An issue arising with increasing frequency in connection with Cayman Islands domiciled investment funds is the circumstances in
which an investor in a solvent fund can bring an informal wind down initiated by management of the fund to an end and have
the board replaced by a liquidator appointed by the Grand Court of the Cayman Islands (“the Court”). Recent case law in the
Cayman Islands has shed light on the circumstances in which the Court might intervene, and the factors which may militate against
such intervention.
Background
It has been approximately two years since the unprecedented economic environment of 2008 began severely impacting investment
markets. Due to the tight credit markets and resulting liquidity issues, many open ended investment vehicles took steps to manage
liquidity issues and to protect their investors’ interests, for example by suspending the ability of investors to redeem shares or interests
in order to prevent a fire sale of assets at severely depressed prices and/or maintain the solvency of the investment vehicles.
In the context of taking these steps, some funds determined that their investment strategy was no longer viable and informed
investors that they would be conducting an informal wind down of operations by realising their assets and returning the proceeds
of realisation to their investors over a particular timeframe, depending upon the profile and liquidity of the portfolio.
An issue arising in a number of recent cases is whether investors unhappy with an informal wind down can ask the Court to appoint
a liquidator even though there is no suggestion of lack of probity on the part of the fund’s directors or managers or no express need
for independent investigation. Circumstances in which investors might wish to have a liquidator appointed include perceived delay
in the realisation of assets or return of realisation proceeds, or the continued receipt by managers of a management fee equivalent
to that charged when the investment vehicle was actively trading.
http://www.walkersglobal.com/files/Publication/0e0c980f-dac8-4628-ac84-fa06373c0974/Presentation/PublicationAttachment/f601e3a4-cd1c-43ef-bab3-fa6e35dfbac8/Winding%20Up%20Solvent%20Funds.pdf
Location