Restoration of the ‘Redemption Creditor’ in the Cayman Islands

A recent judgment of the Cayman Islands Court of Appeal (‘CICA’) has provided a welcome degree of certainty for investors and insolvency practitioners alike with respect to the priority to be afforded to investors’ claims for unpaid redemption proceeds in the winding up of Cayman Islands investment funds. The judgment has, however, given rise to a suggestion that the relevant part of the legislation may operate such as to allow investors, in certain circumstances, to convert themselves from shareholders to creditors after the commencement of a winding up.

The CICA decision is one of the most recent in the ongoing liquidation proceedings of Herald Fund SPC (‘Herald’). Herald was, in terms of its constituent documents at least, a fairly typical Cayman Islands domiciled open-ended mutual fund, often referred to as a ‘hedge fund’ (the Cayman Islands remaining the most popular hedge fund jurisdiction in terms of both number of registered entities and total assets under management). However, as explained below, Herald’s sole investment turned out to be a substantial investment in the Madoff Ponzi scheme and Herald ultimately ended up in official liquidation in the Cayman Islands.

This article was originally published in International Corporate Rescue ‎(Volume 14, issue 1).

 

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