Re Lancelot Investors Fund

JurisdictionCayman Islands
Judge(Quin, J.)
Judgment Date10 December 2008
CourtGrand Court (Cayman Islands)
Date10 December 2008
Grand Court

(Quin, J.)


C. Bridges for the petitioners;

P. Hayden for the directors;

A. Heaver-Wren for the opposing investors;

F. Hughes for the principal creditor;

D. Schofield, Asst. Solicitor General, for the Attorney General as amicus curiae.

Cases cited:

(1) Cambridge Gas Transp. Corp. v. Navigator Holdings plc (Creditors” Cttee.), [2007] 1 A.C. 508; 2005–06 MLR 297; [2006] 3 W.L.R. 689; [2006] 3 All E.R. 829; [2006] BCC 962; [2007] 2 BCLC 141, applied.

(2) English, Scottish & Australian Chartered Bank, In re, [1893] 3 Ch. 385, referred to.

(3) Gordon & Breach Science Publishers, Re, [1995] 2 BCLC 189; [1995] BCC 261, referred to.

(4) HIH Casualty & Gen. Ins. Ltd., In re, [2008] 1 W.L.R. 852; [2008] Bus. L.R. 905; [2008] 3 All E.R. 869; [2008] BCC 349; [2008] BPIR 581; [2008] Lloyd”s Rep. I.R. 756; [2008] UKHL 21, applied.

(5) Philadelphia Alternative Asset Fund Ltd., In re, 2006 CILR N[7]; further proceedings, Grand Ct., July 19th, 2007, unreported, followed.

(6) Reeves v. Sprecher, [2008] BCC 49; [2007] 2 BCLC 614; [2007] EWHC 117 (Ch), applied.

(7) Rio Tinto Zinc Corp. v. Westinghouse Elec. Corp.UNKELRUNK, [1977] 3 All E.R. 703; on appeal, [1978] A.C. 547; [1978] 1 All E.R. 434; sub nom. Westinghouse Elec. Corp. Uranium Contact Litigation M.D.L. Docket 235, [1978] 1 C.M.L.R. 1000, applied.

(8) Suidair Intl. Airways Ltd., In re, [1951] Ch. 165; [1950] 2 All E.R. 920, referred to.

(9) Universal Casualty Surety Co. v. Gee(1985), 53 B.R. 891, considered.

Legislation construed:

Companies Law (2007 Revision), s.106: The relevant terms of this section are set out in para. 30.

Companies-compulsory winding up-stay of winding up-order may be stayed if bankruptcy proceedings already commenced overseas-stay enables Cayman liquidator and foreign liquidator to discuss respective roles for efficient liquidation, avoiding multiple proceedings and duplication of costs-respects judicial comity and universalism in insolvency

The petitioners were shareholders who sought the winding up of a Cayman company and the appointment of a liquidator.

The company was an open-ended investment fund which, according to the petitioners, was operated fraudulently by the directors to induce investors to provide funds to enter into fictitious transactions. The company had substantially lost all of its funds and the investors had no prospect of being repaid.

Its principal creditors, the investment manager and the entity for making investments were located in the United States. The company had already filed for bankruptcy in the United States and a Chapter 7 trustee had been appointed under the US Bankruptcy Code, who claimed to have exclusive jurisdiction over all the assets of the company.

The petitioners submitted that they nevertheless were entitled to a Cayman winding-up order on the ‘just and equitable’ ground and the appointment of a liquidator in the Cayman Islands because (a) the substratum of the company had failed and it was irrelevant that a winding-up order was opposed by the majority of the shareholders or creditors or that liquidation proceedings had already begun in another jurisdiction; and (b) because the company was domiciled in the Cayman Islands, this was the jurisdiction in which it should be wound up.

The directors, investors in and the major creditor of the company submitted in reply that (a) although the making of a winding-up order was inevitable, the appointment of a liquidator in the Cayman Islands was unnecessary given the existing appointment of a Chapter 7 trustee in the United States, since it would lead to undesirable complication and additional expense; and (b) alternatively, if a liquidator were appointed, proceedings should be stayed as a matter of judicial comity. The Chapter 7 trustee had also voiced his intention to oppose the recognition of a Cayman liquidator in US proceedings should the Grand Court choose to appoint one.

Held, allowing the application:

(1) The company would be wound up and a liquidator appointed. Since there was no office of Official Receiver in the Cayman Islands, it would be impractical to allow the property of the company to remain in the custody of the court (which would follow by virtue of the Companies Law (2007 Revision), s.106 if no liquidator were appointed) and it was also necessary that the petitioners had someone to speak for them. Even though the court recognized the United States as the principal place for the liquidation of the company, its incorporation and many of the arrangements for the investments were governed by the laws of the Cayman Islands and would therefore have to be examined and assessed against such laws. However, the court would only appoint one official liquidator, in recognition of the possibility that that the Chapter 7 trustee might still wish to seek recognition in the Cayman Islands (paras. 63–68).

