Section 112(2) was introduced into the Companies Law of the Cayman Islands in 2009. In Pearson (in his capacity as Additional Liquidator of Herald Fund SPC) v Primeo Fund [2020] UKPC 3, the JCPC considered, for the first time, an important point of statutory construction surrounding the meaning and effect of this provision.
Section 112(2) of the Companies Law of the Cayman Islands provides that:
“In the case of a 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 power to settle and, if necessary rectify the company’s register of members, thereby adjusting the rights of members amongst themselves.”
The issue was whether section 112(2) permitted the Liquidator to rectify the register so as to do substantial justice between the remaining members of Herald, or whether the power was limited to rectification in accordance with the pre-existing contractual and proprietary rights of the members. Whilst the register of Herald reflected the strict legal rights of the remaining members, those legal rights were the product of share subscriptions and redemptions which were affected by the Madoff fraud. The Liquidator sought to rectify this situation before making distributions of surplus funds in accordance with the rights as stated in the register.
The Liquidator was successful at first instance in the Grand Court of the Cayman Islands but that decision was overturned on appeal. The Privy Council upheld the Court of Appeal, but Lord Briggs (speaking for the majority) noted that the Liquidator’s arguments were “persuasive” and he upheld the Court of Appeal “not without some regret”.
In an interesting separate judgment, Lady Arden explored the meaning and effect of section 112(2) and identified possible ways in which the Liquidator might achieve individual elements of his rectification proposal.
Maximilian Schlote (led by Francis Tregear QC) appeared on behalf of the Appellant, the Additional Liquidator of Herald, instructed by Walkers. Herald was a so-called “feeder fund” of Bernhard Madoff’s investment firm and was a major victim of the Madoff fraud. The full JCPC judgment can be found here.