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Cayman Islands Court of Appeal

December 2008

In The Matter of Strategic Turnaround Master Partnership Limited (December 12, 2008), the Cayman Islands Court of Appeal decided some important questions relating to the redemption – and the suspension of redemptions – of shares in a Cayman Islands mutual fund. Whilst the decision turned on the specific language of the company’s Articles of Association and offering memorandum, it does give interesting insight into how Cayman’s courts are likely to deal with these difficult issues. Such insight will be invaluable with suspensions of redemptions becoming an increasingly common mechanism to stave off disaster in volatile markets.

A full analysis of the case is beyond the scope of this brief update, but we draw your attention to the following noteworthy aspects of the Court of Appeal’s decision:

  • Central to the Court of Appeal’s decision was its finding that the company’s constituent documents conferred on the directors the power to suspend redemption payments even after the redemption date. This analysis hinged on the language of the Articles and offering memorandum.
  • Given the constraints of the appeal (being an appeal from an application to strike out a petition, and not an appeal from a full hearing of the facts and evidence) the Court of Appeal decided only matters of construction and law and as such did not rule on whether the power to suspend redemptions was exercised properly. That will be an issue for another day.
  • The Court of Appeal held that a redeeming shareholder becomes a creditor of the company on the redemption date, regardless of any power to suspend payment in the Articles or offering memorandum. On the specific language in the Articles of Association, the Court further held that the debt owed to the redeeming shareholder was also suspended and not immediately due. As a consequence the redeeming shareholder was not entitled to present a petition to wind up the company on the ground that it was unable to pay its debts.
  • The redemption of shares is a process, rather than a single event, and until actually paid and removed from the register the redeeming investor is a shareholder of the company with all the rights and obligations that entails (including the right to bring a petition for the winding up of the company on just and equitable grounds).

The decision is interesting on a number of fronts, which will be explored in a fuller analysis to follow shortly. We encourage clients who are considering issues of redemptions and suspensions of redemptions to contact any member of the Conyers Dill & Pearman Funds Team to discuss in detail the impact of this decision.

 

To continue reading full articles in PDF format:
Cayman Islands Court of Appeal

 

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Articles

Cayman Islands Court of Appeal

18 December 2008

In The Matter of Strategic Turnaround Master Partnership Limited (December 12, 2008), the Cayman Islands Court of Appeal decided some important questions relating to the redemption – and the suspension of redemptions – of shares in a Cayman Islands mutual fund. Whilst the decision turned on the specific language of the company’s Articles of Association and offering memorandum, it does give interesting insight into how Cayman’s courts are likely to deal with these difficult issues. Such insight will be invaluable with suspensions of redemptions becoming an increasingly common mechanism to stave off disaster in volatile markets.

A full analysis of the case is beyond the scope of this brief update, but we draw your attention to the following noteworthy aspects of the Court of Appeal’s decision:

  • Central to the Court of Appeal’s decision was its finding that the company’s constituent documents conferred on the directors the power to suspend redemption payments even after the redemption date. This analysis hinged on the language of the Articles and offering memorandum.
  • Given the constraints of the appeal (being an appeal from an application to strike out a petition, and not an appeal from a full hearing of the facts and evidence) the Court of Appeal decided only matters of construction and law and as such did not rule on whether the power to suspend redemptions was exercised properly. That will be an issue for another day.
  • The Court of Appeal held that a redeeming shareholder becomes a creditor of the company on the redemption date, regardless of any power to suspend payment in the Articles or offering memorandum. On the specific language in the Articles of Association, the Court further held that the debt owed to the redeeming shareholder was also suspended and not immediately due. As a consequence the redeeming shareholder was not entitled to present a petition to wind up the company on the ground that it was unable to pay its debts.
  • The redemption of shares is a process, rather than a single event, and until actually paid and removed from the register the redeeming investor is a shareholder of the company with all the rights and obligations that entails (including the right to bring a petition for the winding up of the company on just and equitable grounds).

The decision is interesting on a number of fronts, which will be explored in a fuller analysis to follow shortly. We encourage clients who are considering issues of redemptions and suspensions of redemptions to contact any member of the Conyers Dill & Pearman Funds Team to discuss in detail the impact of this decision.

 

To continue reading full articles in PDF format:
Cayman Islands Court of Appeal