Distressed Funds Group

Market and regulatory events of the past few years have created challenging conditions for the global hedge fund industry. Hedge funds have at times seen previously unprecedented levels of redemptions, coupled with highly volatile and, at times, illiquid markets. These events required many managers to look at managing the outflow of capital through the use of the mechanisms that were built in to their fund’s structure to deal with such market disruptions. These mechanisms include the imposition of suspensions and gates on redemptions and the use of liquidating vehicles to manage the process of returning cash to investors.

As leading lawyers in the British Virgin Islands and Cayman Islands we continue to be involved in many of the largest and most complex restructurings and cases arising out of recent market events including advising on many issues coming out of the Madoff affair and other high profile fraud cases. As a result of this we work closely with high profile funds, managers, administrators, liquidators, prime brokers, investors and onshore counsel. In the process we have gained deep expertise in the formulation of strategies that provide solid legal and commercially viable solutions for funds, managers, investors and liquidators to deal with the challenges posed by distressed or failed investment funds.

Advice to Funds and Managers

We advise funds and managers on issues including:

• the use of gates, suspension of redemptions and suspension of NAV calculations;
• issues arising out of the downsizing of portfolios;
• taking advantage of existing provisions to formulate workouts and informal restructurings;
• advising on the creation of alternative legal structures to deal with adverse liquidity conditions now and in the future; including the implementation of lock-ups, the use of side-pocket structures and other techniques for isolating distressed portfolio assets;
• planning for solvent liquidations and what to consider in the event of potential insolvency;
• handling potential conflicts and disputes between investors, funds, investment managers, administrators, brokers, custodians and other agents;
• generally managing the risk of disputes with investors and advising on investor rights including advising on the contents of investor communications;
• defending investor claims and winding up petitions.

Advice to Investors

We advise investors in relation to the issues they face in recovering their investments from funds that have been gated, suspended or have otherwise restricted their right to redeem, including advising on: 

• the legality and effect of suspensions and other lock-up events;
• whether an investor has contractual or constitutional grounds to challenge a lock-up;
• the availability of unfair prejudice remedies;
• the availability of derivative action remedies;
• whether the investor has just and equitable or other grounds to petition for a winding up of a fund;
• generally managing the conduct of claims against funds by investors.

Advice to Liquidators

We also work with the firm's insolvency team to advise liquidators of investment funds and structured finance vehicles including advising on counterparty claims, asset recovery, claw-back issues and asset realisation.

Contact Tim Clipstone for more on Distressed Funds Group.