Westford Special Situations Fund Ltd v [1] Barfield Nominees Ltd; [2] Virginia Molina as Trustee for the Mckinsey; [3] Master Retirement Trust

• Jurisdiction: British Virgin Islands
• Judge: GEQRGE-CREQUE, J.A,Justice of Appeal,Michael Gordon, QC,Justice of Appeal [Ag.]
• Judgment Date: 28 March 2011
• Docket Number: HCVAP 2010/014
• Court: Court of Appeal (British Virgin Islands)
• Date: 28 March 2011

IN THE COURT OF APPEAL

Before:

The Hon. Mde. Janice George Creque Justice of Appeal

The Hon. Mr. Davidson Kelvin Baptiste Justice of Appeal

The Hon. Mr. Michael Gordon, QC Justice of Appeal [Ag.]

HCVAP 2010/014

On appeal from the Commercial Division

Westford Special Situations Fund Ltd.

Appellant

and

[1] Barfield Nominees Limited

[2] Virginia Molina as Trustee for the Mckinsey

[3] Master Retirement Trust

Respondents

Appearances:

Mr. Stephen Moveriy Smith and Ms. Claire Robey for the Appellant

Mr. S. Jack Husbands for the Respondents

Civil Appeal — Commercial Law — appointment of liquidators over fund —locus standi — whether the respondents were creditors within the meaning of section 9.1(a) of the Insolvency Act with standing under section 162 of the Insolvency Act — section 197 of the insolvency Act — Article 62 of the Company's Articles — payment in specie in part satisfaction of redemption price — whether the trial judge was correct in concluding that the interests transferred by the Transfer Agreements were not “assets” within the meaning of Article 62 — whether an adjournment should have been granted in order that the giving of assets could be further explored — costs

The Appellant Fund incorporated in the Virgin Islands, is an investment fund regulated by the Financial Services Commission and acts as a feeder fund for a Master Fund which is incorporated in the Cayman Islands as a limited partnership. The assets of the Fund comprise its interest, in the Master Fund and its liability is analogous to the liability of a shareholder in a limited liability company. Articles 58 to 68 of the Fund's Articles of Association made provision for the redemption of a member's shares at the request of that member whereupon the member would be entitled to payment of the Redemption Price determined in accordance with the formula set out in the Articles. Article 59 states that the redemption price is to be paid as to 90% of the redemption price no later than 30 days following the Redemption Date with the balance within 15 days after receipt by the Fund of its annual financial statements for the fiscal year. Article 62 states that on any redemption the directors shall have power to divide “in specie” the whole or any part of the assets of the Company and appropriate such assets in satisfaction or part satisfaction of the Redemption Price. The Fund experienced difficulty brought about by the collapse of credit market liquidity in paying redemptions after the latter part of 2007. The respondents made redemption requests in respect of their shareholdings in the Fund. The respondents received partial cash payments pari passu during 2008 and 2009. The Fund however, delayed in making full payment. The respondents issued a statutory demand for the balance of the Redemption Price outstanding. The statutory demand remaining unsatisfied, subsequently issued an application for the appointment of liquidators over the Fund on the basis of the unsatisfied statutory demand. The Fund invoked its powers under Article 62 and sought to make payment “In specie” by a proportionate transfer of assets of the Fund and sought to execute transfer agreements to effect the “in specie” payment. The Fund also filed a notice of opposition to the appointment of liquidators contending among other things that the Redemption Price had been fully satisfied by the “in specie” payment and that the respondents, in any event, were not creditors of the Fund in reliance on section 197 of the Insolvency Act and thus lacked standing to bring the application. The trial judge made an order for the appointment of liquidators over the Fund. the Fund appealed.

Held: allowing the appeal, setting aside the order of the learned trial judge appointing liquidators over the Fund, dis-applying the costs regime in CPR 65.13 and applying CPR 69B and awarding costs to the appellants:

• 1. The learned trial judge was wrong in proceeding on the basis that the respondents, as redeemers claiming redemption proceeds, were creditors of the Fund with locus to apply for the appointment of liquidators for the purposes of the Insolvency Act. A member relying on a debt due from a company arising in his character as a member is not a creditor of the company for the purposes of winding up the company.

  Dicta in SV Special Situations Fund Limited v Headstart Class F Holdings Limited [1906] 2 KB 119 at pg. 125 and in Western Union International Limited v Reserve International Liquidity Fund Ltd BVI HCV 2009/322— unreported (26th January 2010) to the contrary effect disapproved.

