No Running Away From Supervision ' The Court's Powers In A Voluntary Liquidation Of An Exempted Limited Partnership

• Published date: 17 February 2023
• Subject Matter: Finance and Banking, Corporate/Commercial Law, Financial Services, Corporate and Company Law
• Law Firm: Carey Olsen
• Author: Mr James Noble, Peter Sherwood, Amelia Tan and Nicholas Lee

The recent Cayman Grand Court ruling of In the Matter of ECM Straits Fund I, LP ("ECM Straits Fund") helpfully clarifies that voluntary liquidators of an Exempted Limited Partnership ("ELP") can be subject to court supervision, with the result that voluntary liquidators can be granted powers that are usually reserved for court-appointed liquidators.

Introduction

In recent times, the Court has been asked to hear cases where a General Partner ("GP") has failed to discharge its duties in relation to the affairs of an ELP. Without the co-operation of the GP, Limited Partners are often left bereft of information relating to assets of the ELP. They cannot properly realize their investments under the ELP and, even if they can, there is a spectre of doubt over whether the distributions represent their full entitlement in the assets of the ELP. In circumstances where the term of the ELP has come to an end, one remedy for a Limited Partner in this predicament would be to appoint an independent liquidator to oversee the realization of the ELP assets, and to identify assets or information withheld by the GP.

However, a Limited Partner will generally encounter two difficulties in the appointment of a liquidator. Firstly, a Limited Partner acting on his own may not be entitled under the terms of the Limited Partnership Agreement ("LPA") to appoint a liquidator without making an application to the Court. Secondly, even if a Limited Partner may appoint a liquidator under the LPA, the powers required for a liquidator to properly discharge its duties are powers which can only be granted by the Court in an official liquidation (i.e. to realize assets and investigate potential claims).

The apparent solution is therefore for the Court to grant orders and directions that have the equivalent effect of making a supervision order under the Companies Act (2023 Revision) ("Companies Act"). What is less apparent is how this hybrid can be achieved within the statutory framework of the Exempted Limited Partnership Act (2021 Revision) ("ELP Act"). As it stands, Section 36(3)(d) of the ELP Act disapplies the majority of Part V of the Companies Act to an ELP, including the provisions for the supervision of the Court in a voluntary liquidation.

The case of In the Matter of ECM Straits Fund I, LP

In ECM Straits Fund, the LPA provided for the GP to conduct the voluntary liquidation of the partnership at the expiry of its term. However, the GP was not performing this role and was eventually...