When the Innocent Pay

The latest Cayman Islands Court of Appeal (‘CICA’) decision in the Weavering Macro Fixed Income Fund Limited (‘Weavering’) litigation has thrown into focus a thorny issue for those invested in Cayman Islands funds.

At the end of November 2016, the CICA upheld the decision of the Grand Court that Skandinaviska Enskilda Banken AB’s (publ) (‘SEB’) repay back to the liquidation estate the approximately $8 million that it had received by way of redemption payments shortly before the fund went into liquidation.

The case will be welcome news for creditors and shareholders that were not fortunate enough to redeem out of the fund before it entered liquidation, but the case also serves as a stark reminder that redeeming investors cannot rest so easily when they receive payments from a fund that subsequently goes into liquidation.

In this article we provide a quick recap of the law in relation to the so-called ‘clawback’ provisions and discuss the latest developments in this area in light of the CICA’s recent decision.

Quick Recap
The Cayman Islands Companies Law empowers a liquidator to apply to the court to have a payment to a creditor declared invalid when that payment was made within six months of the commencement of a liquidation, and when the payment was made with a view to preferring a creditor over other creditors. This type of claim is called a voidable preference or a ‘clawback claim’.