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Ship funds have long been considered a safe capital investment. In the wake of the 2008 financial crisis, many investment companies were forced to file for insolvency and investors lost a lot of the money they had invested.
Ship funds have long been considered a safe capital investment that maintains a stable value over time and are popular among investors as a result. However, in recent years many of these investors have had to learn the hard way that ship funds are risky rather than safe capital investments. In the wake of the 2008 financial crisis, lots of ship funds experienced serious economic hardship, frequently giving way to insolvency of the investment company together with substantial financial losses for investors.
In many cases, insolvency was not the end of the matter for investors, with insolvency administrators often demanding the repayment of distributions that had already been paid to the investors. Yet these investors are not without recourse, it being possible to assert claims for damages within the statutory limitation periods. We at the commercial law firm MTR Rechtsanwälte also note that the recovery of distributions is not justified in each instance and investors can fight back.
The insolvency of an investment company often leads to a revival of limited partner liability. In practice, this entails the insolvency administrator demanding that investors repay distributions. However, this is only possible if the distributions were not related to profit and the insolvency estate is not sufficient to satisfy the creditors’ claims without repayment. Additionally, the claim for repayment must not already have become time-barred. It is worth noting that the starting point for the limitation period may be as early as when illiquidity is established and thus before the onset of insolvency. That is why there needs to be a case-by-case assessment of whether the recovery of distributions by the insolvency administrator is justified.
The investment company can only recover the distributions if there are clear provisions to this end in the articles of association.
A revival of limited partner liability is not the only risk faced by investors investing in ship funds. Other risks include, for example, difficulty trading shares or the risk of the investment being written off. If the risks were not disclosed during the investment consultation process, it is possible to assert claims for damages within the framework of the statute of limitations. It is particularly important to be mindful of the ten-year limitation period, after which claims are no longer enforceable.
Lawyers with experience in the field of capital markets law can offer advice.
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