Doing Justice or an Opportunity Missed?
A recent decision of the Grand Court of the Cayman Islands has, for the first time, provided some clarity as to the exercise by an official liquidator of a bespoke and novel power to adjust the rights of shareholders, in the winding up of a Cayman Islands investment fund, where the rights of shareholders have been distorted by the effects of a pervasive, but external fraud.
The Grand Court's recent Ruling in In Re Herald Fund SPC (In Official Liquidation) ("Herald") FSD 27 of 2013 (unreported, 2 September 2016) is the first time that a court in the Cayman Islands has ordered an official liquidator to exercise his power to rectify (or, in other words, adjust) a share register so as to override the contractual rights of investors in the winding up of a Cayman Islands investment fund. Indeed, the Court found that the liquidation of Herald represented "no clearer case in which the power ought to be exercised" in what is likely to become a landmark decision in this jurisdiction, which remains the most popular jurisdiction for open-ended mutual funds in terms of both number of registered entities and total assets under management. As explained below, Herald's sole investment turned out to be a substantial investment in the Madoff Ponzi scheme, the collapse of which ultimately led to Herald ending up in official liquidation in the Cayman Islands.
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