Vol 8 (2011) - Issue 2

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Recent Developments in Cayman Islands Hedge Fund Litigation

Introduction

During the course of calendar year 2010 the Cayman Islands courts1 have delivered a number of important decisions dealing with the circumstances in which a Cayman Islands domiciled open-ended investment fund, or, as they are more colloquially known, hedge fund, may be wound up by the court upon a winding up petition presented by a stakeholder in that entity.

This article is intended to provide readers with an update based on a number of recent cases of which we are aware5 that have focused on investors in a Cayman fund presenting a winding up petition based on the 'just and equitable' ground.

During the course of writing this article, the Judicial Committee of the Privy Council delivered its decision in Re Strategic Turnaround Master Partnership Limited8 and, given its importance to the circumstances in which a creditor may properly present a winding up petition in this jurisdiction, we have dealt with its effect in our postscript.



Improper use of winding up petitions

On 18 March 2010 the Cayman Islands Court of Appeal delivered a comprehensive judgment in Re Camulos Partners Offshore Limited 9 upholding the appeal of Camulos Partners Offshore Limited (the 'fund'), against an order of the Grand Court in September 2009 refusing the fund’s application for injunctive relief to restrain presentation of a threatened winding up petition by a dissentient investor. The Court of Appeal set aside the Judge’s first instance decision, struck out two winding up petitions presented by the investor against the fund and also sent a clear message to legal practitioners in this jurisdiction that winding up petitions should not be used to place undue and improper pressure on funds to accede to demands made by a petitioner. Given that the factual and procedural background to the Camulos dispute was relatively convoluted and unique and appeared also to have been an important factor for the Court of Appeal in reaching the decision that it did,10 it is dealt with in some detail below.