for conducting a comprehensive review of the fund’s financial activities since the last audited period. This review serves as a substitute for a full audit, ensuring key areas such as financial reconciliation, solvency, and shareholder activity are adequately addressed.
In a recent engagement, Timothy Womack and John Henry of EisnerAmper Cayman were appointed as the joint voluntary liquidators for a longstanding fund with multiple outstanding audits. The fund had been winding down its operations but encountered difficulties due to a lack of cooperation from service providers and insufficient documentation to support full audits. Several investors had been redeemed but remained unpaid, further complicating the situation.
The fund’s principals had attempted to secure an audit waiver but were unsuccessful. Facing statutory deadlines and limited cash reserves, the client engaged EisnerAmper Cayman to help manage the liquidation and pursue a fresh audit waiver application.
Upon appointment, we engaged with CIMA to discuss the fund’s situation. Our team conducted an in-depth review of the fund’s financial activities, reconciling its records and confirming that no inconsistencies existed that would prejudice stakeholders. Based on this review, we submitted a renewed audit waiver application and report to CIMA, which was successfully granted.
An audit waiver should only be considered in scenarios where it’s the most appropriate course of action. The aim is not to bypass the audit for convenience, or to avoid scrutiny, but to tailor the wind-down process to the realities of a fund’s situation. Common scenarios include where a fund has operational challenges that mean a full audit is not feasible, such as holding incomplete records, or where fiduciaries are uncontactable. Circumstances may also exist where there is little benefit to stakeholders for an audit to be undertaken, both in terms of time and cost; this can be taken into account as part of the waiver application.
In all cases, the voluntary liquidator must make sure that applying for the waiver is in the best interest of the fund and its stakeholders. The integrity of the liquidation must not be compromised, and no creditors or investors prejudiced. CIMA has ultimate discretion as to whether it will grant a waiver.
If you are considering an audit waiver for your fund’s voluntary liquidation, it’s essential to take the following steps:
The team at EisnerAmper Cayman has extensive experience navigating the audit waiver process for funds in voluntary liquidation. Our approach makes sure that the waiver application meets CIMA’s requirements while protecting stakeholder interests.
An audit waiver, when used in the right circumstances, can streamline the liquidation and deregistration for regulated funds without compromising the integrity of the process. At EisnerAmper Cayman we have the knowledge to guide you through this while maintaining compliance with CIMA’s requirements and protecting stakeholder interests.
If your fund needs to be wound down, contact us today to discuss how we can assist.
| John Henry Partner D: +1 345-525-7134 E: jhenry@eisneramper.ky |
| Tim Womack Partner D: +1 345-322-4255 E: twomack@eisneramper.ky |
| Liam Hardie Senior Manager D: +1 345-924-5097 E: lhardie@eisneramper.ky |
+1 345 945 5889
+1 212 949 8700
+353 1 293 3400
+65 6305 9900