Duet Real Estate Partners 1 Lp

• Jurisdiction: Cayman Islands
• Court: Grand Court (Cayman Islands)
• Judge: (Kawaley, J.)
• Judgment Date: 09 June 2020

IN THE MATTER OF DUET REAL ESTATE PARTNERS 1 LP

(Kawaley, J.)

Grand Court, Financial Services Division (Cayman Islands)

Partnership — exempted limited partnership — winding up — expiry of term — petitioner to establish (a) duration of respondent fund expired; and (b) petitioner is contributory with contractual right to voluntary winding up — petitioner also to show tangible and practical need for winding up and no more appropriate alternative remedies

Held, ordering that the fund be wound up:

(1) The winding up of the fund was deemed to commence on March 30th, 2012. The uncontroversial evidence supporting the March 30th, 2012 date was more probative than evidence supporting a later date. On balance, it appeared that the fund was at least informally in winding up mode by the end of 2012 and that there had been no formal decision to extend the duration of the fund (para. 12).

(2) On a petition to wind up an exempted limited partnership, the provisions of Part V of the Companies Law (2020 Revision) applied unless there were conflicting provisions of the Exempted Limited Partnership Law (2018 Revision). The provisions of Part V applicable to contributories applied to petitions presented by partners and the regime applicable to creditors of companies applied to petitions presented by creditors of exempted limited partnerships (para. 15).

(3) The court considered what sufficient or tangible interest a petitioner had to establish to justify a winding up order on the expiry of term ground in s.92(c). If the requirement to show that it was likely that the fund was solvent applied, the facts of the present case brought the petitioner within the ambit of the exception. However, the court preferred the petitioner’s bolder submission that a more flexible test applied to the s.92(c) ground, which was connected with the statutory function of s.92(c).The grounds on which a winding up was sought must logically inform the standing requirements. The main purpose of s.92(c) was to provide a statutory alternative to a contractual “automatic” right to a voluntary winding up when the duration of a company had come to an end. The most essential jurisdictional conditions which the petitioner had to meet (and had met to the court’s satisfaction) required it to establish that (a) the respondent had a fixed duration which had expired and/or that an event had occurred which triggered the contractual entitlement to a voluntary winding up; and (b) the petitioner was a contributory with a crystallized or vested contractual right to a voluntary winding up (or, possibly, had some other leave basis contemplated by s.92(c) for invoking the statutory remedy) (paras. 18–24; para. 29).

(4) Once a petitioner under s.92(c) established that (a) the duration of the respondent had expired or some other contractual right it held to a voluntary winding up had occurred; and (b) the petitioner was prima facie qualified to enforce that right, the following additional standingrequirements would usually have to be met: (i) to show that there was a tangible and practical need for a winding up; and (ii) to show that there were no more appropriate remedies that the petitioner should be left to pursue as an alternative to a winding up order under s.92(c). Most winding up proceedings were driven by commercial logic but the jurisdiction was only available to achieve legitimate aims. If a winding up petition were filed under s.92(c) by a contributory who had been fully paid, the lack of any commercial interest in a winding up despite possessing an abstract commercial right to one would likely be grounds for refusing the relief sought. The same would probably apply if it were obvious that the respondent to the petition was insolvent and creditors wished to pursue some other course. In addition, it might be held that jurisdiction to wind up did not exist if, as soon as the right to a contractual voluntary liquidation crystallized, the petitioner came straight to court. It might be said that the more appropriate remedy was to afford the management of the respondent a reasonable opportunity to conduct the voluntary liquidation. The practical need for a winding up would usually mean that the petitioner had no available and more suitable alternative remedies. Where, as in the present case, the limited partner/shareholder had invested with no return in a fixed term investment vehicle the duration of which had expired and which had not been voluntarily wound up, these standing requirements were easily met (paras. 35–38).

Cases cited:

(1)BDO Cayman Ltd. v. Governor in Cabinet, 2018 (1) CILR 457, considered.

(2)Chesterfield Catering Co. Ltd., Re, [1976] 3 All E.R. 294, considered.

(3)Deloitte & Touche v. Johnson, 1999 CILR 297, considered.

(4)Rhone Holdings, In re, 2016 (1) CILR 46, considered.

