Cayman Islands: Share Register Rectification: Primeo V Additional Liquidator Of Herald

Last Updated: 8 March 2018
Article by Guy Manning and Hamid Khanbhai

When settling a list of shareholders in a solvent liquidation of a Cayman Islands company that has issued redeemable shares tied to a NAV, what is the scope of an official liquidator's power to rectify the register of members under section 112(2) of the Companies Law? When does an official liquidator have a duty to rectify the register under that provision?

In Primeo Fund ("Primeo") v Additional Liquidator of Herald Fund SPC ("Herald") (CICA 5/2017), the Cayman Islands Court of Appeal ("CICA") heard an appeal by Herald's additional liquidator ("Additional Liquidator") concerning the ambit of section 112(2). The CICA held (reversing Mr Justice Jones QC) that:

  • the power to rectify a share register under section 112(2) can be exercised only to give effect to the shareholders' existing rights by a process of rectification which, if not effected, would mean that the true legal position was not entered on the register. It does not confer a power to remove rights, to vary rights, or to create new rights;
  • an official liquidator will be under a duty to exercise the power under section 112(2) if the NAV is incorrect and does not bind the company or its shareholders as a matter of contract law and, specifically, the proper interpretation of the articles of association of the company; and
  • on the facts of the case, Herald's NAVs were binding, and so the Additional Liquidator did not have any duty to rectify the register, nor did he have any discretion to do so under the statute.

The CICA also heard an appeal by Primeo on a discrete issue in connection with Primeo's 'in specie' subscription for shares in Herald. The CICA upheld Mr Justice Jones QC's finding that the 'in specie' subscription was not void.

Legislative background

Section 112(1) of the Companies Law provides that the official liquidator "shall settle a list of contributories" for which purpose the liquidator "shall have the power to adjust the rights of contributories amongst themselves". This is not an unusual provision in Commonwealth jurisdictions.

By contrast, the CICA noted that section 112(2) is "unusual, if not unique", in that it gives an official liquidator of a solvent company that has issued redeemable shares tied to a NAV "the power to settle and, if necessary rectify the company's register of members, thereby adjusting the rights of members amongst themselves".

Section 112(2) does not give details about when an official liquidator is required to rectify the register, or how he should go about doing so. This falls to secondary legislation in the form of Order 12 rule 2 of the CWR ("Rule 2").

Rule 2 provides in part that:

  • the liquidator shall exercise his power of rectification if he is satisfied that, amongst other things, the company has issued or redeemed shares "at prices based upon a mis-stated net asset value which is not binding on the company and its members by reason of fraud or default" with the result that the company has issued the wrong number of shares for the consideration received, or paid out the wrong amount in redemption proceeds; and
  • the liquidator's task is to determine a "true net asset value" for each relevant redemption date or, if that is "impractical or not cost effective", to rectify the register "in such manner which is both cost effective and fair and equitable as between the shareholders".

Decision on section 112(2) and Rule 2

At first instance, Mr Justice Jones QC had held that:

  • Section 112(2) gives the liquidator a discretion to rectify the register of members; Rule 2 also sets out circumstances in which the liquidator has a duty to exercise the discretion.
  • As a result of Rule 2, section 112(2) permits the rectification of the register of members in order to give effect to the substitution of 'true NAVs' for those which were misstated, even if the misstated NAVs would otherwise be binding as a matter of contract.

The CICA agreed with Mr Justice Jones QC that section 112(2) provided a discretion which, in circumstances provided for under Rule 2, would become a duty.

They reversed the learned judge on the second point, regarding the scope of the power under section 112(2). The CICA held that section 112(2) creates a power that cannot override the rights of members in a company.

The statutory power can be exercised only to give effect to existing rights by a process of rectification which, if not effected, would mean that the true legal position was not entered on the register. Section 112(2) does not confer a power to remove rights, to vary rights or to create new rights.

In other words, if a NAV is incorrect but contractually binding on a proper construction of the articles of association, the liquidator will have no power to calculate a correct NAV and substitute it for the incorrect NAV which, despite its incorrectness, had been calculated in accordance with a member's contractual rights. As the CICA held at paragraph 40:

"The register can be rectified in order to declare the rights which have accrued to a member in accordance with his contract and the general law governing that contract. The purpose is not to 'restore' the register of members to a position which reflects the substitution of true NAV or a nearly true NAV or a NAV which does not reflect fictitious profits or which achieves substantial justice."

Rule 2 does provide for a set of circumstances in which a liquidator has a duty to exercise the discretion under section 112(2) to rectify the register in accordance with his determination of the true NAV as at each relevant redemption date or, if not cost effective and practical, what is cost effective, fair and equitable.

However, the CICA clarified two important things about Rule 2. First, the duty under Rule 2 will only arise in circumstances where the contract between the shareholder and the company is not binding "by reason of fraud or default".

Second, the mere fact that there is fraud or default will not, by itself, make a NAV non-binding. For reasons of legal certainty, the question of whether the NAV binds is determined by construing the articles of association.

The CICA rejected the Additional Liquidator's arguments that the NAV was not binding on the facts of the case.

Primeo's in specie subscription in Herald

In early May 2007, Primeo rights to the credit in its managed account with BLMIS were assigned to Herald in consideration for the issue to Primeo of USD class shares in Herald. After adjustments, Primeo received over 373,260 USD class shares in Herald for a notional subscription price of approximately US$465m. This was referred to as Primeo's "in specie" subscription in Herald.

The Additional Liquidator appealed a decision of Jones J that Herald was bound by the number of shares allotted to Primeo in the in specie subscription, which could not now be adjusted. The Additional Liquidator argued that the allotment was void on the basis of (i) insufficient consideration (the value ascribed to Primeo's managed account with BLMIS containing an element of BLMIS's fictitious profits) and/or (ii) on grounds of mistake.

The argument on mistake was not capable of surviving a separate decision of Jones J which was never appealed. By that separate decision, Jones J had held that whilst the parties may have been mistaken about the value of Primeo's rights against BLMIS, that was not a ground upon which the subscription could be held to be void for mistake.

The CICA rejected the argument that the subscription could be void for insufficient consideration. There was held to be no route under section 112(2) to challenge the in specie subscription.


The CICA's decision on the scope of section 112(2) of the Companies Law is grounded on the need for legal certainty over the quasi-contractual rights and obligations between a shareholder and a company. A liquidator does not have a statutory obligation (or discretion) to alter those rights.

Articles of association often provide that NAVs struck by the directors are binding, except in the absence of good faith. The practical effect of this decision may be that the power under section 112(2) is relevant to cases of 'internal fraud' within the investment fund being wound up, but not to cases of 'external fraud' such as Madoff's which affected investment funds like Herald and Primeo. Each case will however turn on the construction of the fund's constitutional documents.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions