Yesterday (6) our exclusive lead story “More red tape for all Cayman companies” has caused a stir in the financial world but it should have caused a stir in everyone who has a business. It should have caused a stir to the bloggers but perhaps none of these run companies. But there is a principle too. The principle is a straight forward one:

Consultation

And there seems pretty little of it with the present government.

Various amendments to the Cayman Islands Companies Law have now been legislated with no previous consultation with the private sector and is only awaiting gazetting before these amendments become law. And one of these amendments is incredible and incomprehensible.

An amendment to Section 59(1) of the Cayman Islands Companies Law requires “all Cayman companies to keep AT THEIR REGISTERED OFFICE proper books and records together with underlying documentation including contracts and invoices relating to all money received and paid, all sales and purchases and all assets and liabilities.”

Yesterday we quoted Chris Johnson of Chris Johnson Associates when he said (amongst other things), “all companies must now maintain their books of account at the Registered Office of the company in the Cayman Islands. The section does not even say copies of books of account. So imagine over 80,000 companies now keeping their books of account in Cayman. To take it to its fullest extent to maintain those records you need tens of thousands of bookkeepers, accountants, computer specialists etc. and each year the overseas auditors descend upon Cayman, which is so much required to boost our lackluster economy.”

I share with you other quotes I have received today:

Sophia Harris, Managing Partner of Solomon Harris:

“A bill has been passed to amend the Companies Law and amongst the proposed amendments is a proposal to amend Sec 59 (1) to provide that financial records and supporting documents must be kept at the registered office.

The bill has yet to be gazetted which is necessary to bring the law into effect.  Cayman companies have traditionally been incorporated to fulfill a myriad of commercial purposes.  The majority are incorporated as exempted companies, which means the primary objectives of the companies must, as a matter of Law, be achieved outside of the Cayman Islands.  It stands to reason that most of these companies will keep their records where their ‘mind and management’ is located or where their primary administration is conducted, which will most likely be outside of the Cayman Islands.  To require that these companies must now keep their records, accounts and supporting documents in the Cayman Islands, is unduly burdensome to the company, its management and to the registered office of the company.  It is not clear what the intended purpose behind this amendment is or what is intended to be gained by implementing this requirement which appears to be unprecedented in any other competing jurisdiction.  This is unfortunate given that Cayman has always rightfully touted itself as being a user friendly jurisdiction with effective yet unburdensome legislation.

“It is also concerning that there appears to be no provision to facilitate a lead in time to allow registered offices to comply with what will be a mammoth task for many in obtaining copious records for their companies so as to not immediately fall foul of the legislation.”

Michael Austin, M.B.E., F.C.A.:

“I have not had an opportunity to study the amendments to the Cayman Islands Companies Law which I understand have now been legislated, however, I must say I was somewhat astonished at the amendment to Section 59(1) requiring books and records to be kept at the registered office of a company.  In my view it is obviously completely impractical to require all Cayman companies to keep their books, records, contracts, invoices, and underlying documentation at the registered office.  Taken literarily this presents enormous practical difficulties.  I can only surmise that the key may lie in the clarification of the word “kept” and possibly this word is open to alternative interpretations, however, I hasten to say I am not a lawyer and I defer to the legal minds on this one.”

Paul Harris (President), Cayman Islands Directors Association, and Cayman Islands Company Managers Association:

“Present Cayman practice regarding records which must be kept at the registered office closely follows the practice adopted in the United Kingdom and includes statutory records such as register of directors, register of share holders etc.  Financial records are not included.

“Our law already requires that companies keep proper books of account and supporting records but to mandate that all financial records should be kept at the registered office would be a departure from UK practice and would  be next to impossible to implement.”

Richard Coles, Chairman of Cayman Finance:

“This isn’t law yet and is likely to change after discussions with Government. These discussions are private and ongoing.”

I received the following quotes but the parties did not want to be identified:

“Richard Coles is correct as Government has passed the bill but the final step of gazetting has not happened. So the bill received legislative approval but without consultation with the private sector. This is an unwelcomed development as the strength of Cayman has always been in the mutual respect and working relationship between the Government and the Private Sector. The Bill was passed and the private sector notified after the fact. It is the private sector that has asked that the bill not be gazetted until the deficiencies of the legislation are addressed by the Private Sector in general (and not just the group Coles represents). Thankfully, it appears Government has agreed.”

“In the forty five years I have been involved in Cayman’s financial industry I do not believe I have ever seen such a disconnect between Government and the private sector.”

“Let’s hope this defect is repaired soon.”

It is incredible and incomprehensible that this has happened without any consultation. It is incredible and incomprehensible that the Members of the Legislative Assembly can pass such an amendment.   It doesn’t take anyone with a an accountancy or company management degree to see the ramifications of putting forward such an insane proposal let alone being able to get it passed by our lawmakers.

I leave the last words to Chris Johnson:

“This proposed amendment is the most ill drafted and ill-conceived one that I have seen in over forty years. Should this amendment come to pass the islands Financial Industry will collapse over night.”

Go to: http://www.ieyenews.com/2012/09/more-red-tape-for-all-cayman-companies/