The Cayman Islands Court Of Appeal Affirms Liquidators' Clawback Powers

When a fund fails, the disappointed investors' sole hope of recompense often rests on the fund's liquidators gathering in and distributing pari passu as many of the fund's assets as possible. The judgment of the Cayman Islands Court of Appeal in Skandinaviska Enskilda Banken AB (Publ) v Simon Conway and David Walker (CICA 2 of 2016), delivered on 18 November 2016, clarifies aspects of the liquidators' power to claw back certain types of redemption payments made shortly prior to liquidation. The decision of the Court of Appeal is a welcome affirmation of the public policy of pari passu distribution of the assets of an insolvent estate, which underpins the whole Cayman Islands insolvency regime.


Skandinaviska Enskilda Banken AB (Publ) (the "Appellant"), subscribed for shares in Weavering Macro Fixed Income Fund Limited ("Fund") as custodian for a number of ultimate beneficial owners. Beginning in October 2008, the Fund began receiving large volumes of redemption requests, among them, two requests from the Appellant for redemption of its entire shareholding.

Unbeknownst to the redeeming investors, by late 2008 the Fund's NAV was in fact almost wholly fictitious, having been inflated by sham interest rate swap transactions ("Swaps") which the Fund's principal investment manager, Magnus Peterson, procured the Fund to enter into with one of Mr Peterson's own companies. The counterparty being effectively without assets, the Swaps were worthless in the hands of the Fund.

Nevertheless, the Fund paid the Appellant under its first redemption notice in full in December 2008. The Fund paid the Appellant under its second redemption notice in two tranches: 25% in January and 75% in February 2009. Certain other investors who submitted redemption requests were paid out alongside the Appellant, some in full and some in part only. Many more investors who also submitted redemption requests were never paid out at all, as the Fund ran out of cash and was unable to realise any value from its fictitious Swaps. The Fund entered official liquidation in March 2009.

The Court of Appeal's decision

The Joint Official Liquidators ("JOLs") of the Fund (PwC and Grant Thornton) brought claims against a number of the investors who were paid out in full or in part between December 2008 and February 2009, including the Appellant. The claims were brought on the basis that the payments were voidable preferences under s. 145 of the Companies Law (2013 Revision), which...

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