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There has been a notion floating around the offices of Cayman Islands liquidators that a redeeming investor from a fund is liable to have its redemptions clawed back in favour of the estate in circumstances where it is subsequently shown that the fund was insolvent at the time the payments were made. In a 100-page decision of the Chief Justice in RMF Market Neutral Strategies (Master) Limited v DD Growth Premium 2X Fund (In Official Liquidation), that notion has been demonstrated to have been wholly misconceived.
The judgment represents a victory for common sense and for the Cayman Islands funds industry which is based upon investors’ confidence. Investors need to be able to rely upon the Net Asset Value (“NAV”) struck and the receipt of payments based on that NAV as being the end of their involvement with the fund. This is especially so where, as in this case, the investor was itself a fund of funds. As the Chief Justice himself said (citing the Privy Council decision in Fairfield Sentry Limited (in liquidation) v Migani & ors.1) “Having had their redemption paid on the basis of NAVs which are also published in keeping with the constitutional documents of the fund, those who have redeemed, would not expect that there could be recourse against them by those who were still members of the fund when it collapsed.”
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Misconceived Clawback Claims by Liquidators