Mar 2026
On 1 January 2026, the Cayman Islands Companies (Amendment) Act, 2024 (the “Amending Act”) came into effect, introducing welcome amendments to the Companies Act of the Cayman Islands (As Revised) (the “Companies Act”).
This article summarises the key features of the newly introduced capital reduction supported by solvency statement route, which offers an attractive alternative to the existing court-confirmation process in the Cayman Islands.
Overview
Previously, a company limited by shares (or a company limited by guarantee with share capital) that wished to reduce its share capital was required to pass a special resolution and obtain confirmation from the Grand Court of the Cayman Islands. The Amending Act supplements this existing procedure by introducing a new streamlined option: a reduction of share capital supported by a solvency statement, which does not require court confirmation.
Solvency Statement Route
This new “solvent capital reduction” allows a company to reduce its share capital by special resolution provided that (i) the directors are able to give a solvency statement in support of the capital reduction and (ii) the company is otherwise authorised to reduce its capital under its articles of association.
A reduction of capital is supported by a solvency statement if the directors of the company, having made a full enquiry into the company’s affairs, make a statement that the company will be able to pay its debts as they fall due in the ordinary course of business. This solvency statement must be made no more than 30 days before the date on which the special resolution for reducing the share capital is to be passed. Any director who knowingly makes a solvency statement without reasonable grounds commits an offence and is liable to a fine and a term of imprisonment.
Following the passing of the special resolution, the company has fifteen days to deliver a copy of the solvency statement and a minute containing certain prescribed information to the Registrar of Companies in the Cayman Islands for registration. The minute must include: (a) the amount of share capital of the company; (b) the number of shares into which the share capital is to be divided and the amount of each share; and (c) the amount, if any, deemed to be paid up on each share.
The special resolution for reducing share capital takes effect on the date of registration of the solvency statement and minute and the certificate issued by the Registrar is conclusive evidence that all requirements for the share capital reduction supported by solvency statement have been complied with.
The registered minute is deemed to be substituted for the corresponding part of the memorandum of association of the company and is valid and alterable as if it had been contained in the memorandum on the effective date of the reduction.
If the company fails to deliver the solvency statement and minute to the Registrar by the deadline, the Registrar shall not register the documents. In such circumstances, the company may instead apply to the Court by petition for an order confirming the reduction under the existing court-confirmation process.
Comment
The introduction of the solvency statement route provides Cayman Islands companies with a more expedient mechanism for effecting a share capital reduction without the need for court involvement, provided that the directors are confident in making the required solvency statement.
However, companies should ensure that their articles of association authorise the reduction of capital in accordance with this new procedure before seeking to utilise it.