Cayman Islands Court Of Appeal Re-Examines Master-Feeder Redemption Procedures

• Published date: 13 July 2020
• Subject Matter: Corporate/Commercial Law, Corporate and Company Law, Directors and Officers, Shareholders
• Law Firm: Ogier
• Author: Mr Marc Kish, Gemma Lardner, Justin Savage and Giorgio Subiotto

Introduction

In the matter of Ardon Maroon Asia Master Fund (in Official Liquidation), CICA, 20 May 2020, the Cayman Islands Court of Appeal has reiterated the importance of following the natural and ordinary meaning of a fund's articles, in order to ensure that redemptions are effective. This is particularly important in the context of a master-feeder fund structure.

Background

Ardon Maroon Asia Dragon Feeder Fund (Feeder Fund) was a feeder fund into the Ardon Maroon Asia Master Fund (Master Fund), which invested primarily in equity and equity-linked instruments in Asian companies. Investors subscribed for redeemable shares in the Feeder Fund which, in turn subscribed for redeemable shares in the Master Fund.

On 11 August 2014, an investor in the Feeder Fund submitted a redemption notice (Redemption Notice). Consistent with most master-feeder fund structures, the Feeder Fund invested all of its funds in the Master Fund and as such, had no assets of its own from which to meet any redemption requests. As the Master Fund did not have sufficient funds to redeem the investor's shares, on 30 October 2014 (after the redemption day applicable to the Redemption Notice) the directors of both the Master Fund and the Feeder Fund passed resolutions suspending the redemption of shares and payment of redemption proceeds. The Master Fund and the Feeder Fund were subsequently placed into voluntary liquidation and thereafter came under the supervision of the Court.

Upon receipt and acceptance of the Redemption Notice from the investor, the Feeder Fund had not submitted its own redemption notice to the Master Fund before the suspension. As such, the question before the Court in the liquidation was whether the receipt and acceptance by the Feeder Fund of the Redemption Notice triggered an automatic back-to-back redemption of the Feeder Fund's holding in the Master Fund.

At first instance, the Grand Court rejected the Feeder Fund's claim that an automatic back-to-back redemption had taken place on the grounds that (i) the procedure for redemption of shares was exclusively set out in article 37 of the Master Fund's articles of association and required notice of redemption; (ii) even if it were open to the directors of the Master Fund to decide on some other procedure, they had not done so; and (iii) the directors had not waived the requirement of a notice. The Court of Appeal affirmed and upheld the Grand Court's findings.

Decision

The threshold question that the Court of...