This morning the Privy Council handed down its judgment in the Pearson (in his capacity as Additional Liquidator of Herald Fund SPC (in Official Liquidation)) v Primeo Fund (in Official Liquidation) representative proceedings. The decision is of great importance for Insolvency Practitioners and investment funds in the Cayman Islands. It establishes that the distribution of the assets of a Cayman Islands investment fund must take place in accordance with the shares held by investors and that a liquidator has no power to “rectify” a fund’s share register to enable distributions to be made using other methodologies, for example, by reference to net cash subscribed by investors into the fund.


Herald had invested substantially all its assets with BLMIS, the Bernard Madoff controlled investment manager. As a result of the collapse of BLMIS, Herald went into liquidation. Herald’s additional liquidator argued that Herald’s share register should be “rectified” to restate the shares held by investors by reference to their net cash subscriptions into Herald.


Primeo Fund, for whom Gordon MacRae and Paula Richmond of Kalo are liquidators, was the representative investor in Herald arguing against the additional liquidator’s position.


In its judgment, the Privy Council has upheld Primeo’s argument. It held that there is no power under the Cayman Companies Law to rectify a company’s share register other than in accordance with the existing legal rights of shareholders. Since in Herald’s case, there was no basis for treating the subscriptions and redemptions into and from the fund as invalid, it followed that there was no basis for “rectifying” the share register in order to adjust the rights of investors in the liquidation of the fund.


Kalo CEO Gordon MacRae commented, “the judgment is important for all those involved in investing in and managing Cayman Islands funds and provides welcome clarity and certainty for investors who can have confidence that their legal rights will be upheld by the courts”.