Aris Multi-Strategy Lending Fund Ltd v Quantek Opportunity Fund, Ltd [Eastern Caribbean Supreme Court]
| Jurisdiction | British Virgin Islands |
| Judge | Bannister J |
| Judgment Date | 15 December 2010 |
| Docket Number | CLAIM NO: BVIHCOM2010/0129 |
| Court | High Court (British Virgin Islands) |
| Date | 15 December 2010 |
EASTERN CARIBBEAN SUPREME COURT
IN THE HIGH COURT OF JUSTICE
CLAIM NO: BVIHCOM2010/0129
Mrs S Corbett and Mr Oliver Clifton for the Applicant
Mr Stephen Moverley Smith QC and Ms Claire Robey for the Respondent
(Application by member of feeder fund company for appointment of liquidators — only assets of company its shareholdings in associated open ended investment company (“the Master Fund”) — both company and Master Fund suspending calculation of NAV and redemptions in October 2008 — by date of hearing master fund distributing some 35% of collective September 2008 NAV to company for distribution — applicant alleging loss of substratum of company and consequent oppression of applicant as minority shareholder — whether substratum lost — whether appointment to be made)
Bannister J[ag]: This is an application for the appointment of joint liquidators over the respondent Quantek Opportunity Fund, Ltd (“the Fund”), a company incorporated under the Business Companies Act, 2004 on 4 July 2005. The applicant is a company called Aris Multi-Strategy Lending Fund Limited (“ARIS”).
It appears from the narrative contained in an Information Memorandum distributed by the Fund in April 2007 and dated 25 April 2007 (“the April 2007 IM”) that the Fund commenced trading on its own account as a stand alone investment vehicle in December 2005. In December 2006, however, the Fund ceased to invest directly on its own account. Instead, it became what is known as a feeder fund and invested in the redeemable shares of an associated company, Quantek Master Fund SPC, a British Virgin Islands Segregated Portfolio Company (“the Master Fund”), to which the Fund's assets were transferred. Apparently in anticipation of this change in strategy, the Fund's Memorandum and Articles of Association had been amended and restated on 2 February 2007 to provide, among other things, for the Fund's shares to be valued on a look through basis relative to the value of the assets held by the Master Fund. The Master Fund was intended to and so far as the evidence went did, or at any rate mostly did invest in asset-based securities and structured financial products, with a particular focus on middle-market to large Latin American companies.
The Investment Manager for both the Fund and the Master Fund is a Delaware corporation called Quantek Asset Management LLC (“the investment Manager”). The Fund's head office is in Rotterdam, at the offices of TMF Fund Administrators BV, which acted as the Fund's administrator. The auditors for the year ended 31 December 2009 were Ernst & Young Associates LLP (at their office in The Hague). The Directors are Javier Guerra (“Mr Guerra”), who is based in Miami, Florida and who appears to have considerable experience of business and commerce with reference to Latin America. His co-directors are a Mr Graham Cook and Westlaw Limited. Mr Guerra has sworn three affidavits in this matter on behalf of the Fund.
The Investment Manager is entitled to management fees (charged at the Master Fund level but, of course, directly reflected in the value of the Fund's shareholding in the Master Fund). These fees are substantial (for the year ended 31 December 2009 they amounted to some US$10.5 million for a fund of—at a very rough median valuation—some US$500 million), although I have no evidence to enable me to judge whether these fees are outside industry norms for the management of investments of this type and scale.
On 30 April 2007 (in other words, in response to the April 2007 IM), an associated company of ARIS subscribed for US$5 million worth of shares in the Fund, in the name of BNP Paribas. Therewas a further subscription of US$3 million on 31 May 2007 and a further US$3 million was invested on 31 July 2007. The total subscribed was thus US$11 million and the ARIS associate company became in consequence the beneficial owner of 8,492.900 Class A shares of the Fund, or 1.63% of the Fund's participating shares (calculated as at 31 August 2010). The beneficial ownership of these shares was transferred to ARIS on 1 August 2008 and the legal title moved from BNP Paribas to Deutsche Bank (Cayman) Limited (“Deutsche Bank”) on the same day.
On 10 October 2008 the Fund wrote to its investors saying that the events of September 2008 had significantly affected fund valuations.
