Re CAI Master Allocation Fund Ltd

• Jurisdiction: Bermuda
• Judgment Date: 26 September 2011
• Date: 26 September 2011
• Docket Number: Commercial Jurisdiction 2010 Nos. 393/395
• Court: Supreme Court (Bermuda)

In The Supreme Court of Bermuda

Commercial Jurisdiction 2010 Nos. 393/395

In the Matter of CAI Master Allocation Fund Ltd

And in the Matter of CAI Allocation Fund Ltd

And in the Matter of the Investment Funds Act 2006, section 36

Mr N Hargun for the Joint Provisional Liquidators

Mr C Basile, a creditor, in person

Mr M McMurtrey, sole investor, in person

The following cases were referred to in the judgment:

Kingate Global Fund Ltd v Knightsbridge (USD) Fund LtdBDLR [2009] Bda LR 59

Kensington International Ltd v Republic of the CongoUNK [2006] 2 BCLC 296

Abstract:

Liquidation - Segregated account company - Regulatory concerns - Piercing the corporate veil

RULING of Kawaley, J

Introductory

1. The Bermuda Monetary Authority petitioned to wind-up CAI Master Allocation Fund, Ltd ("the Master Fund") and CAI Allocation Fund, Ltd ("the Feeder Fund") on November 16, 2010. That same day, Mark Smith and Rachel Frisby of Deloitte were appointed by the Chief Justice as Joint Provisional Liquidators of each company ("the JPLs"). Both the Master Fund and the Feeder Fund were incorporated in Bermuda on November 16, 2005 and registered under the Segregated Account Companies Act 2000 on November 23, 2005.

2. On December 10, 2010, both companies were wound-up by order of the Chief Justice and the JPLs' appointments were continued. The JPLs prepared a Report to Investors and Interested Parties on January 31, 2011, according to which the Investment Manager was also wound-up by this Court on January 14, 2011.

3. By Summons dated June 8, 2011, the JPLs seek directions pursuant to section 176(3) of the Companies Act 1981 on the following issues:

i. Whether the JPLs are obliged to return the investors' monies which the investors have sent to the Feeder Fund for the issue of shares where no shares were issued prior to the Companies' liquidation, and (b) a like direction in relation to investments made by the Onshore Funds1 with the Master Fund;

ii. Whether the JPLs may return the funds to SAC 1, SAC 2 and SAC7 investors without regard to the issue of whether improper payments were extracted by the manager and affiliates from SAC 11;

iii. Whether the JPLs' remuneration can be paid entirely from SACS 1, 2, 7 and the Onshore Funds.

4. The conduct of the present liquidation of two segregated account fund companies is complicated by the absence of clear precedents and a detailed statutory code for the liquidation of segregated accounts. Nevertheless it seemed fairly clear from the outset that, having regard to the preliminary nature of the guidance which the JPLs were seeking from this Court, it was premature for Mr Basile (on behalf of Mr Fridman) and/or Mr McMurtrey to seek any final determination at this stage on their respective claims. Assuming traditional winding-up procedures were not displaced altogether, it

would be for the JPLs to adjudicate such claims in the first instance before this Court would have standing to determine the legality of such adjudication. And this is not a case where one or more segregated accounts in a company which is otherwise fully functional have become insolvent.

5. Furthermore, this is a case where the Companies themselves have been placed into liquidation on the petition of the Bermuda Monetary Authority based on regulatory concerns. In these circumstances it is unrealistic to expect either the JPLs or this Court to authorise the return of monies to specific investors without affording the JPLs a reasonable opportunity to investigate the relevant claims in light of the wider commercial background of the business of the Funds overall.

Were monies remitted to...