Western Union International Ltd v Reserve International Liquidity Fund Ltd

JurisdictionBritish Virgin Islands
JudgeBannister J [ag]
Judgment Date26 January 2010
Docket NumberCLAIM NO: BVIHCV 2009/322
CourtHigh Court (British Virgin Islands)
Date26 January 2010




Western Union International Limited
Reserve International Liquidity Fund Ltd

Mr Richard Hacker, QC for the Applicant

Mr Paul Webster QC and Mr Kerry Anderson of O'Neal Webster for the Respondent

Mr Eliot Simpson of Appleby for Caxton International Limited and Caxton Equity Growth Holdings LP

Ms Jacqueline Wilson and Ms Lynette Ramoutar for the Financial Services Commission

(Application for appointment of liquidators on just and equitable grounds — loss of substratum — whether applicant creditor or member — whether creditor entitled to appointment on loss of substratum grounds — investors proceeding in New York courts — company desiring to distribute to remaining members in accordance with direction of New York court — Financial Services Commission supporting company and opposing appointment of liquidators in BVI until New York proceedings concluded — whether appointments to be made)

Bannister J [ag]

On 18 January 2010 I appointed liquidators over Reserve International Liquidity Fund Limited (“the Company”) on the application of Western Union International Limited (“WU”). These are my reasons for that decision.


The Company was incorporated in the BVI on 15 March 1990 and is currently registered under the Business Companies Act, 2004 (“the 2004 Act”). It carried on business as a mutual fund under the Mutual Funds Act 1996 (as amended). It operated as a money market daily liquidity fund, aiming (but not guaranteeing) to maintain a NAV per share of US$1. It is regulated by the Financial Services Commission (“FSC”). It invested funds received from investors (including WU) in fixed interest securities, including commercial paper and notes issued by Lehman Brothers Holdings Inc (“Lehman”). Investors invested by acquiring shares in the Company, redeemable in accordance with the provisions of the Company's Articles of Association. The Company had power under its Articles in certain specified circumstances to suspend calculation of NAV and the issue and redemption of its shares.


The directors of the Company are Bruce R Bent, Arthur T Bent III and Bruce R Bent II. Its administrator is Reserve Management Company Inc and the Company is part of a group (in the non-technical sense) of companies engaged in similar activities and all controlled by the Bent family, the most significant of which is The Reserve Primary Fund (“the group”, “the Primary Fund”). The management of the group was carried out in New York. The Company conducted no business within the BVI and had no assets here. Its remaining funds, amounting to some US$307 million, are currently held in a bank in Boston, Mass.


On Monday 15 September 2008 it was announced that Lehman had filed for bankruptcy in the United States. The Company was immediately swamped with requests by investors for redemption of their shares. Although the precise sequence of events is not completely clear, the Company claims, by resolution passed on 23 September 2008, to have suspended all redemptions with effect from 16 September 2008 and to have suspended payment of all redemption proceeds. That, at any rate, is what the Company claimed in a press release of 24 September 2008. In a memorandum of law filed in an interpleader complaint in the United States District Court for the Southern District of New York (“the US District Court”) it is asserted on behalf of the Company that by a board resolution of 23 September 2008 the Company suspended calculation of NAV as of 16 September 2008 and suspended all redemptions as of 22 September 2008. In an affidavit sworn in BVI proceedings in opposition to a statutory demand served by WU on the Company on 23 September 2008 (but subsequently withdrawn) Bruce R Bent II says that the Company became unable to calculate NAV on an accurate or timely basis after 5 pm ET on 16 September 2008. In the same affidavit, Mr Bent also says that redemption requests received after the new of Lehman's bankruptcy broke on 15 September 2008 were initially met, but that because of the size and volume of the requests it became impossible to do so after 11.31 am on that day. It will be seen that the Company does not suggest that it suspended redemptions with effect from any time earlier than 16 September 2008.


