Clawback Claims Succeed Against Weavering Investors

The Cayman Court provides further clarification as to when redemption payments can be recovered as a voidable preference.

Introduction

In December 2015, Mr Justice Clifford QC published his reasons for determining that certain redemption payments made by Weavering Macro Fixed Income Fund Limited (Weavering ) to Skandinaviska Enskilda Banken AB (Publ) ('SEB') were invalid (In the Matter of Weavering Macro Fixed Income Fund Limited (in Liquidation) (unreported) FSD 98/2014 - 4 December 2015).It is the first time that a Cayman Islands court has ordered the repayment of redemption proceeds pursuant to the voidable preference provisions of the Companies Law.

The case follows the recent decision of the Chief Justice in RMF Market Neutral Strategies (Master) Limited v DD Growth Premium 2X Fund [2013] 2 CILR 361, and provides further guidance for investors in Cayman funds as to when payments are potentially vulnerable to clawback.

Mr Justice Clifford QC confirmed that a payment would be regarded as invalid when it was made with the intention of preferring one creditor (or a sub-set of creditors) over other creditors. It was further affirmed that the intention to prefer must be the principal or dominant intention; however, this intention did not require there to be any element of dishonesty on the part of the director.

Facts

Weavering was put into liquidation on 19 March 2009 after it was discovered that the NAV was being calculated on the basis of worthless interest rate swaps entered into with an affiliate as counterparty. The 'controlling mind' of Weavering, Magnus Peterson, was subsequently convicted of fraud in the UK and sentenced to 13 years imprisonment.

The Joint Official Liquidators (JOLs) commenced proceedings in order to recover approximately $8 million paid to SEB pursuant to three redemption requests in October 2008. The requests were submitted at the same time as other shareholders. However, even though other redeeming shareholders were putting pressure on Magnus Peterson and companies affiliated to Weavering, SEB's payments were made in full whilst a large number of shareholder requests went unsatisfied.

The Joint Official Liquidators sought to recover the payments made to SEB on the basis that, (i) payments were made in the knowledge that the Company was unable to pay its debts, which was in and of itself sufficient to infer objectively the necessary intention of preference, and (ii) there was a specific intention to prefer SEB...