Cayman Islands hedge funds may suspend redemptions
Investors in Cayman Islands hedge funds may not be able to redeem their investments, after a landmark ruling was passed yesterday to allow directors of funds to suspend withdrawals, even for investors who have already had their redemption notice accepted.
The Cayman Islands Court of Appeal passed the law last week which stated that: "Given the investment climate and the rush by Investors to redeem their investments...the Court of Appeal affirmed that the express right to suspend redemptions."
The ruling includes the right to "suspend the payment of redemption proceeds in respect of extant or pre-existing redemption requests."
For a decade the Cayman Islands have been the world's domicile for offshore hedge and other alternative funds as well as a provider of administration and other services.
Nearly 10,000 of the world’s Investment Funds are registered in the Cayman Islands.
Previously, it had been thought that an investor in this position could, under Cayman Islands law, claim not to be bound by the decision to suspend and demand immediate payment as a creditor.
If the investor was a creditor, then, under Cayman Islands Law, the investor would in the absence of payment, have been able to petition for the winding up of the Investment Fund.
The Cayman Islands Court of Appeal’s judgement prevents an investor from taking this route and affirms the power of the Directors of the Investment Fund to safeguard the funds assets if that decision was taken.
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