Before the Court of Appeal in RMF Market Neutral Strategies
(Master) Limited -v- DD Growth Premium 2X Fund (In Official
Liquidation), Paul Smith and Ben Hobden of Conyers successfully
opposed an appeal brought by the liquidators of DD Growth seeking
to clawback redemption payments made to RMF at a time when it was
subsequently shown that the fund was insolvent at the time that the
payments were made.
Due to the timing of the redemption payments, it was the
construction of the Companies Law (2007 Revision) (the
"Law") that fell to be considered.
The liquidators' argument was based upon Section 37(6)(a) of
the Law which provided that:
"A payment out of capital by a company for the
redemption or purchase out of its own shares is not lawful unless
immediately following the date on which the payment out of capital
is proposed to be made the company shall be able to pay its debts
as they fall due in the ordinary course of business."
The liquidators sought to argue that the payments made to RMF
were payments made out of capital at a time that DD Growth was
insolvent and that, in effect, payments out of either share capital
or share premium was impermissible.
At first instance, the Chief Justice had dismissed that
argument, instead preferring Conyers' construction of the Law
that the provisions of Section 37(6)(a) were not breached as only
a, de minimis, amount of $1/1000 per share represented
share capital, with the remainder representing share premium, the
use of which was permissible pursuant to the Law. This is the
position that is found in the current version of the Companies
In a landmark decision, the Court of Appeal wrestled with these
issues, describing the issue of statutory construction as 'a
difficult question'. However, the Court of Appeal held that
Section 37 of the Law must be read in conjunction with Section 34
of the Law which provided that payments by a company out of share
premium for the redemption or purchase of its own shares are not
payments out of capital and as such are not subject to any solvency
requirement. The Court of Appeal attached particular importance to
Section 34(2)(f) which refers to the use of share premium "for
providing for" the premium payable on redemption which is held
to cover payment for the premium due.
Further, the Court of Appeal failed to be persuaded by the
liquidators' argument that the convoluted wording of Section
37(5) supported the contention that the payments made to RMF were
made out of capital, considering this argument to be
It is now therefore clear that for the purposes of Section 37(6)
share capital is given its natural meaning and represents only the
par value of shares.
The judgment of the Court of Appeal makes sound commercial
common sense and will come as a relief to many investors and a
disappointment to many liquidators who were anxiously awaiting the
outcome of this matter.
Paul Smith and Ben Hobden of Conyers successfully represented
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The claim followed the conclusion of two years of litigation (ORD 12/0035 & ORD 12/0034) between the parties in respect of the Bank's contractual claim for amounts owed by TSEL to the Bank pursuant to certain business loans.
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