The number of companies that redomiciled from the Cayman Islands to other jurisdictions increased by 11 to 68 in 2011. This figure was higher than in the three preceding years, according to the company transfers published in the official Gazettes. However, during the first eight months of 2012, only 17 companies transferred out of Cayman.
Corporate redomiciliation is the process by which a company moves its domicile from one jurisdiction to another by changing the country under whose laws it is registered or incorporated, while maintaining the same legal identity.
Redomiciliations became a hot topic in 2010 when a number of well known United States stock market listed companies, including Garmin, Seagate and XL Capital, moved their corporate domicile out of Cayman to predominantly European locations. The companies blamed tax risks arising from potential US tax legislation targeting companies based in offshore financial centres and the negative publicity surrounding low tax jurisdictions as reasons for the transfer of their registered offices.
Since then, new factors such as the EU Alternative Investment Fund Managers Directive have emerged and put pressure on Cayman-registered funds to redomicile to Europe and, in particular, Ireland and Luxembourg, in order to maintain access to European investors.
A 2011 report by KPMG and RBC Dexia ‘“Alternative options: hedge fund redomiciliation trends in evolving markets” noted three main reasons for redomicilations of hedge funds to European locations. Based on a survey of hedge fund managers, the report said the most important reasons include the restrictions for European institutional investors to invest in offshore hedge funds; the possibility to replicate hedge fund strategies in a regulated UCITS structure; and the ability to offer more liquid, transparent and diversified hedge funds to investors.
Although this trend has hitherto been more anecdotal than statistical, the latest figures show that the two most popular target destinations for redomiciliations from Cayman in 2011 were Luxembourg with 17 and Ireland with seven. Not all of the 17 company transfers to Luxembourg, however, involved hedge funds, as eight companies alone were subsidiaries of Prospector Offshore Drilling, a company that owns, operates and manufactures jack up rigs used for marine construction and drilling.
The seven fund transfers to Ireland in 2011, in turn, have to be seen in the context of 10,871 funds registered in Cayman by the end of the second quarter 2012. This year, there has not been a single redomiciliation to Ireland.
The main target destinations in 2008 and 2009, Delaware and Bermuda, have dropped to only five and one redomicilations 2011, respectively. Other target domiciles in 2011 were the British Virgin Islands (seven), Canada (six), Malta (five) and Uruguay (four).
Redomiciliations from other jurisdictions to the Cayman Islands dropped from 16 in 2010 to 11 in 2011. The majority of companies transferred from the BVI, followed by the Bahamas.
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