Re Weavering Macro Fixed Income Fund Ltd ((in Liquidation))

• Jurisdiction: Cayman Islands
• Judge: (Clifford, J.)
• Judgment Date: 04 December 2015
• Court: Grand Court (Cayman Islands)
• Date: 04 December 2015

Grand Court, Financial Services Division

(Clifford, J.)

IN THE MATTER OF WEAVERING MACRO FIXED INCOME FUND LIMITED (in liquidation)

CONWAY and WALKER (as joint official liquidators)

and

SKANDINAVISKA ENSKILDA BANKEN AB (PUBL)

D. Lord, Q.C. and S. Folpp for the plaintiffs;

D. Chivers, Q.C., S. Dawson and K. McGriele for the defendant.

Cases cited:

(1) 4Eng Ltd. v. Harper, [2010] BCC 746; [2010] 1 BCLC 176; [2010] Bus. L.R. D58; [2009] EWHC 2633 (Ch), referred to.

(2) 21st Century Logistic Solutions Ltd. v. Madysen Ltd., [2004] 2 Lloyd”s Rep. 92; [2004] S.T.C. 1535; [2004] EWHC 231, referred to.

(3) Astea (UK) Ltd. v. Time Group Ltd., [2003] EWHC 725 (TCC), referred to.

(4) Bilta (UK) Ltd. v. Nazir, [2016] A.C. 1; [2015] 2 W.L.R. 1168; [2015] 2 All E.R. 1083; [2015] 2 All E.R. (Comm) 281; [2015] 2 Lloyd”s Rep. 61; [2015] BCC 343; [2015] 1 BCLC 443; [2015] UKSC 23, dicta of Lord Mance considered.

(5) Brac Construction Ltd. v. Broome, 2006 CILR 185, applied.

(6) Charles Terence Estates Ltd. v. Cornwall Council, [2012] P.T.S.R. 790; [2012] 1 P. & C.R. 2; [2011] EWHC 2542 (QB), referred to.

(7) Cohen, In re, [1924] 2 Ch. 515, followed.

(8) Cutts (a bankrupt), In re, ex p. Bognor Mut. Bldg. Socy. v. Trustees of T.W. Cutts, [1956] 1 W.L.R. 728; [1956] 2 All E.R. 537, applied.

(9) FIA Leveraged Fund, In re, 2012 (1) CILR 248; on appeal, 2013 (1) CILR 152, considered.

(10) FP & CH Matthews Ltd., In re, [1982] Ch. 257; [1982] 2 W.L.R. 495; [1982] 1 All E.R. 338, considered.

(11) Fairfield Sentry Ltd. v. Migani, [2014] 1 CLC 611; [2014] UKPC 9, applied.

(12) Hampshire Land Co., In re, [1896] 2 Ch. 743, referred to.

(13) Herald Fund SPC, In re, 2015 (1) CILR 482, considered.

(14) Hick v. Raymond & Reid, [1893] A.C. 22; [1892] All E.R. Rep. 491, considered.

(15) Hollington v. F. Hewthorn & Co. Ltd., [1943] K.B. 587; [1943] 2 All E.R. 35, applied.

(16) Holman v. Johnson (alias Newland)ENR(1775), 1 Cowp. 341; 98 E.R. 1120, referred to.

(17) Jones v. Sherwood Computer Servs. plc, [1992] 1 W.L.R. 277; [1992] 2 All E.R. 170, referred to.

(18) Lipkin Gorman v. Karpnale Ltd., [1991] 2 A.C. 548; [1991] 3 W.L.R. 10; [1992] 4 All E.R. 512, referred to.

(19) M. Kushler Ltd., In re, [1943] Ch. 248, followed.

(20) MC Bacon Ltd. (No. 1), Re, [1990] BCC 78; [1990] BCLC 324, considered.

(21) New, Prance & Garrard (Trustee) v. HuntingELR[1897] 2 Q.B. 19, referred to.

(22) Niru Battery Mfg. Co. v. Milestone Trading Ltd., [2002] EWHC 1425; [2002] 2 All E.R. (Comm) 705; on appeal, [2004] Q.B. 985; [2004] 2 W.L.R. 1415; [2004] 1 All E.R. (Comm) 193; [2004] 1 Lloyd”s Rep. 344; [2004] 1 C.L.C. 647; [2003] EWCA Civ 1446, considered.

(23) Peat v. Gresham Trust Ltd., [1934] A.C. 252, referred to.

(24) Peregrine Sys. Ltd. v. Steria Ltd., [2005] EWCA Civ 239, referred to.

(25) RMF Market Neutral Strategies (Master) Ltd. v. DD Growth Premium 2X Fund, 2014 (2) CILR 316, applied.

(26) Rennie v. Westbury Homes (Holdings) Ltd., [2007] 2 P. & C.R. 12; [2007] 2 E.G.L.R. 95; [2007] 20 E.G. 296; [2007] EWHC 164 (Ch), referred to.

(27) Rose v. AIB Group (UK) plc, [2003] 1 W.L.R. 2791; [2004] BCC 11; [2003] 2 BCLC 374; [2003] EWHC 1737 (Ch), considered.

(28) Sarflax Ltd., In re, [1979] Ch. 592; [1979] 2 W.L.R. 202; [1979] 1 All E.R. 529, considered.

(29) Segoes Servs. Ltd. v. Ueoka, 2006 CILR N[1], considered.

(30) Socimer Intl. Bank Ltd. v. Standard Bank London Ltd., [2008] 1 Lloyd”s Rep 558, referred to.

