In the case before the court, the net asset value (“NAV”) of DD Growth Premium 2X Fund (the “Fund”) had been struck on the basis of a valuation of certain assets which turned out to be worthless, the NAV had therefore been so overstated that when the assets were realised there was a shortfall resulting in the Fund being unable to pay redemptions in full. Full redemption payments had been made to some redeeming investors, partial payments to others (including the Plaintiff) and no payments at all to others. The Fund was subsequently wound up and liquidators appointed by the court.
The liquidators sought to recover the payments made to investors whose shares had been redeemed on the basis of the overstated NAV, arguing that such payments were unlawful by reason of Section 37(6)(a) of the Companies Law, which provides: “A payment out of capital by a company for the redemption or purchase of its own shares is not lawful unless immediately following the date on which the payment out of capital is proposed to be made the company shall be able to pay its debts as they fall due in the ordinary course of business”.
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RMF Market Neutral Strategies (Master) Limited -v- DD Growth Premium 2X Fund (In Official Liquidation) (17 November 2014)