Case details

Pearson (in his capacity as Additional Liquidator of Herald Fund SPC (in Official Liquidation)) (Appellant) v Primeo Fund (in Official Liquidation) (Respondent) (Cayman Islands)

Case ID: JCPC 2018/0064

Jurisdiction: The Court of Appeal of the Cayman Islands

Case summary

Issue(s)

The Appellant is the Additional Liquidator of Herald Fund SPC which was incorporated in 2004 under the laws of the Cayman Islands as an exempted company segregated portfolio company and was registered as a mutual fund. The Respondent, Primeo, was incorporated in 1993 as an exempted company under the laws of the Cayman Islands and was registered as a mutual fund. Herald invested all of its assets with Bernard L Madoff Investment Securities ("BLMIS"). Primeo originally invested its assets with BLMIS directly. In 2004, Primeo began investing in BLMIS indirectly by subscribing for shares in Herald and in 2007 it assigned its direct investment in BLMIS to Herald in exchange for shares in Herald.

On 11 December 2008 Bernard Madoff confessed that BLMIS was a fraudulent Ponzi scheme. It followed that when Primeo assigned its rights in its account with BLMIS to Herald ("Primeo In Specie Subscription") all the calculations were made on fraudulent and fictious figures provided by BLMIS.

On 16 July 2013 Herald was placed in official liquidation. As Herald’s liquidation is solvent there will be surplus assets for distribution to Herald’s members.

The basis for this appeal is section 112(2) of the Companies Law (2013 Revision) which provides that "in the case of solvent liquidation of a company which has issued redeemable shares at prices based upon its net asset value from time to time, the liquidator shall have the power to settle, and, if necessary rectify the company’s register of members, thereby adjusting the rights of members amongst themselves". The Appellant argues this extends to pre-existing rights.

The Appellant now appeals to the Privy Council.

Facts

The Appellant is the Additional Liquidator of Herald Fund SPC which was incorporated in 2004 under the laws of the Cayman Islands as an exempted company segregated portfolio company and was registered as a mutual fund. The Respondent, Primeo, was incorporated in 1993 as an exempted company under the laws of the Cayman Islands and was registered as a mutual fund. Herald invested all of its assets with Bernard L Madoff Investment Securities ("BLMIS"). Primeo originally invested its assets with BLMIS directly. In 2004, Primeo began investing in BLMIS indirectly by subscribing for shares in Herald and in 2007 it assigned its direct investment in BLMIS to Herald in exchange for shares in Herald.

On 11 December 2008 Bernard Madoff confessed that BLMIS was a fraudulent Ponzi scheme. It followed that when Primeo assigned its rights in its account with BLMIS to Herald ("Primeo In Specie Subscription") all the calculations were made on fraudulent and fictious figures provided by BLMIS.

On 16 July 2013 Herald was placed in official liquidation. As Herald’s liquidation is solvent there will be surplus assets for distribution to Herald’s members.

The basis for this appeal is section 112(2) of the Companies Law (2013 Revision) which provides that "in the case of solvent liquidation of a company which has issued redeemable shares at prices based upon its net asset value from time to time, the liquidator shall have the power to settle, and, if necessary rectify the company’s register of members, thereby adjusting the rights of members amongst themselves". The Appellant argues this extends to pre-existing rights.

The Appellant now appeals to the Privy Council.

Parties

Appellant(s)

Michael Pearson (in his capacity as Additional Liquidator of Herald Fund SPC (in Official Liquidation))

Respondent(s)

Primeo Fund (in Official Liquidation)

Appeal

Justices

Lord Kerr, Lord Carnwath, Lady Black, Lord Briggs, Lady Arden

Hearing start date

29 Oct 2019

Hearing finish date

29 Oct 2019

Watch hearing
29 Oct 2019 Morning session Afternoon session