• 2. Article 62, to which the respondents agreed, is clear. In essence, it says that the directors are empowered “to appropriate” such assets in satisfaction (or part satisfaction) of the Redemption Price. It says nothing about requiring the respondents' acceptance to it to make the appropriation effective. Therefore once the appropriation has occurred and has been tendered or the redeeming shareholder so advised, then it becomes effective. The learned trial judge therefore erred in failing to properly apply the test in Sparkasse having failed to properly or adequately assess all the relevant facts and circumstances guiding its application in the instant case.

  Sparkasse Bregenz Bank AG v Associated Capital Corporation BVI 10/2002 (18 ^th June 2003) followed.

• 3. The exercise of the learned trial judge's discretion in refusing the grant of the limited adjournment was outwith the generous ambit within which reasonable disagreement is possible.

• 4. With regard to costs, the prescribed costs approach on appeal is dis-applied notwithstanding CPR 65.13 in as much as CPR 69B specifically dis-applies the prescribed costs approach at first instance. Accordingly the following orders are made:

  • (a) That the respondents bear the appellant's costs in the court below such amount if not agreed within 30 days, to be remitted to the court below to be assessed;

  • (b) That the respondents bear the appellant's costs of the appeal such costs to be two thirds of the assessed costs found to be payable in the court below;

  • (c) That the remuneration of the liquidators be remitted to the court below for assessment unless the amount of such remuneration is agreed within 30 days such remuneration to be paid by the appellant, provided that such sum paid by way of remuneration, shall be recoverable by the appellant from the respondents.

GEQRGE-CREQUE, J.A

1 On 22 ^nd September 2010, the court heard and allowed an appeal against the order of the commercial judge made on 18 ^th March 2010, appointing liquidators over the appellant (‘the Fund’) with written reasons to follow. We now so do.

The background

2 The Fund, incorporated in the Virgin Islands, is an investment fund regulated by the Financial Services Commission and acts as a feeder fund for a master fund namely Westford Special Situations Master Fund LP, (‘the Master Fund’) incorporated in the Cayman Islands as a limited partnership.

3 The assets of the Fund comprise its interest, as a limited partner, in the Master Fund. The liability of a limited partner in a limited partnership is limited to the amount of his capital contribution, in much the same way that the liability of a shareholder in a limited company is limited to the amount required to be paid up on subscription for his shares. 1

4 Articles 58 to 68 of the Fund's Articles of Association deal with redemption of shares. The Fund is required at the request of a member to redeem the whole or part of his shareholding on the redemption date at a redemption price, being the Net Asset Value per share on the valuation day immediately preceding the Redemption Date. 2

5 Article 59 of the Fund says in a nutshell that the redemption price is to be paid as to 90 percent of the Redemption Price no later than 30 days following the Redemption Date with the balance within 15 days after receipt by the Fund of its annual financial statements for the fiscal year.

6 Article 62 states that on any redemption:

‘the directors shall have the power to divide in specie the whole or any part of the assets of the Company and appropriate such assets in satisfaction or part satisfaction of the Redemption Price.’

7 The respondents, during 2004 and 2005, subscribed for shares in the Fund pursuant to an offering memorandum dated 1 ^st January 2004. The Master Fund, which performed well during the credit crisis, nevertheless experienced difficulty brought about by the collapse of credit market liquidity in paying redemptions af ter the latter part of 2007.

8 In September and October 2007, the respondents submitted redemption requests in respect of their shareholdings in the Fund. The relevant Redemption Date was 31 ^st December 2007, which date was also the Valuation Date. As at that date, the net asset value (‘NAV’) of the Fund was US$233.49 per share.

9 The respondents, among other redeemers received partial payments made pari passu during the course of 2008 and 2009. The respondents however, being unhappy with the delay in the Fund making full redemptions issued a statutory demand for the sums remaining outstanding on their redemption requests.

10 The Fund did not seek to set aside the statutory demand. Based on the unsatisfied statutory demand the respondents, on 9 ^th February 2010, issued an application for the appointment of liquidators over the Fund. The Fund, in light of the application to appoint liquidators decided to utilise its powers under Article 62 by seeking to pay the amounts outstanding to the respondents by making an “in specie” distribution of the Fund's assets being its interest in the Master Fund which, in essence, was the appropriate percentage interest calculated by reference to the then NAV of the Fund. To this end the Fund sought to execute transfer agreements to effect this “in specie” payment.

11 The Fund filed a...