On 28 October 2008, in response to the turmoil which had affected the financial markets in the autumn of that year, both the Fund and the Master Fund suspended redemptions. In late 2008 ARIS had instructed Deutsche Bank to submit a redemption request on its behalf, with a view to redemption as at 1 January 2009 at a NAV calculated as at 31 December 2008. As a result of the suspension, the request was not processed in accordance with its terms. In fact, it has yet to be processed, since, while NAV continues to be calculated at Master Fund level and management fees continue to be charged on that basis, the suspension of redemptions remains in place in both the Master Fund and in the Fund itself. ARIS thus finds itself locked in.
On 30 October 2008 the Fund wrote to its investors informing them of the suspension of redemptions, stating that it had received an unusually high number of redemption requests for the 31 December 2008 NAV date and saying that satisfying these requests in the light of current market conditions would be seriously prejudicial to its shareholders. The letter went on to say that the suspension would continue indefinitely. In light of these events, the Fund proposed (I paraphrase) that assets held by the Master Fund and which were referable to the holdings of existing investors who wished to redeem (“the Legacy Investments”) should be frozen and used to repay investors wishing to leave, while those assets referable to investors wishing to continue to invest through the Fund should be used together with additional sums to be invested in the future by those investors wishing to continue to form, in effect, a separate continuing fund. An important feature of the proposal was that those investors who did not wish to continue would lose their redemption rights, instead being repaid as and when money was received from realisations of the Legacy Investments.
The Fund's 30 October 2008 letter ended by saying that if the proposal was not accepted by the holders of more than 50% of the issued shares of (I think) each class, then the Fund would wind down and complete the orderly liquidation of its portfolio.
This plan did not proceed. On 1 December 2008 the Fund circulated a variation upon the October proposal, set out in a new Information Memorandum (“the December 2008 IM”), this time with a proposal that those who wished to continue would do so through the medium of a company to be newly incorporated for the purpose. So far as concerned investors in the position of ARIS, who wished to be redeemed and to have no continuing investor relationship with the Fund or the Master Fund, the proposal was no different in principle from that set out in the October proposals, but the December 2008 IM and its annexures made clear that, whether or not they approved the proposals, investors who did not wish to continue to invest through the Fund would remain unable to redeem their shares, because in relation to their holdings the suspension of redemptions declared in October 2008 would continue indefinitely. The Legacy Investments attributable to their shares would continue to be managed with a view to maximizing the value received and not necessarily with a view to effecting realisations as speedily as possible.
More specifically, it was stated that the Investment Manager would use “commercially reasonable efforts” to distribute what were described as “liquidation proceeds” in respect of a substantial proportion of the Legacy Investments by December 2011 and so-called “Target Distributions” were specified—broadly speaking that 15% of the NAV as at 1 January 2009 would be achieved by the end of 2009; 35% (inclusive of prior distributions) by the end of 2010; and 65% (inclusive of prior distributions) by the end of 2011, with a “discretion” to fail those targets should it be decided that realisations made to meet them were not in the overall interest of the Master Fund, it is not in dispute that the first two of these three targets have been met. ARIS has not rejected any of the distributions which have gone to fulfilling them.
The Fund's letter of 1 December 2008, outlining these proposals, told investors that they could either approve the proposals and offer to exchange all or part of their existing shares for shares in the continuing fund; or they could approve the December proposals but elect to retain their existing shares; or they could reject the proposals, in which case they would be treated as if they had elected to retain their existing shares. Despite the fact that the December proposals gave investors the option to exchange their existing shares for shares in the proposed new fund, the 1December 2008 summary of the proposals made clear that even if the plan was to be approved, the board could decide not to proceed with it. In particular, the board might reject any offer by an existing shareholder to exchange their existing shares for shares in the new fund and, in the words of the letter, “proceed with the orderly winding down of the existing fund.”
ARIS voted against the December proposals, but on 19 December 2008 the Investment Manager wrote to all shareholders informing them that of the 83.68% of shareholders voting, 75.57% “approved the restructure” while 8.12% voted to reject it. Quite what these figures signify is far from clear—do they mean, for example, that all or some of those voting in favour voted to...
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