Section 15(4) of the Exempted Ltd Partnership Law (2012 Revision) and Cybernaut Growth Fund, L.P.
| Jurisdiction | Cayman Islands |
| Judge | The Hon Mr Justice Andrew J. Jones |
| Judgment Date | 10 September 2013 |
| Court | Grand Court (Cayman Islands) |
| Docket Number | CAUSE NO: FSD 73 OF 2013 (AJJ) |
| Date | 10 September 2013 |
The Hon Mr Justice Andrew J. Jones QC
Cybemaut Growth Fund, L.P. (‘the Partnership’) is an exempted limited partnership which was registered on 20th May 2008 under the Exempted Limited Partnership Law (2007 Revision) (‘the Law’). It was established as a closed ended investment fund for the purpose of investing up to US$250 million in companies carrying on various types of business in the People's Republic of China (‘PRC’), pursuant to the terms of a limited partnership agreement as amended and restated on 18 February 2009 (‘the LPA’). It was established for a fixed seven year period due to end in June 2015. The Partnership has six limited partners. Five of them are investment funds advised and/or managed by Partners Group AG, a large well known financial services business based in Switzerland. Collectively, their capital commitment is US$124.9 (representing 49.96% of the limited partner interests) of which $103.2 million has been called and paid up in cash. The Partnership was established following discussions between executives of Partners Group and Mr Min Zhu (‘Mr Zhu’), an entrepreneur with experience in the technology industry in both the USA and the PRC. The other limited partner is Oriental Financial Holding Corporation (‘Oriental’), an investment holding company which is said to be owned and managed by Mr Zhu's former wife, Mrs Yuping (Susan) Xu (‘Mrs Xu’). It has a capital commitment of US$125.1 million (representing 50.04% of the limited partner interests) of which $103.4 million has been called. Oriental satisfied its initial capital call by transferring assets in kind having a book value of about US$84.6 million and subsequent calls of about US$18.8 million should have been paid in cash.1 The general partner is Cybernaut Capital Management Limited (‘the GP’). It is a company which was incorporated in the Cayman Islands by Mr Zhu for the special purpose of acting as general partner of the Partnership. The GP is owned by Mr Zhu (85%) and its senior employee, Mr Jason Zhao (15%). The GP's financial interest in the Partnership is limited to its right to receive an annual management fee of 2% of the committed capital ($5 million per annum) and a performance fee of 20% of realised gains in excess of the contributed capital plus 5% per annum and 30% of realized gains in excess of a higher benchmark. Leading Counsel for the GP has characterised the Partnership as a ‘quasi-partnership’ between Oriental and the GP on the one hand and the five Partners Group finds on the other hand.
On 4 June 2013 the five Partners Group funds (collectively ‘the Petitioners’) presented a winding up petition against the Partnership on the ground that it is just and equitable that a winding up order be made by reason of the fact that the Petitioners have justifiably lost trust and confidence in the GP such that they cannot be expected to remain within the Partnership with the GP in control of its assets and management. Oriental and the GP accept that, in the circumstances, the Partnership does need to be wound up now, but they insist that it should be a voluntary winding up in accordance with the provisions of the LPA, with the GP acting as voluntary liquidator. On the hearing of the initial summons for directions on 11 June 2013 Foster J. made an order pursuant to CWR Order 3, rule 12 that the petition be treated as aninter partes proceeding between the Petitioners as petitioners and the GP and Oriental as respondents. By a further order for directions made on 14 June 2013,1 set a timetable for the exchange of affidavit evidence and written submissions for the trial of the petition to be heard on 12 and 13 August 2013. On the basis of this relatively short timetable, the Petitioners did not proceed with their application for the appointment of provisional liquidators. Leading Counsel for the GP now complains that this timetable was too short and was prejudicial to his client. I attach no significance to this submission. If his client was presented with any difficulty, it could have made an application for an extension of time and, if necessary, an adjournment of the trial date. No such application was ever made.
