Fund managers pay the price for unjustified opposition to supervision order
In its recent costs ruling in Re Adamas Asia Strategic Opportunity Fund Limited (in Voluntary Liquidation), the Cayman Grand Court rejected a fund manager’s argument that costs should not follow the event as it had acted reasonably in opposing a supervision order and the appointment of official liquidators.
The substantive proceedings concerned an application by the sole investor of Adamas Asia Strategic Opportunity Fund for a supervision order under section 131(b) of the Companies Law and for liquidators of its choosing to be appointed. The fund manager, who was the holder of the only voting shares of the fund but not financially interested in the liquidation, opposed both applications in favour of the liquidation continuing as a voluntary liquidation under liquidators it had appointed. The manager lost at first instance, on appeal (see here for further details) and at the Court of Appeal costs hearing. The matter was then sent back to the Grand Court to decide the issue of costs at first instance.
The manager argued that despite losing both in respect of the supervision order and the identity of liquidators, it should not have to pay the investor’s costs as:
- The rule that costs follow the event was of limited application in insolvency proceedings where creditors acted reasonably in opposing the appointment of particular liquidators (relying on the Grand Court’s earlier decision in Re Parmalat Capital Finance Ltd) and that the rule could be dispensed with altogether so as to encourage stakeholders to express their views (relying on the decision in Re Abraaj Holdings); and
- As the proceedings had helped to clarify Cayman’s commercial law framework, they were in the public interest.
In rejecting both arguments, the Grand Court held that the manager’s opposition to the applications was not analogous to creditors or stakeholders, as persons with cognizable rights in a liquidation, expressing their views. Rather, the manager did not have any material interest in opposing either application and (citing the Court of Appeal’s judgment) should have acceded to the investor’s wishes from the very outset as it was the only party financially interested in the liquidation.
The public importance argument was rejected on the basis that no public interest had been engaged by what was a private commercial dispute; and furthermore, the Court of Appeal had already rejected the argument that freestanding public policy considerations were directly at play.
Costs were awarded on the standard basis.