Re Belmont Ltd

• Jurisdiction: Cayman Islands
• Judge: (Jones, J.)
• Judgment Date: 21 January 2010
• Court: Grand Court (Cayman Islands)
• Date: 21 January 2010

Grand Court, Financial Services Division

(Jones, J.)

IN THE MATTER OF BELMONT ASSET BASED LENDING LIMITED

S. Dickson for the petitioner;

S.M.P. Dawson for the respondent fund.

Cases cited:

(1) BNY AIS Nominees Ltd. v. Stewardship Credit Arbitrage Fund Ltd., [2008] Bda L.R. 67, applied.

(2) Bristol Joint Stock Bank, In reELR(1890), 44 Ch. D. 703; 59 L.J. Ch. 722; 62 L.T. 745, referred to.

(3) Diamond Fuel Co., In reELR(1879), 13 Ch. D. 400, referred to.

(4) Haven Gold Mining Co., In reELR(1882), 20 Ch. D. 151; [1881–5] All E.R. Rep. 585, referred to.

(5) Philadelphia Alternative Asset Fund Ltd., In re, 2006 CILR N[7], dictum of Henderson J. applied.

(6) Suburban Hotel Co., In reELR(1867), L.R. 2 Ch. App. 737, referred to.

Legislation construed:

Companies Law (2009 Revision), s.92:

‘A company may be wound up by the Court if-

. . .

(e) the Court is of opinion that it is just and equitable that the company should be wound up’

Companies-compulsory winding up-grounds for winding up-‘just and equitable’-winding up of open-ended mutual fund ‘just and equitable’ if substratum lost-lost if impractical to carry on fund in accordance with reasonable expectations of shareholders-policy reasons in favour of winding up non-viable funds even though management not at fault

Companies-liquidators-appointment-when grounds for winding up made out, court to appoint professional liquidators with appropriate skills rather than allow informal liquidation by investment manager

The petitioner sought the compulsory winding up of the respondent fund on the just and equitable ground.

The petitioner owned a number of shares in the respondent open-ended mutual fund, which had an investment objective of providing long-term capital appreciation to shareholders by investing in asset-based lending and related schemes. General market conditions, together with the effects of a serious fraud which had significantly reduced the value of the fund”s investments, had an adverse impact on the fund to the extent that it was no longer able to pursue its investment objective. The fund”s board of directors passed a resolution recommending that the investment manager place the fund into voluntary liquidation but this was not done. Instead, the investment manager began informally liquidating the fund by realizing its assets and making distributions to shareholders.

The petitioner, dissatisfied with the conduct of this informal liquidation,

submitted that the fund should be compulsorily wound up on the just and equitable ground under s.92(e) of the Companies Law (2009 Revision) on the basis that there had been a loss of substratum-that the purpose for which the fund was established could no longer be carried out and that the fund had therefore ceased to be viable. The board of directors accepted that there had been a loss of substratum and that the fund was no longer viable, and did not oppose the petition. No shareholders gave notice of intention to oppose the petition.

The court considered whether a loss of substratum, by itself and without the fault of the fund”s management, justified the making of a winding-up order on the just and equitable ground, and whether it was preferable for there to be a formal winding up by court-appointed liquidators rather than the current informal liquidation by the investment manager.

Held, ordering the winding up of the fund:

(1) Since a winding-up order was binding upon all shareholders and creditors, it would not be open to a petitioner to seek a winding-up order simply on the basis that the company, acting by its board of directors, consented. It would need to be shown that one of the statutory grounds for winding up had been made out. The respondent open-ended mutual fund had ceased to be viable because of a collapse in its net asset value and its inability to meet redemption requests. It was no longer practical to carry on its investment business in accordance with the reasonable expectations of its shareholders, and its substratum had therefore been lost. When it was shown that a company had lost its substratum, the court would ordinarily make a compulsory winding-up order on the just and equitable ground under s.92(e) of the Companies Law (2009 Revision). The fact that there was no suggestion of fault on the part of the fund”s management would not make a difference, as there were sound policy reasons in favour of winding up non-viable mutual funds (paras. 11–12; para. 15).

(2) Though the fund”s investment manager wished to undertake the liquidation itself on an informal basis, the court would appoint a professional liquidator to carry out this task. The skill set of a fund”s investment manager-making investment decisions and managing investments-was quite different from that required of a professional liquidator, whose principal function was to realize the fund”s assets for the benefit of creditors and shareholders. While the fund”s shareholders could not expect to have any say in its investment strategy, when the fund ceased to be viable they should not be denied the advantages and legal protections of a compulsory winding-up carried out by independent professional liquidators with appropriate skills. The court would therefore make a winding-up order with respect to the fund and appoint official liquidators (paras. 16–17).

1 JONES, J.: This is a petition...