The timetable also made provision for the Respondents to issue a summons (which they did on 20 June) for an order that the petition be struck out as an abuse of the process on the grounds that (i) it was presented in breach of a valid and binding arbitration agreement, (ii) an alternative remedy, namely arbitration, is available to the Petitioners who are acting unreasonably by not pursuing it and (iii) on a true construction of the limited partnership agreement, the Petitioners have contracted out of their right to present a winding up petition or apply to the Court for the appointment of an independent liquidator. On the following day (21 June) they commenced an arbitration in New York pursuant to the rules of the American Arbitration Association, by which they sought declarations that the presentation of the winding up petition constitutes a breach of the LPA; that the Partnership should be wound up in accordance with the termination and liquidation provisions of the LPA; and that the GP should be appointed as ‘liquidating trustee’ (meaning voluntary liquidator) of the Partnership. A further summons was then issued by which they sought a stay of the petition pending the outcome of the arbitration. On 25 June, on the application of the Petitioners, I made an anti-suit injunction restraining the Respondents from taking any further steps in the arbitration pending the outcome of the substantive hearing of the summonses. Having heard them on 3 July, I dismissed the Respondents' summonses for reasons delivered on 23 July 2013. I subsequently made an injunction restraining the Respondents from taking any further steps in the arbitration until after the outcome of the substantive hearing of the winding up petition.
On 1 August 2013 the Respondents commenced a proceeding against the Petitioners in the United States District Court for the Southern District of New York by which they sought an antisuit injunction to restrain the Petitioners from proceeding with their winding up petition. Following aninter partes hearing on 7 August 2013 Judge William H. Pauley III dismissed this application on the basis that it was an attempt to re-litigate the same issue which I had already decided against the Respondents. An appeal against Judge Pauley's decision was still pending at the time when the petition came on for trial.
No party made an application to cross examine any of the deponents with the result that the winding up petition was tried on the basis of the affidavit evidence alone. The evidence for the Petitioners comprises affidavits sworn by Messrs Yves Adrian Schneller (‘Mr Schneller’) and Mr Adam Howarth (‘Mr Howarth’), both of whom are employees of Partners Group AG. Mr Schneller is a lawyer admitted to practice in Switzerland. He is employed as a senior vice president at Partners Group's head office in Zug, Switzerland. Mr Howarth is a professional asset manager. He is employed as managing director of the Partners Group subsidiary in Singapore. The GP's evidence comprised an affidavit sworn by Mr Zhu, together with a large volume of documentary exhibits. Oriental supported the GP's opposition to the petition, but no affidavit evidence was filed on its behalf and its counsel's participation in the trial was limited to adopting the submissions made by Leading Counsel for the GP.
Leading Counsel for the Petitioners puts their case on the basis of the principles contained in the well known decision of the House of Lords inEbrahimi v. Westbourne Galleries Ltd [1973] AC 360 and it is not disputed that these principles apply to the liquidation of an exempted limited partnership in the same way as they would apply to a company. Their case is that it is just and equitable to make a winding up order because the GP's misconduct and mismanagement of the Partnership has given rise to a justifiable and irreparable loss of trust and confidence on the part of the Petitioners, such that they cannot be expected to remain in the Partnership, The onus is on the Petitioners to establish that the GP is guilty of misconduct as alleged in the petition; that their loss of trust and confidence in the GP is both justifiable and irreparable; and that the circumstances justify the making of a winding up order. The parties are agreed that the Partnership should be wound up now. The onus is on the Petitioners to establish that the circumstances are such that it should be wound up compulsorily by independent professional insolvency practitioners acting under the supervision of the Court as opposed to being wound up voluntarily by the GP, in which case the limited partners will have no contractual right to participate in the process.
The LPA imposes upon the GP an exclusive responsibility for the management and control of the business and affairs of the Partnership. In effect the GP is intended to perform the dual role of investment manager and administrator.2 The Petitioners make a series of specific complaints about managerial misconduct, some more significant than others. Whilst it may be said that each complaint contributes to their loss of trust and confidence in the GP, I think that their case turns on the fundamental allegation that the GP has become a dysfunctional organisation which is no longer capable of properly managing the Partnership, as evidenced by its inability to produce current financial...
To continue reading
Request your trial