(5)Westminster City Council v. National Asylum Support Serv., [2002] UKHL 38; [2002] 1 W.L.R. 2956; [2002] 4 All E.R. 654, considered.

(6)XiO Diamond LP, In re, 2020 (2) CILR 270, considered.

Legislation construed:

Companies Law (2020 Revision), s.92(c): The relevant terms of this subsection are set out at para. 25.

s.100(1)(b): The relevant terms of this provision are set out at para. 45.

Exempted Limited Partnership Law (2018 Revision), s.36(10): The relevant terms of this subsection are set out at para. 46.

Companies Act 1948 (11 & 12 Geo. VI, c.38), s.222: The relevant terms of this section are set out at para. 40.

The petitioner sought the winding up of an exempted limited partnership. The petitioner had invested some US$4.5m. in the fund and become a limited partner in 2007. Thereafter it received no return on its investment. It petitioned for the winding up of the fund on the expiry of term ground.

The petitioner also sought a declaration as to the date on which the winding up should be deemed to have commenced, which it contended was March 30th, 2012. The limited partnership agreement provided that the fund would continue until the fifth anniversary of the final closing date (i.e. March 30th, 2012) but that date could be extended, the final closing date being defined as March 30th, 2007 or such earlier or later date as determined by the general partner. The petitioner submitted that, as far as it was aware, the final closing date had not been varied by the general partner, nor had the life of the fund been extended. The winding up process contemplated by the limited partnership agreement had not taken place and for several years the petitioner had pursued the fund’s management for information about its investment. It had effectively been told that its investment had been lost but it had not been supplied with sufficient information to reach an informed view as to whether it was entitled to a recovery.

Section 92(c) of the Companies Law (2020 Revision) provided:

“92. A company may be wound up by the Court if—

. . .

(c)the period, if any, fixed for the duration of the company by the articles of association expires, or whenever the event, if any, occurs, upon the occurrence of which it is provided by the articles of association that the company is to be wound up . . .”

The petitioner’s counsel addressed the tangible interest that had to be established to justify a winding up on the expiry of term. It was initially submitted that the test applicable to just and equitable petitions under s.92(e) applied but that the petition fell within an exception to that test that a petitioner could not be required to establish the solvency of a fund in circumstances where its management was depriving it of relevant information. Alternatively, the petitioner submitted that a more flexible test applied.

A. Park and K. Pearson for Colville LLC (“the petitioner”);

The respondent (“the fund”) did not appear.

1 KAWALEY, J.:

Introductory

The petition was presented by the petitioner as a limited partner of the fund on February 12th, 2020. The petition was served at the fund’s registered office on February 12th, 2020.

2 The summons for directions was heard on March 25th, 2020 (via Zoom) and the fund did not appear. Directions ordered included the following:

“1. The Fund is properly able to participate in the proceeding.

2. The proceeding is treated as a proceeding against the Fund.

3. The Petitioner shall, by 4pm on 9 April 2020, cause an advertisement of the Petition to be placed in a newspaper having circulation in the Cayman Islands, and newspapers having circulation in the United Kingdom, Switzerland, and St Barthelemy.

4. The following directions are given in relation to Ground 1 only:

. . .

(c)The Petitioner shall file and serve any affidavit evidence in reply to the evidence filed and served by the Fund by 4pm on 24 April 2020. The Petitioner shall also place before the Court any further information or documentation which either supports or undermines Ground 1 of the Petition by 24 April 2019 . . .

(g)The trial of Ground 1 shall be listed to be heard on the first available date after 1 May 2020, with an estimate of two hours . . .”

3 The affidavit of Moesha Ramsay-Howell sworn on April 29th, 2020 established that Harneys by email dated March 25th, 2020 (a) notified a representative of the fund that the petition was listed for hearing on May 7th, 2020, and (b) provided a copy of the approved directions order made on that date. The same affidavit also deposed to advertisement of the petition in early April 2020 and a reminder letter about the May 7th, 2020 hearing being sent by email on April 24th, 2020 to the person who had previously communicated with the petitioner on behalf of the fund.

4 At the hearing of the petition the fund again did not appear. The petitioner had sensibly sought to convince the court to grant the relief sought based on the potentially more evidentially straightforward and therefore more economical expiry of term ground (Ground 1), reserving the right to pursue the more evidentially elaborate, and therefore less economical, just and equitable ground if...