In-specie distributions — further guidance from the Cayman Islands Court of Appeal - .PDF file.
On 18 February 2013, the Cayman Islands Court of Appeal released its judgment in Re FIA Leveraged Fund. The judgment will be of significant interest to directors and managers of investment funds, as it provides helpful clarification as to what steps they will need to take to ensure that in-specie distributions are effective and what their duties are when valuing assets to be used in these distributions.
In summary, the background facts were as follows. The Fund was a feeder fund in a multi-level master-feeder structure, which also involved:
- an Immediate Master Fund – which the Fund invested into directly; and
- an Ultimate Master Fund – which carried out most of the group’s investment activities.
Three of the Fund’s investors submitted full redemption requests. It was accepted that these shareholders had been entitled to redeem their investments and that they had done so effectively. However, a dispute arose regarding the validity of certain in specie distributions made by the Fund to them, in an attempt to discharge its payment obligations. The relevant redemption date was 31 August 2011. Under the Fund’s articles, payment to the redeeming shareholders fell due on 15 September 2011. However, the Fund made no payment for a number of months…
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