Winding Up Solvent Funds Loss of Substratum

The Issue

An issue arising with increasing frequency in connection with Cayman Islands domiciled investment funds is the circumstances in which an investor in a solvent fund can bring an informal wind down initiated by management of the fund to an end and have the board replaced by a liquidator appointed by the Grand Court of the Cayman Islands ("the Court"). Recent case law in the Cayman Islands has shed light on the circumstances in which the Court might intervene, and the factors which may militate against such intervention.

Background

It has been approximately two years since the unprecedented economic environment of 2008 began severely impacting investment markets. Due to the tight credit markets and resulting liquidity issues, many open ended investment vehicles took steps to manage liquidity issues and to protect their investors' interests, for example by suspending the ability of investors to redeem shares or interests in order to prevent a fire sale of