Re Laurus Master Fund
| Jurisdiction | Cayman Islands |
| Judge | (Foster, J.) |
| Judgment Date | 31 August 2010 |
| Date | 31 August 2010 |
| Court | Grand Court (Cayman Islands) |
(Foster, J.)
M. Crawford and M.A. Kish for the applicants;
S.M.P. Dawson for the liquidators of the majority shareholder.
(1) Anfrank Nominees Pty. Ltd. v. Connell(1989), 1 ACSR 365, not followed.
(2) Ayerst (Inspector of Taxes) v. C. & K. (Constr.) Ltd., [1976] A.C. 167; [1975] 3 W.L.R. 16; [1975] 2 All E.R. 537, referred to.
(3) Collins v. G. Collins & Sons Pty. Ltd.UNK(1984), 9 ACLR 58, not followed.
(4) Ebsworth & Tidy”s Contract, In reELR(1889), 42 Ch. D. 23, applied.
(5) Ezishop.Net Ltd. v. Veremu Pty. Ltd.(2003), 45 ACSR 199; [2003] NSWSC 156, followed.
(6) Farrow”s Bank Ltd., In re, [1921] 2 Ch. 164; [1921] All E.R. Rep. 511, applied.
(7) HDT Special Vehicles (Aust.) Pty. Ltd., Re(1991), 6 ACSR 5, applied.
(8) HIH Ins. Ltd., In re, [2008] FCA 623; (2008), 66 ACSR 210, followed.
(9) Sound Consol. Indus. Pty. Ltd., Re(1992), 6 ACSR 647, applied.
Companies Law (2007 Revision), s.109: the relevant terms of this section are set out at para. 22.
Companies-articles of association-amendment during winding up-amendment to allow issue of new class of shares unusual but may be permitted if clearly beneficial-permitted if, e.g., allotting new shares best way of retaining investment manager whose particular services beneficial to winding up
Companies-shares-issue of shares during winding up-liquidators may issue and allot new class of shares during winding up if permitted by articles of association and beneficial to winding up-should seek court”s sanction since unusual
The official liquidators of a fund applied to issue a new class of shares to its investment manager.
The fund was in official liquidation in the Grand Court, and a liquidation committee had been appointed comprising the fund”s two shareholders, its investment manager and three other entities. The fund”s official liquidators had retained the services of the investment manager to assist with the realization of the fund”s assets. They considered that this would be beneficial to the winding up, given that its principal had a long-term
involvement with one of the fund”s major investments and, were that involvement to come to an end, the investment would be likely to return significantly less profit. The investment manager”s fees were to be paid on the basis of fixed fees and further incentive fees on the fulfilment of certain conditions. In order to achieve a more favourable tax treatment in the United States, the investment manager asked that the incentive fees be replaced by issuing it with a new class of shares in the fund. The liquidation committee and the liquidators agreed that this would be an appropriate step to take.
The liquidators applied to issue the new class of shares in the investment fund and allot them to the investment manager. They submitted that this was in the interests of the winding up, since (a) given the investment manager”s principal”s long-term involvement with one of the fund”s major investments, it was desirable to retain its services; (b) allotting the new class of shares to the investment manager was the best way of doing this, since it was more favourable to both the fund and the investment manager, given the US tax regime to which the investment manager was subject; and (c) the liquidation committee supported the application. They further submitted that (d) although the fund”s articles of association did not allow the issue of a new class of shares, the shareholders should be permitted to pass a special resolution enabling the fund to do so as such a resolution would clearly be in the interests of the winding up; (e) the articles having been amended, the power to issue and allot the new class of shares would vest in the liquidators who should therefore be permitted to do so.
The court considered whether and in what circumstances (a) the members of a company in official liquidation could amend its articles of association; and (b) a company”s official liquidators could issue and allot a new class of shares.
Held, granting the order sought:
(1) The court would authorize the shareholders to pass the special resolution needed to issue the new class of shares. It would only permit the members of a company in official liquidation to pass a resolution amending the articles of association if the amendment related to the purposes of the winding up, was for a good and valid reason, and was supported by the official liquidators. It would need to be compatible with the overall purpose and intent of the statutory winding-up scheme, which was to wind up the company for the benefit of all its creditors and contributories; the court would not allow departure from the statutory scheme merely because the liquidators and the company”s members wished to change it. Further, the liquidators should only support a resolution of this type if they were satisfied that doing so would clearly be beneficial to the winding up and they had the court”s sanction-and it would be preferable for the members themselves also to seek the court”s approval. In the unusual circumstances here, in which-as the liquidators and the liquidation committee agreed-it would be beneficial to the winding up to issue a new series of shares to the investment manager in
order to retain its services, the court would authorize the shareholders to pass a special resolution altering the fund”s articles of association to allow the new class of shares to be issued (paras. 35–38).
(2) Moreover, the court would approve the issue and allotment of the new class of shares by the fund”s liquidators. The statutory scheme gave the liquidators the power to carry on the business of the company and do all that was reasonably necessary for its winding up, and, given that the liquidators had the same powers as those held by the company”s directors prior to the winding-up order, there was no reason why this should not extend to a power to allot shares, provided that the company”s articles of association allowed it. However, given that it would be unusual for the issue and allotment of shares in a company in liquidation to be beneficial to a winding up, the liquidators should seek the sanction of the court before doing so. Since the amended articles of association would allow it, and since it would be beneficial to the winding up, the court would approve the liquidators” issuing the shares and allotting them to the investment manager on behalf of the fund (paras. 31–32; para. 38).
1 FOSTER, J.: This ruling concerns two interrelated issues, namely:
(1) whether the shareholders of a company in official liquidation can, with the consent of the official liquidator(s), amend the company”s articles of association to allow for the issue of further shares in the company; and
(2) whether the official liquidator(s) of the company can then take the necessary steps to allot and issue such further shares.
There is apparently no Cayman or English authority on these questions.
Background
2 The applicants are the joint official liquidators (‘the JOLs’) of Laurus Master Fund Ltd. (‘the master fund’), which is in official liquidation. The master fund was incorporated in the Cayman Islands as an exempted company on December 11th, 2000 and carries on business as a mutual fund. The JOLs were first appointed as joint voluntary liquidators of the master fund in September 2008, but on December 18th, 2008 it was ordered that the liquidation be continued subject to the supervision of the court.
3 The master fund has two shareholders: Laurus Offshore Fund Ltd. (‘the offshore fund’), which is a Cayman exempted company in official liquidation; and Laurus US Fund LP (‘the onshore fund’) which is a Delaware limited partnership. I shall refer to the offshore fund and the onshore fund together as the ‘feeder funds.’ The offshore fund, which has by far the largest investment in the master fund, was also originally put into voluntary liquidation, but that too came under the supervision of the court pursuant to an order made on November 19th, 2009. The JOLs are not the liquidators of the offshore fund, which has different liquidators. The onshore fund continues to be managed by its general partner, Laurus Financial LLC, a Delaware limited liability company.
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Re Centaur Litigation Unit Series 1 Ltd
...at that time in official liquidation. Reference was made to the decision of Foster J in In the Matter of Laurus Master Fund Limited [2010] (2) CILR 132. Prior Court Sanction 139. The LCs say that in so far as the JOLs appear to suggest that the Court ought to validate the retrospective amen......