The Privy Council sitting as the final court of appeal for the Cayman Islands recently considered a case concerning prioritisation in a Liquidation between feeder hedge funds where the investment medium was redeemable shares.


The appellant in this case was the Liquidator of Herald Fund SPC (“Herald”). Herald is a Cayman Islands registered hedge fund that invested heavily into Bernard L Madoff Investment Securities LLC, the historic Ponzi scheme run by Bernard Madoff that collapsed spectacularly in 2008.

The Respondent, Primeo Fund (“Primeo”) is also a Cayman Islands registered hedge fund, and is also in Liquidation. Primeo subscribed for a number of redeemable shares that were issued by Herald, which then invested the proceeds of that subscription in the Madoff Ponzi scheme. Primeo subsequently sought to redeem those shares in accordance with Herald’s Articles of Association.

Primeo served the requisite notice of redemption prior to a winding up order being made in respect of Herald, the redemption date had passed but Primeo had not received the proceeds of that redemption at the time the winding up order was made. Primeo therefore sought confirmation that they were a creditor instead of a member, which would entitle them to substantial distributions.

A number of investors had intervened as the case progressed, where they had also served notice of redemption but the date of redemption was deferred to a date that post-dated the commencement of the winding up (the “Late Redeemers”). The Late Redeemers sought a priority similar to Primeo.


The case therefore centred on when redemption is effective in the context of a winding up. The relevant provision of the Companies Act 2007 was section 37(7)(a), which allows for a redeemer to enforce the terms of redemption against the insolvent company subject to two provisos. The first is that the date of redemption was not later than the date of the winding up (s37(7)(a)(i)) and the second, that such a redemption would have been lawful (s37(7)(a)(ii)).

The argument advanced by Lord Goldsmith QC, appearing for the Liquidator, was that for the purposes of this section, redemption could only be considered complete on receipt of the proceeds. This interpretation ran contrary to the Articles of Association of Herald, which supported the Respondent’s position that redemption had already occurred on the date of valuation and surrender of the shares.

The Privy Council upheld the judgments of both the Court of first instance and the Court of Appeal that redemption is effective on “the surrender of the status of shareholder, with all attendant rights, just as the essence of purchase is the transfer of property”. The receipt of payment is “clearly not an inherent element of redemption”. The Privy Council dismissed this argument and Primeo was therefore a creditor in the Liquidation.

With regards to the Late Redeemers, the Privy Council found that the effect of the deferred date of redemption meant that the redemption was later than the date of the winding up and therefore fell within s.37(7)(a)(i) and they were not therefore creditors.