By Giorgio Subiotto, Tim Cone
The Cayman Grand Court has handed down a decision that has significance for Cayman master-feeder fund structures. Funds and their advisers should review the redemption provisions in master fund articles of association and partnership agreements to ensure that, operationally, redemptions are being effected in accordance with such documents.
In the matter of Ardon Maroon Asia Fund (In Official Liquidation) concerned ‘back-to-back’ redemptions within a master-feeder fund structure, in which a feeder fund’s liquidators contended that, upon receipt and acceptance by the feeder fund of a redemption request by one of its investors, an ‘automatic’ redemption of the Feeder Fund’s holding in the Master Fund had occurred on a ‘back-to-back’ basis. The feeder fund’s offering memorandum provided that “the redemption procedure for the Master Fund is identical to [the Feeder Fund’s] procedure.” The feeder fund’s liquidators argued that there was therefore a single procedure that resulted in the simultaneous redemption of shares at the feeder fund level and at the master fund level without the need for a separate redemption notice to be given by the feeder fund. The liquidators contended that this was the understanding of the directors of the master fund (who were also the directors of the feeder fund) and that this form of automatic’ back-to back redemption procedure was general market practice for master-feeder fund structures in Cayman.