Law is often viewed as being a pursuit involving highly
technical issues which require a great deal of thought from
experienced minds. This is frequently the case. However, sometimes
important matters arise out of circumstances which are, ultimately,
quite simple. This is illustrated by a recent decision from the
High Court in England by Mrs Justice Proudman in Re
Kaupthing Capital Partners II LP Inc  EWHC 836 (Ch),
which involved a Guernsey investment fund.
The Technical Bit
An investment fund, Kaupthing Capital Partners II LP Inc (the
"Fund"), was established using a Guernsey incorporated
limited partnership. Largely as a result of the collapse of
Kaupthing Bank in Iceland, a demand for a significant amount of
money was made against the Fund which it was unable to meet.
As a result, the Fund was placed into administration by the
resolution of its general partner. At about the same time, the
general partner, through whom the Fund acted, was also placed into
administration. This meant that the administrators took control of
the Fund. Once appointed, the administrators became the only people
who could lawfully operate the Fund and the only people able to
sell the Fund's assets. Their role was to either manage the
Fund's affairs such that it became solvent again or, if this
was not possible, to repay the Fund's creditors as much as
possible of the debts they were due.
We now need to fast forward through the next eighteen months of
the Fund's administration. At this time the Fund's main
creditors brought a number of applications to the High Court in
England, all of which had one broad thrust: that the Fund had not
actually been put into administration.
The Nature of the Fund Itself
One of the arguments in support of this contention the Fund had
not been lawfully placed into administration (and consequently that
the administrators of the Fund had not been appointed) was that the
correct process had not been followed. One of the main issues over
which the Court heard substantive argument was whether the Fund was
a company, a partnership or a 'hybrid' of the
The Court found that whilst the Fund was an incorporated limited
partnership, which had a separate legal personality, it was still
to be treated as a partnership in this context. This is a
potentially important decision regarding the recognition of
Guernsey's incorporated limited partnerships and, in respect of
this particular case, it had significant consequential effects.
The Simple Bit
When placing a partnership or a company into administration in
England using an 'out of Court' procedure the
Court found that there are two different forms which can be used.
In this instance the form for companies, rather than for a
partnership, had been incorrectly used when placing the Fund into
administration. The disastrous effect of this was that the
appointment of the administrators of the Fund was indeed invalid;
they had never had a legal right to operate the Fund and had done
so for around eighteen months without authority. This raised some
Thus, whilst a problem can appear to be of a technical legal
nature involving sophisticated structures, we can see that the real
issue can sometimes be surprisingly simple – in this
case, someone had merely used the wrong form.
Following this High Court decision Appleby was instructed to
provide Guernsey law advice in respect of the consequences arising
from the ruling.
As originally appeared in the Guernsey Press - Law &
Accountancy, September 2010
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.
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