The collapse of an investment fund affected by a fraud will often lead to disputes between the investors who were paid out before the discovery of the fraud, the investors who gave notice to redeem prior to the discovery of the fraud, and the investors remaining in the fund when it collapsed. Following the recent decision of the Privy Council in SEB -v- Weavering Macro Fixed Interest Fund  UKPC 36, given on 29 July 2019, it is an appropriate time to review the law in this area and to examine this decision alongside earlier decisions of the Privy Council given in the context of investment funds affected by fraud.
The importance of the Articles: Redemption process
The first decision of the Privy Council on redemption from an investment fund was not a fraud case, but arose out of the global financial crisis. In Culross Global SPC Limited -v- Strategic Turnaround Master Partnership Limited ( UKPC 33) the issue was whether the redeeming investor of a Cayman fund was a current creditor at the time it had issued a winding-up petition against the fund. The answer depended upon whether the fund was able to suspend payment of redemption proceeds after the redemption date had passed. The Privy Council held that the power of a fund to suspend payment was determined by the true construction of the articles of association of the fund, read together with such other contractual documents as were incorporated or referred to therein. Upon the proper construction of the articles in that case there was no such entitlement. It was suggested by the Privy Council that clear words would have been required before the articles could be read as entitling the fund retrospectively to reverse or alter the effect of the passing of the redemption date pursuant to a valid redemption notice.
The terms of the articles will determine the time at which redemption has occurred and the consequent rights and obligations regarding payment of the redemption proceeds.
The significance of this decision is that it confirms that redemption is governed by the terms of the articles, and it will be to the articles that one should look for a solution to the respective rights of competing investors upon insolvency. That competition is between investors claiming to be creditors by reason of having redeemed prior to insolvency and the investors who have not redeemed.