(2) The winding-up order would be stayed, however, in accordance with the principles of judicial comity and universalism in corporate insolvency. This would give both the Cayman official liquidator and the Chapter 7 trustee an opportunity to discuss their respective roles and try to agree a protocol for the efficient liquidation of the company, thus avoiding multiple proceedings and the duplication of costs. Further, the court was keen to encourage co-operation with the US court both in recognizing the Cayman liquidator in the United States, with the Chapter 7 trustee reconsidering his opposition to any application, and in encouraging the Chapter 7 trustee similarly to apply to the Grand Court for recognition here (paras. 68–69; paras. 75–82).

1 QUIN, J.:


On October 13th, 2008, a winding-up petition was presented to this court in the matter of a Cayman company called Lancelot Investors Fund Ltd. (‘the company’). The petition was presented by BNP Paribas Bank & Trust Cayman Ltd. (‘the first petitioner’) and Aris Multi-Strategy Offshore Fund Ltd., a Cayman company (‘the second petitioner’), registered at M & C Corporate Services Ltd., Ugland House, George Town, Grand Cayman, collectively known as (‘the petitioners’).

2 The company was incorporated as Granite Investors Fund Ltd. on September 2nd, 2002, under the laws of the Cayman Islands, by Registration No. 119694, and commenced operations on October 6th, 2002. The registered office of the company is at the office of Walkers SPV Ltd., Walker House, Mary Street, George Town, Grand Cayman. The authorized share capital of the company is US$50,000, consisting of 50,000 shares of US$1.00 each. The petitioners” shareholding is set out in para. 5 of the petition. Their shareholding was acquired by subscription in the company according to its articles and offering memoranda governed by Cayman law.

3 The founding directors appointed on September 27th, 2002 were Messrs. Gregory Bell, Vincent King and Benjamin Miller. On February 10th, 2003, Granite Investors Fund Ltd. changed its name to Lancelot Investors Fund Ltd. On December 23rd, 2003, the directors (Messrs. Gregory Bell, Vincent King and Benjamin Miller) appointed Altschuler, Melvoin & Glasser (Cayman), Cayman Corporate Centre, Hospital Road, Grand Cayman, as the company”s auditors. Also on December 23rd, 2003 the then directors approved and filed the amended form MF1 with the Cayman Islands Monetary Authority. The directors also resolved that the terms of the subscription documents be approved. On December 23rd,

2003, the directors determined to provide written notice to the investors in the company forthwith of the adoption of the new offering memorandum and resolved to deliver notices to the investors enclosing copies of the new offering memorandum. The company has operated as an open-ended investment company and is registered with the Cayman Islands Monetary Authority as a mutual fund under the Mutual Funds Law (2007 Revision). On March 6th, 2006, Mr. Gregory Bell resigned as a director of the company and Messrs. Trevor Sunderland and Thomas DeMaio were appointed as directors of the company on March 6th and 7th, 2006 respectively.

4 The investment manager is a Delaware limited company called Lancelot Investments Management LLC (‘LIM’), whose principal is Mr. Gregory Bell. The administrator of the company, appointed pursuant to an administration agreement, is Swiss Financial Services (Bahamas) Ltd., based in Nassau, Bahamas, whose head office is in Switzerland.

5 The petition sets out the allegations as follows: the petitioners and other investors invested in the company pursuant to and in reliance on, inter alia, information memoranda produced by the company dated December 2003 and March 2006 which stated that the company had been formed for the following purpose or to pursue the following investment strategy:

(a) All of the company”s assets were to be invested through the purchase of short-term trade finance notes from other entities (‘notes’) issued by Lancelot Investors Fund L.P. (‘Lancelot USA’), a private investment fund organized as a limited partnership under the laws of the State of Delaware. LIM is the general partner of Lancelot USA.

(b) The investment objective of the company was as set out in the information memoranda as being ‘to achieve consistent and reliable investment returns while minimizing the risk of permanent impairment to capital. The investment manager seeks to achieve [the company”s] investment objective by investing [the company”s] assets through the purchase of short-term trade finance notes from other entities [“notes”].’

(c) ‘The notes will be acquired by [the company] from [Lancelot USA] and also may be acquired from other affiliated or unaffiliated entities from time to time . . . It is anticipated that the notes sold by [Lancelot USA] to [the company] will evidence loans made to one or more independently controlled special purpose vehicles [“the SPVs”] which engage in the business...

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