Among those submitting redemption requests to the Company on 15 September 2008 was WU. Its unchallenged evidence is that at 11.30 ET on that day it submitted, through an agency, a request for the redemption of 50 million shares. Fifty nine minutes later it submitted a request for the balance of its holding, some 248 million shares. The Company accepts that the requests were received on 15 September 2008 and there is in evidence an e-mail from an officer or employee of the company sent to WU on the same day confirming that the reference numbers on the wire transfers (sc. by which the proceeds of redemption were to be transmitted) would be sent to WU once [the funds had been] transmitted. NAV was calculated at US$1 at close of business on 15 September 2008.

Is WU a creditor of the Company?

On these facts WU claimed that it was a creditor of the Company in the sum of some US$298 million. In fact, subsequent pro rata distributions made to members of the Company have reduced the amount of the Company's claim to some US$20 million. The Company denies that WU has redeemed or that it is, for the purposes of its application to appoint liquidators, a creditor of the Company.


First, the Company says that although the requests were received on 15 September 2008, the redemption process was incomplete and remains incomplete. It relies on the (somewhat contradictory) evidence as to suspension of calculation of NAV and of redemptions and payments which I have summarized above. In order to decide this issue it is necessary to consider the relevant provisions of the Company's Articles of Association. Their material parts read as follows:


60. Subject to the previsions of the Act and of these Articles, the company shall, upon receipt by it or its authorized agent of a redemption request by a Member, in such form as the directors may from time to time determine, redeem on a Dealing Day all or, with the consent of the directors evidenced by a Resolution of Directors, a portion of the shares registered in the name of such Member at not less than the Redemption Price.

61. The Redemption Price of share being redeemed shall be their aggregate Net Asset Value per share as calculated at the close of business on the Dealing Day on which such shares are redeemed less any redemption charges as may be provided in the Prospectus. Requests for redemption on a Dealing Day will generally be honoured within seven days of receipt if they are received by the Company or its authorized agent in proper form, before 5:00 pm Eastern Time on a Dealing Day and if all conditions as to the validity of the redemption request have been fulfilled or waived prior to the Dealing Day.

62. Upon the redemption of a share, the holder of such share shall cease to have any rights with respect thereto (except the right to receive the redemption proceeds and the right to receive any dividend declared but unpaid prior to the redemption being effected).

63. No shares shall be redeemed during any period when the determination of Net Asset Value of shares is suspended pursuant to Regulation 76. Any Member who has made a redemption request which cannot be honoured due to suspension of asset valuation may withdraw such redemption request, and such withdrawal shall be effective if received by the Company prior to the termination of the suspension period. Shares for which a redemption request is made and not withdrawan shall be redeemed on the first Dealing Day following the termination of the suspension period. Except as provided herein, redemption requests are irrevocable.

65. Any redemption request received after 5:00 pm Eastern Time on a Dealing Day or received on a day other than a Dealing Day may be deemed by the directors to have been received and will be processed on the next following Dealing Day.


71. The Net Asset Value of the Company's shares, for the purpose of issuing and redeeming shares, is determined by or under the direction of the directors as of 5:00 pm Eastern Time each applicable Dealing Day and on such other occasions as the directors may determine, and is equal to the fair value as at such date of all the securities, cash and other assets of the company attributable to a particular share class less all the liabilities of the Company attributable to that class divided by the number of shares of that class outstanding.

78. The directors may, at any time and from time to time, suspend the calculation of Net Asset Value, and the issue and redemption of any of the Company's shares, for the whole or any part of any period under the following circumstances:

  • (a) when any securities exchange, board of trade or organized interdealer market on which a significant portion of the Company's assets is regularly quoted or traded is closed or trading thereon has been restricted or suspended;

  • (b) whenever, as a result of events, conditions or circumstances beyond the control or responsibility of the Company, disposal of the assets of the Company or other transactions in the ordinary course of the Company's business involving the sale, transfer, delivery or withdrawal of securities or funds is not reasonably practicable without being detrimental to the interests of the Company or the Members;

  • (c) if it is not reasonably practicable to determine the Net Asset Value of the shares on an accurate and timely basis; and

  • (d) if the directors have resolved to dissolve or liquidate the Company.'

  • ...

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