Re Wyser-Pratte EuroValue Fund

• Jurisdiction: Cayman Islands
• Judge: (Jones, J.)
• Judgment Date: 26 October 2010
• Court: Grand Court (Cayman Islands)
• Date: 26 October 2010

Grand Court, Financial Services Division

(Jones, J.)

IN THE MATTER OF WYSER-PRATTE EUROVALUE FUND LIMITED

T. Lowe, Q.C., Ms. L. Hatfield and S.M.P. Dawson for the petitioner;

R. Hollington, Q.C., Ms. C. Wilkins and R. Bell for the company;

F. Hughes for the part-owner.

Cases cited:

(1) Belmont Asset Based Lending Ltd., In re, 2010 (1) CILR 83, dicta of Jones J. applied.

(2) Citco Global Custody NV v. Y2K Fin. Inc., Eastern Caribbean Supreme Ct. (BVI High Ct.), Claim No. BVIHCV 2009/0020A, November 25th, 2009, unreported, distinguished.

Legislation construed:

Companies Law (2009 Revision), s.92(e):

‘A company may be wound up by the Court if . . . the Court is of opinion that it is just and equitable that the company should be wound up.’

Companies Law (2010 Revision), s.95(1)(b): ‘Upon hearing the winding up petition the Court may . . . adjourn the hearing conditionally or unconditionally.’

s.95(3): ‘If the petition is presented by members of the company as contributories on the ground that it is just and equitable that the company should be wound up, the Court shall have jurisdiction to make the following orders, as an alternative to a winding-up order, namely-

(a) an order regulating the conduct of the company”s affairs in the future;

(b) an order requiring the company to refrain from doing or continuing an act complained of by the petitioner or to do an act which the petitioner has complained it has omitted to do . . .’

Companies-compulsory winding up-grounds for winding up-‘just and equitable’-winding up of open-ended mutual fund ‘just and equitable’ on basis of loss of substratum if redemptions permanently suspended, not accepting new subscriptions and engaged in informal liquidation by investment manager beyond terms of offering document

Companies-compulsory winding up-stay of petition-may adjourn petition under Companies Law (2010 Revision), s.95(1)(b) if ‘overtaken by events’ despite case for relief having being made out-petition in response to informal liquidation adjourned until after projected date of liquidation if so close that little purpose served by appointing official liquidators, winding-up order might reduce sale value of assets and petitioner”s concerns now resolved by either revision of liquidation plan or court order

Companies-compulsory winding up-alternative orders-as alternative to winding up on ‘just and equitable’ ground sought in response to concerns with informal liquidation by investment manager, court may make orders under Companies Law (2010 Revision), s.95(3) resolving concerns-may require, e.g. providing shareholders with accounts if not envisaged in liquidation plan; early distribution to shareholders to reduce fee payable to investment manager

The petitioner sought the winding up of a Cayman company on the just and equitable ground.

The petitioner owned 0.5% of the voting share capital in the company, an open-ended mutual fund. The company”s articles required that compulsory redemptions be made on a ‘quarter day,’ defined as the last business day of a calendar quarter. The petitioner sought a full redemption of its shares on the next quarter day. Some weeks later, the company”s investment manager informed the petitioner that, in accordance with its offering document, all that quarter”s redemptions would be subject to a 10% limit because the company had received redemption requests equal to almost 40% of its NAV. Later that year, when the company had received redemption requests equal to 90% of its shares in issue, the investment

manager informed all investors that the company”s directors had suspended pending and future redemptions, pursuant to their alleged power to do so in the company”s offering documents. The suspension remained in place without modification until more than a year later, at which point the company began making limited distributions to shareholders which had submitted redemption requests. Subsequently, the investment manager informed investors of the details of a ‘wind-down plan’ as agreed with the directors, whereby each investor would receive a compulsory redemption of 10% of its investment on the next quarter day, with the intention that a further 10% would be distributed on each subsequent quarter day. This process was to be completed in December 2011.

