The Companies Act (2021 Revision) and Madera Technology Fund (CI)Ltd Between: Fideicomiso F/000118 Petitioner v Madera Technology Fund (CI)Ltd Respondent
| Jurisdiction | Cayman Islands |
| Judge | Justice Cheryll Richards |
| Judgment Date | 03 November 2021 |
| Court | Grand Court (Cayman Islands) |
| Docket Number | CAUSE NO: FSD 54 OF 2021 (CRJ) |
In the Matter of the Companies Act (2021 Revision)
And in the Matter of Madera Technology Fund (CI), Ltd
The Hon. Justice Cheryll Richards Q.C.
CAUSE NO: FSD 54 OF 2021 (CRJ)
IN THE GRAND COURT OF THE CAYMAN ISLANDS
FINANCIAL SERVICES DIVISION
Application to strike out, contributory winding up petition, abuse of process, allegations of collateral purpose, whether alternative remedies, buy-out offer.
Mr. James Eldridge and Mr. Lukas Schroeter of Maples and Calder (Cayman LLP) for the Respondent
Mr. Peter Hayden and Mr. Laurence Aiolfi of Mourant for the Petitioner
By Summons dated 29 th March 2021, Madera Technology Fund (CI), Ltd (“the Company”) applies for the strike out of the Petition dated 5 th March 2021. The application is made pursuant to GCR O.18 r.19 and the Court's inherent power to prevent an abuse of its process. The Order provides inter alia that the Court may at any stage order a petition to be struck out on the ground that it:
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(a) “discloses no reasonable cause of action or defence, as the case may be; or
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(b) is scandalous, frivolous or vexatious; or
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(c) may prejudice, embarrass or delay the fair trial of the action; or
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(d) is otherwise an abuse of the process of the court.”
The Petition which is filed by Fideicomiso F/000118, (“the Petitioner”) seeks the winding up of the Company pursuant to s.92 (e) of the Companies Act (2021 Revision) on the basis that it is just and equitable to do so. It is said that the appointment of independent liquidators is necessary in order to take control of the assets of the Company and investigate its affairs.
The grounds for the Petition are summarised in the Petitioner's proposed draft amended Petition as follows, that:
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i) “The Company sought to compulsorily redeem the Petitioner's shares in the Company in breach of the common law obligation and/or an implied term of the Articles of Association to exercise powers for proper purpose;
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ii) The Company failed to convene an extraordinary general meeting of the members of the Company in breach of the terms of its Articles of Association and/or contrary to representations in the Company's Confidential Explanatory Memorandum;
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iii) The Company converted the Petitioner's shares into non-voting shares in breach of the common law obligation and/or implied term of the Articles of Association to exercise powers for proper purpose;
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iv) The Petitioner has suffered a justifiable loss of faith in the Company's management; and
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v) It is necessary for there to be an independent investigation into the affairs of the Company.”
The Company was registered in the Cayman Islands as an exempted investment Company on the 6 th November 2014 and commenced operations on the 1 st January 2015. It operates as a feeder fund, which is part of a master feeder structure through which it invests almost all of its assets. The Company offers investments in a number of share classes, one of which is Class A, Accolade E-1 Sub-Class which are solely invested in Accolade Inc. The Accolade shares were subject to certain restrictions by which they were not freely tradeable until the 29 th December 2020. Mr. Kristopher Drankiewicz was the sole director of the Company at the time it was established. On 1 st January 2020, the Company appointed a second director, the wife of Mr. Drankiewicz, Ms. Liliana Macias. In March of 2021, the Company appointed its first independent director, Mr. Ronan Guilfoyle of Calderwood. It is said that this was done, in an effort to bolster the Company's corporate governance structure. The Investment Manager of the Company and its General Partner are limited liability companies registered in Delaware, U.S.A. The Managing Member of the General Partner is Mr. Drankiewicz.
The Petitioner is a Trust established under the laws of Mexico. It is owned by certain members of the Bours family. The Petitioner was introduced to the Company in 2018 by a member of the family, Mr. Mario Bours Laborin (“Mr. Bours”). Mr. Bours is described as then being an employee of an affiliate of the Investment Manager who worked alongside Mr. Drankiewicz and was on good terms with him. Mr. Bours also served as a liaison between the Petitioner and the Company. In August 2018 the Petitioner, by an investment of some US$5.5 million, subscribed for an amount of Class A, Accolade E-1 shares in the Company and obtained what was reported to it to be an ownership interest of approximately 29.5% together with various rights including rights to information and to vote. At the time, the Petitioner was the sole investor in this class of shares.
