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BVI Commercial Court decision concerning Madoff feeder fund

September 2011

The BVI Commercial Court has held that investors in Fairfield Sentry Limited (in liquidation) (“Sentry”), a feeder fund for Bernard L. Madoff Investment Securities Limited, cannot be forced to repay money received from the redemption of their shares in Sentry prior to its liquidation.

The Liquidators of Sentry sought to claw back redemption proceeds that were paid to investors in Sentry in the years leading up to its liquidation. The liquidators argued that such redemptions were made pursuant to mistake of fact, as the net asset value (“NAV”) used to calculate the redemption price was incorrect. However, the court held that redeeming investors had given good consideration for the redemption by surrendering their shares and this would operate to bar the liquidators’ claims.

This judgment is important as it provides commercial certainty to investors and to the BVI funds industry. Investors require comfort that when the NAV is calculated, the determination will be conclusive and binding on all investors and the fund itself. In delivering this judgment, the court ensured that this commercial certainty is maintained (although this is subject to a successful application by the defendants for final disposal of the actions and to the possibility of appeal by the liquidators).

The judgment also has implications for the drafting of fund documentation. Given the court’s view that certificates should be signed, careful consideration will need to be given to the drafting of constitutional documents where they require that the directors certify certain matters. Consideration should be given as to whether determination should instead be by way of regular statements, or whether certification may be provided electronically.

Finally, the judgment also evidences the continued importance of the BVI Commercial Court and the growing body of notable commercial decisions in the BVI. This was an important and high profile case (with a number of leading Queen’s Counsel making submissions before the court), with many interested parties, including a number of international financial institutions. The decision points to the strength of commercial litigation in the BVI as well as the relevance of its commercial decisions.


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BVI Commercial Court decision concerning Madoff feeder fund



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