(31) Strategic Turnaround Partnership Ltd., In re, 2008 CILR 447; on appeal, sub nom.Culross Global SPC Ltd. v. Strategic Turnaround Master Partnership Ltd., 2010 (2) CILR 364, applied.

(32) Tinsley v. Milligan, [1994] 1 A.C. 340; [1993] 3 W.L.R. 126; [1993] 3 All E.R. 65; [1993] 2 FLR 963; (1994), 68 P. & C.R. 412, referred to.

(33) Titan Invs. Ltd. Partnership, Re(2005), ABQB 637, considered.

(34) WestLB AG v. Nomura Bank Intl. plc, [2010] EWHC 2863 (Comm); on appeal, [2012] EWCA Civ 495, referred to.

Legislation construed:

Bankruptcy Law (1997 Revision), s.111(1): The relevant terms of this sub-section are set out at para. 146.

Companies Law (2007 Revision), s.168(1): The relevant terms of this sub-section are set out at para. 145.

Companies Law (2013 Revision), s.93:

‘A company shall be deemed to be unable to pay its debts if—

. . .

(c) it is proved to the satisfaction of the Court that the company is unable to pay its debts.’

s.145(1): The relevant terms of this sub-section are set out at para. 10.

Companies—compulsory winding up—creditors—redeeming shareholders become ‘creditors’ for purposes of Companies Law (2013 Revision), s.145 on date redemption request submitted to company and immediate debt then created—grace period for payment in articles of association irrelevant—unclear whether shareholders intending to redeem in future ‘creditors’ for purposes of s.145

Companies—compulsory winding up—creditors—voidable preference—party alleging voidable preference contrary to Companies Law (2013 Revision), s.145 to establish, by direct evidence or inference, that company appreciated ‘unable to pay its debts’ and dominant intention had been to make preferential payment (rather than payment due to another motivation, e.g. duress)—no need to demonstrate fraud or dishonesty

Companies—grounds for winding up—inability to pay debts—company ‘unable to pay its debts’ for purposes of Companies Law (2013 Revision), s.145 if unable to pay redemption proceeds to redeeming shareholders on date of alleged preferential payment—grace period for payment in articles of association irrelevant as merely facilitates payment of debts

The joint official liquidators of a company sought a declaration that a number of redemption payments made to the defendant by the company were invalid as they constituted preferential payments contrary to s.145 of the Companies Law (2013 Revision).

The company was an investment fund incorporated in the Islands. It was administered by PNC, and its trading activities were managed by WCUK, whose director and chief executive officer was Magnus Peterson. His stepfather and brother were the company”s directors, though previous proceedings (reported at 2015 (1) CILR 45) had established that they played a negligible role in managing the company and merely approved decisions made by Mr. Peterson concerning the company”s affairs. WCUK was also investment manager to WCF, the counterparty to a number of interest rate swaps with the company.

The defendant subscribed for a number of shares in the company as a nominee for Catella and HQ Solid. It subsequently became evident that the swaps between the company and WCF were worthless, and had merely been intended by Magnus Peterson to give the false impression that the company was profitable; it was in reality suffering large losses, and became cash-flow insolvent following a number of share redemption requests amounting to approximately US$213m. in late 2008 and early 2009. The company was liquidated in March 2009.

The defendant had made a number of redemption requests amounting to approximately US$8.2m. Following an email sent to PNC by Mr. Peterson in December 2008, a redemption payment of US$1.1m. was paid to the defendant and a number of payments were made to other redeemers, but nothing was paid to any other redeemers as the company had insufficient funds to do so. In January 2009, a second redemption payment of US$1.8m. was made to the defendant, together with ad hoc payments to a number of other redeemers, and further redemption obligations were incurred by the company; in February 2009, a third redemption payment of US$5.3m. was made to the defendant while the company continued to owe significant sums to other redeeming shareholders. The defendant therefore received all of the sums due to it while the company had US$134m. of outstanding debt.

The plaintiffs submitted that these payments constituted voidable preferences contrary to the Companies Law (2013 Revision), s.145 and that the sums paid to the defendant should therefore be repaid to the company. They submitted that (a) direct evidence of intention to prefer the defendant over the other redeemers was not necessary, and as the company had made payments to the defendant when it was clear that it was unable to pay its debts an intention to prefer the defendant could be inferred; (b) in any event, there was a clear intention to prefer as Magnus Peterson had emailed PNC indicating that the defendant should be paid in preference to other creditors so that they could reinvest in another fund; (c) Mr. Peterson was the ‘controlling mind’ of the company, as the directors played no effective role in supervising its affairs, as had been established in the previous proceedings questioning the directors” conduct, and therefore it

was his state of mind that was relevant when establishing whether a preferential payment had been made; (d) the company was ‘unable to pay its debts’ at the time of the payments to the defendant, as immediate debts were created when the other redeeming shareholders applied to redeem their shares, and the company clearly had insufficient funds to pay those redemptions; (e) the defendant could not rely on Mr. Peterson”s fraudulent conduct in order to assert that the NAVs at the time of redemption were invalid, and therefore that the redemptions were not binding, as his fraud was an ‘external’ fraud on the company itself, and, further, contracts were not necessarily vitiated by fraud, and as the redemption contracts were not for an illegal purpose they should be upheld; (f) as the redeeming shareholders became creditors on the day they redeemed their shares, they were ‘other creditors’ for the purposes of s.145; and (g) the defendant was unable to rely on defences such as illegality as s.145 did not indicate that the court was to exercise its discretion once s.145 was engaged, and therefore once it was established that the...