The Privy Council Exercises its Leverage to Dismiss the Appeal in: Al Sadik -v- Investcorp Bank BSC and Others

On 18 June 2018, the long running case of Al Sadik -v- Investcorp Bank BSC and others¹ reached its conclusion in the Privy Council. Investment Managers will welcome the Privy Council’s dismissal of the appeal by Mr. Al Sadik. The Privy Council found that the Cayman Islands Court of Appeal and Grand Court both correctly decided that the Share Purchase Agreement (“SPA”) authorised Investcorp Bank BSC (“Investcorp”) (and its related entities) to leverage Mr. Al Sadik’s investments and take administrative steps in furtherance of that goal, including transferring Mr. Al Sadik’s funds to a special purpose vehicle (“SPV”), Blossom IAM Ltd (“Blossom”).

Leveraging of investments

Leveraging an investment is a common way to increase an investor’s potential returns. Instead of solely relying on the investor’s own funds, borrowed funds are also used to increase the size of investment and thereby increase the size of the potential return. However, any losses on the underlying investment will also be increased.

There are a number of ways to leverage an investment through an investment fund. For example:

• An investor may simply choose to invest in a hedge fund with its own internal element of leveraging.
• An investor may invest in one or more feeder funds which are used as leveraging vehicles for multiple investors so as to increase the amount invested in the underlying hedge funds.
• An investor, or the investment manager, may set up an SPV for the specific purpose of that investor’s leveraging, with the SPV holding the investment assets and being liable to repay any borrowing.

 

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The Privy Council Exercises its Leverage to Dismiss the Appeal in: Al Sadik -v- Investcorp Bank BSC and Others

 

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¹ [2018] UKPC 15.