Court Of Appeal Confirms The Grand Court's Power To Regulate Who Will Be The Voluntary Liquidator Of An Exempted Limited Partnership

Key Takeaways

• Walkers successfully represented the respondent limited partner in appeal proceedings filed by the General Partner (the "GP") of One Thousand & One Voices Africa Fund I, L.P. (in Voluntary Liquidation) (the "Partnership"), where the Court of Appeal dismissed the entirety of the GP's appeal.

• The Court of Appeal provided guidance on the interpretation and operation of section 36 of the Exempted Limited Partnership Act (as revised) (the "ELP Act").

• The Court of Appeal confirmed that section 36(13) of the ELP Act applies in the voluntary liquidation of an exempted limited partnership (an "ELP") and is not limited by section 36(3)(g) to implementing the provisions of the Companies Act (as amended) (the "Companies Act") that apply to the voluntary liquidation of a company.

• Section 36(13) provides the Grand Court (the "Court") with unrestricted power to appoint a person to act as voluntary liquidator of an ELP other than the contractually agreed liquidator in appropriate circumstances.

Overview

Background to the Appeal

After the GP (who was acting as "Liquidating Agent" of the Partnership pursuant to the terms of the relevant Limited Partnership Agreement (the "LPA")) refused to appoint independent voluntary liquidators over the Partnership, Walkers acted for a limited partner (who had the support of a significant percentage of all other limited partners of the Partnership) (the "LP") to secure orders from the Court that the affairs of the Partnership be wound up by Alexander Lawson and Christopher Kennedy from Alvarez & Marsal Cayman Islands.

At first instance, the GP raised a jurisdictional challenge to the relief sought by the LP concerning the power of the Court under section 36(13) of the ELP Act to remove the GP as the Liquidating Agent. The GP argued that the parties' commercial bargain (i.e. the LPA) was "king", and because the LPA provided for the GP to act as the Liquidating Agent upon the voluntary liquidation of the Partnership, the Grand Court had no power to appoint an alternative Liquidating Agent in its place where the LPA afforded no such power. It also argued that the power sought to be relied upon by the LP under the ELP Act was not available in the voluntary liquidation of an ELP.

Various other challenges were also raised during the proceedings by the GP, including the commencement of parallel proceedings in the United States (trying to challenge the Court's jurisdiction), as well as an attempt to unilaterally remove the LP as a limited partner in the Partnership.

Ultimately, the jurisdictional challenge was dismissed by the Court and the new voluntary liquidators were appointed.

Arguments raised on Appeal

The GP appealed against the decision at first instance on a new jurisdictional ground (inconsistent with the position at first instance) – that section 36(13) only dealt with appointment (and not removal), and because section 36(1) emphasised the primacy of the LPA, which appointed the GP as Liquidating Agent, the LPA provided that the GP could only be removed as the Liquidating Agent if permitted by and done in accordance with the terms of the LPA.

The GP further argued that because the majority of Part V of the Companies Act (including sections dealing with the removal and supervision of voluntary liquidators of companies) is disapplied to the voluntary liquidation of ELPs, the Judge was wrong to assume that they had or could exercise powers that the Court has in supervised liquidations, suggesting that section 36(13) only applied to compulsory liquidations.

Findings on Appeal

Section 36(1) merely establishes a starting point that the voluntary liquidation of an ELP shall be conducted in accordance with the terms of the LPA (which is subject to exceptions). The Court of Appeal confirmed that that there is "no question that the remaining provisions of section 36 are capable of applying to a voluntary liquidation", including because if section 36(13) does not apply to a voluntary liquidation, it cannot apply to anything at all.

The legislative intention of section 36 was found to be clear: the winding up of an ELP shall be conducted pursuant to its agreed arrangements (section 36(1)). However, an alternative route to winding up (albeit compulsorily) is provided for by the application of Part V of the Companies Act, which involves no application of provisions of the LPA. Whilst the Companies Act has limited application to the voluntary liquidation of an ELP, the tools that are otherwise available to the Court in the case of voluntary liquidations (including removal and supervision) are replaced by general powers contained in section 36(3)(g) and section 36(13) (and via section 129, which expressly applies to the voluntary liquidation of ELPs) that allows the Court, inter alia, to appoint alternative individuals to wind up the affairs of an ELP in place of the contractually agreed liquidator (who is often the general partner).

In the end, the Court of Appeal had no difficulty finding that section 36(13) empowers the Court to appoint an alternative voluntary liquidator, other than the GP or person appointed under a partnership agreement and could do so pursuant to its power given by section 36(3)(g) of the ELP Act.