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Captive Board Meetings in the Time of COVID

June 2020 Rob Humphries

In extraordinary times such as the present COVID-19 pandemic, the importance of a captive insurance company focusing on fundamentals like the proper calling, conduct and recording of board meetings cannot be overstated. Responsibility for properly coordinating board meetings is typically delegated to the insurance manager who usually also acts as company secretary. In their role as company secretary, clients rely on their insurance manager to keep the minute books of the company properly updated and to make all necessary filings with CIMA and the Registrar of Companies. Here are a few things for managers and captive boards to keep in mind.

Compliance with Cayman Economic Substance Legislation

Captive boards and managers should be fully aware of their captives’ obligations under the International Tax Co-operation (Economic Substance) Law (2020 Revision) and associated Guidance Notes (the “ES Law”). By this stage, every captive board should have met to discuss the application of the ES Law and should have meeting minutes or resolutions on file documenting at least the following:

  • The scope and application of the ES Law to the company and its activities;
  • The company’s classification under the ES Law and whether it will need to comply with the Economic Substance Test (the “ES Test”) as a result of its classification; and
  • Instructions to the insurance manager to make any necessary filings with the relevant authorities.

Although most Notifications should already have been filed, the Registrar of Companies and the Department for International Tax Co-operation (“DITC”) have extended the deadlines for entities to complete their annual return and Economic Substance Notification filings until 30 June 2020, after which penalties will begin to accrue.

The COVID pandemic has caused some consternation for captive boards who were hoping to hold board meetings in Cayman this year with a view to complying with the “directed and managed” requirements under the ES Test where applicable.

With the Cayman airport closed until September 2020 at the earliest, most of those meetings will not be able to go ahead with board members physically present in Cayman. However, the Ministry of Financial Services (the “Ministry”) has released a notice stating that the DITC is aware of the challenges and where the board of director meetings are required to be held virtually during this period of uncertainty, the DITC will take that into consideration on a case-by-case basis when determining whether an entity has passed or failed the ES Test.

The Ministry also took the opportunity to remind those concerned that the “directed and managed” limb of the ES Test is but one element and all other elements of the ES Test will need to be complied with regardless of any COVID disruption.

In practice, we’re finding that captive boards are anxious to have a discussion, particularly on topics like the captive’s investment situation and potential loans/distributions to parents during these challenging economic times. COVID has made that difficult, especially for those captives whose articles of association restrict the ability of the board to hold meetings in the US, where those board members are physically located. In these situations we have seen some boards propose that an information sharing/Q&A discussion (NOT a board meeting!) take place via phone or video but it is made absolutely clear that it is not a board meeting and no decisions are taken. Routine/non material board matters are then dealt with by proxy meetings facilitated by the insurance manager in Cayman or elsewhere outside of the US. Material/significant board matters that necessitate in person board meetings are often being delayed (where possible) until after the crisis when those meetings can be convened outside the US.

 

To continue reading full articles in PDF format:
Captive Board Meetings in the Time of COVID

 


Rob Humphries
Counsel

Cayman Islands   +1 345 814 7793
Mobile  +1 345 922 1907


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