The Petition is supported by two other shareholders and is verified by the First Affidavit of Mr. Daniel Alberto Salazer Ferrer, the Chief Financial Officer of the Petitioner. He provides some of the background to the matter. In summary, the Petitioner asserts that a series of actions and or omissions by the Company over time provide evidence that the Company's affairs have been mismanaged and that there has been oppressive and or discriminatory conduct towards it. The Petitioner also asserts that as a result of these matters, there is justifiable loss of confidence in the probity with which the affairs of the Company are being conducted.
There is agreement that there was initially an amicable relationship between the parties through to February 2020 and as to the broad sequence of events. There is disagreement as to the intention and motive underlying various actions.
In September 2019, Mr. Bours' relationship with the affiliate of the Investment Manager began to deteriorate culminating in Mr. Bours filing proceedings against it in New York in May 2020.
In August 2019 and April 2020, the Company made two capital calls of the Petitioner. These were paid in September 2019 and after inquiry and with some expressed reluctance in June 2020. Prompted it is said by the capital request made on the 18 th April 2020 with follow up reminders on 13 th and 18 th May 2020, the Petitioner began seeking detailed explanations of the expenses claimed in relation to the calls and repeated earlier requests for information as to its proportionate shareholding. On the 23 rd June 2020, the Petitioner was notified that its account was in default due to non-payment of the second capital call. On the 26 th June 2020, the Petitioner provided confirmation of that payment but continued to request more detailed information as to the calls. This included repeated requests for information as to the legal basis on which the Company purported to make them, the timing and breakdown of the expenses claimed in relation to them, an itemised breakdown of the Company's investment activity, operational expenses and working capital requirements, how the Petitioner's portion of the second capital call was calculated, a quarterly breakdown of the Company's management fee periods and copies of the agreements relating to the Petitioner's investment in the Company.
The Company now accepts that it had no legal basis to make those calls and that the Petitioner had no obligation to pay them. The two calls totaled US$311,112.78. The Company issued additional shares to the Petitioner in return. The Petitioner points to this as being one example in which its inquiries were necessary and justified and persists in a further inquiry as to how the funds were expended and decisions made. It asserts that the responses received are limited and lack detail. The Company says that this is no more than a past error which has been rectified by the issue of the additional shares and that the Petitioner has been provided with the information to which it is entitled.
In response to the request for a breakdown of share percentage information, the Company refused to provide this information and indicated that the Petitioner was provided with the same information as other investors. The further response was that details such as a breakdown of operational expenses of the Company, how the Petitioner's pro-rata shares had been allocated and quarterly breakdowns of the Investment Manager's fees are not provided in the usual course.
On the 25 th June 2020 an email from Mr. Bours to one of the attorneys of the Petitioner was inadvertently copied to Mr. Drankiewicz. This email appears to be at the center of the deteriorating relationship between the parties. It states in part as follows:
“Moreover, the overall goal of the Trust is to gain more control and oversight over its investment primarily (in our own view) through three sequential lines of action: i) exercising our rights to receive information on the state of our investment and the partnership, ii) determining the proportional equity stake that the Trust holds in order to ascertain our corporate rights (pursuant the majority thresholds set in the corporate documents), iii) If a majority stake is indeed confirmed at the fund and/or share class levels, to explore the possibility and merits of appointing an independent inspector at the very least and/or designating additional directors to gain more control over the investment and/or removing the sole director all together, possibly forcing a wind down (the nuclear option). The main purpose of pursuing these actions is to gain control over redemption rights, so that we can exit the investment at our discretion or to at least get comfortable with the state in the investment by having more of a say over its destiny. We believe we can achieve this either judicially or through negotiation with the fund's principal and GP.”
On the 29 th June 2020, the Company sought to compulsorily redeem the Petitioner's shares in exercise of a power conferred by Article 12.1 of the Company's Memorandum and Articles of Association (“MAA”). The Compulsory...
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