Many of the investors were concerned that this informal winding-up process would be too slow. In response to this, the company”s directors revised the plan, instructing the investment manager to accelerate the plan so that its projected end date would be December 2010 and waive its entitlement to any management fees arising after the new projected end date. Unaware of the revisions to the wind-down plan-which were only communicated to the shareholders later-the petitioner applied to the Grand Court to wind up the company. The wind-down plan was subsequently accelerated further to the extent that its projected end date was, by the time of the present hearing, only a few weeks away, and the petitioner was only made aware of this at a case management conference.

The just and equitable ground

The petitioner sought relief on the just and equitable ground pursuant to s.92(e) of the Companies Law (2009 Revision), submitting that (a) given that the company had permanently suspended redemptions and ceased to accept new subscriptions, it was no longer carrying on business as a viable open-ended mutual fund; (b) the informal liquidation in accordance with the wind-down plan was not a carrying-on of business, since the company”s offering document did not give the directors or the investment manager the authority to carry out such a plan; (c) the wind-down plan was not an suitable alternative remedy available to the petitioner, since it had not been approved by an EGM nor was it within the company”s ordinary course of business, being a response to the extraordinary circumstance of the serving of redemption notices in respect of 90% of the shares; and (d) requisitioning an EGM for the purpose of placing the company into voluntary liquidation was not a practical alternative open to the petitioner, given that an EGM could only be requisitioned by shareholders holding a majority of the voting share capital, and the petitioner held only 0.5% and had no access to the register of shareholders.

The company submitted in reply that no case for relief on the just and equitable ground had been made out, since (a) the informal liquidation in accordance with the wind-down plan was a carrying-on of the business, since it was provided for by its offering document, which warned that, in certain circumstances, shareholders” rights to redeem could be limited or suspended and shares could be compulsorily redeemed; (b) the wind-down plan itself was a suitable alternative remedy open to the petitioner;

and (c) a further suitable alternative remedy open to the petitioner was to requisition an EGM for the purposes of resolving to place the company into voluntary liquidation.

The order(s) to be made

The petitioner submitted that a winding-up order should be made and official liquidators appointed in respect of the company, since (a) the wind-down plan was not expected to be completed in good time; (b) under the wind-down plan, the investment manager would have an incentive to delay the process in that it would continue to be paid according to an agreed percentage of NAV; (c) there was no requirement for providing reports and accounts to the shareholders; and (d) the investment manager”s intended retention of the company”s cash until the following quarter day would be detrimental to the shareholders, since the cash would be included in the company”s NAV for the purpose of calculating the investment manager”s fee.

The company submitted in reply that the court should adjourn the petition and allow the informal liquidation to continue, since (a) making a winding-up order at this stage would be detrimental to the company and its shareholders, since it would signal to the market that the company was attempting to offload its assets quickly and could result in a significant loss in the value of its assets, given that some of them were investments in small-cap companies whose shares were thinly traded; (b) the wind-down process would now be completed within a few weeks; and (c) the investment manager no longer had an incentive to delay the process, since it had agreed to waive any fee which would have become payable to it after the end of this year.

The court considered (a) whether, in the circumstances, it would be appropriate to appoint official liquidators now or to adjourn the petition and re-list it for hearing after the projected end date of the wind-down plan; and (b) whether to make orders alternative to winding up the company on the just and equitable ground in order to avoid the problems with the wind-down plan, pursuant to s.95(3) of the Companies Law (2010 Revision).

Costs

The petitioner submitted that its presentation of the petition had been reasonable and that it should therefore be entitled to its costs on the indemnity basis.

A part-owner of the company submitted that the petitioner should not be entitled to its costs as they arose after the case management conference, since at that point it ought to have agreed to adjourn the petition in the light of the revisions to the wind-down plan.

Held, adjourning the petition and making alternative orders:

The just and equitable ground

(1) The court would adjourn the petition until after the projected end date of the wind-down plan, and make alternative orders. The petitioner

had made out a case for relief on the just and equitable ground in s.92(e) of the Companies Law (2009 Revision). The company had ceased to be a viable open-ended mutual fund by the time the petition was presented, in that it had permanently suspended redemptions and ceased to accept new subscriptions and was therefore no longer carrying on...