In the recent decision of Aurora Funds Management Limited et al -v- Torchlight GP Limited1 the Cayman Islands Court of Appeal dismissed an appeal brought in respect of an order made by McMillan J in the Grand Court validating certain payments made by Torchlight GP Limited (the “General Partner”) in accordance with Section 99 of the Companies Law.
The validation order which was the subject of the appeal was made during the course of proceedings involving a just and equitable winding up petition (Cause No. FSD 103 of 2015) (the “Petition”), which was presented on 18 June 2015 against Torchlight Fund LP (the “Partnership”), a solvent, closed ended fund which specialises in investment in distressed assets. The Petition was brought by various limited partners of the Partnership (the “Appellants”): (i) Accident Compensation Corporation of New Zealand (“ACC”), (ii) Crown Asset Management Limited (“CAML”) and (iii) Aurora Funds Management Ltd (“Aurora”). The General Partner, which has defended the Petition proceedings on behalf of the Partnership, was the respondent to the appeal (the “Respondent”).
Grand Court Decision
On 22 January 2016, Clifford J granted an injunction against the General Partner which prevented it from making any disposition of the assets of the Partnership to related parties without the consent of the Appellants or an order of the Court (the “Related Party Injunction”). The terms of the Related Party Injunction anticipated that an application to the Court could be made to validate payments which, if granted, would therefore not be prohibited by the Related Party Injunction.
Section 99 of the Companies Law provides that, upon the making of a winding up order:
“[A]ny disposition of the company’s property and any transfer of shares or alteration in the status of the company’s
members made after the commencement of the winding up is, unless the Court otherwise orders, void.”
Validation orders made pursuant to Section 99 are commonly sought by entities which are the subject of insolvency proceedings, as they prevent any dispositions made by the relevant entity, subsequent to the presentation of a winding up petition being rendered automatically void in the event that a winding up order is ultimately made.
1 (Unreported, 27 April 2018) (CICA 1 of 2017)