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Pearson v Primeo Fund (2017)


Where a Cayman Islands company had issued redeemable shares and had later been wound up, an investor which had redeemed its shares under the terms of the company's articles, but which had not received payment of the proceeds before the commencement of the winding-up, had redeemed the shares for the purposes of the Companies Law 2007 (Cayman Islands) s.37. The investor thus had priority over other shareholders.


The liquidator of a Cayman Islands company which had issued redeemable shares appealed against a decision that the shareholding of the respondent investor had been redeemed before the company suspended payments to those who had invested in the shares, thus giving it priority on winding-up over other shareholders.

The company had issued redeemable shares. It later suspended the calculation of its net asset value and all payments to those who had invested in the redeemable shares. The company was wound up. The investor had, under the terms of the company's articles, had its shares redeemed before the suspension, but had not been paid the redemption proceeds before payments were suspended, and so had not received payment at the commencement of the winding-up. Investors who had given notice before the suspension to redeem at a later date (the late redeemers) intervened in the instant proceedings, seeking a priority at least equivalent to that of the investor. The Companies Law 2007 (Cayman Islands) s.37 concerned redemption. Section 37(7) concerned winding-up: s.37(7)(a) provided that the terms of redemption could be enforced against the company; under s.37(7)(b) that enforcement had priority over liabilities to company members but behind other liabilities. Proviso (i) to s.37(7)(a) provided that s.37(7)(a) would not apply if the terms of redemption provided for redemption to take place later than the commencement of the winding-up. Section 49(g) provided that no sum due to a member would in a winding-up rank ahead of liabilities due to non-members.

The liquidator argued that "redemption" in s.37 embraced a whole process including payment of the proceeds; that was a different meaning to that in the company's articles, and the statutory meaning had to prevail. The liquidator accordingly argued that Proviso (i) applied: suspension affected the terms of redemption so as to postpone payment until after the commencement of the winding-up, meaning the investor was not entitled to the priority contemplated by s.37(7)(b) and ranked as an ordinary member.


Redemption - Payment was, as a matter of general principle, clearly not an inherent element of redemption. The essence of redemption was the surrender of the status of shareholder, with all attendant rights. If that occurred, deferral of payment was merely a grant of a short period of credit to the company, without any reservation of property or interest. The articles explicitly provided that redemption occurred on surrender of the status of shareholder, rather than on payment. Redemption did not have an autonomous statutory meaning that prevailed over any definition in the articles. There was no reason to treat the Law as containing prescriptive provisions in that regard. Section 37(7) envisaged situations in which shares were to be redeemed or were liable to be redeemed at the commencement of the winding-up, but the terms of the redemption or purchase could remain enforceable. It allowed a shareholder to enforce the terms of redemption notwithstanding the winding-up. It was designed to elevate the status of a shareholder where redemption had not taken place at the commencement of winding-up. The critical moment for valuation in the winding-up was when an investor had redeemed and so ceased to be a member of the fund, becoming instead a creditor owed the redemption proceeds. On that basis, the fact that the debt constituted by the proceeds was provable together with other debts owed by the company was not incongruous (see paras 13-22 of judgment).

Late redeemers - The effect of the articles was that, once there was a suspension, the right to redemption was suspended and only revived if and when the suspension was lifted. The terms of redemption did not provide for redemption to take place on a date when the right to redeem was suspended. When the suspension continued until the commencement of the winding-up, the terms of redemption had to be regarded as having provided for redemption to take place at a date later than the date of the commencement of the winding-up, within Proviso (i). Accordingly, the late redeemers fell within that proviso and so were taken back outside s.37(7)(a). A declaration would be made that they ranked as ordinary members in the company's winding-up (paras 26-27, 36).

Priorities - Section 49(g) should be read as governing the priority of a former member claiming a return of capital, Consolidated Goldfields of New Zealand, Re [1953] Ch. 689 and Compania de Electricidad de la Provincia de Buenos Aires Ltd, Re [1980] Ch. 146 considered. On that basis, the investor, as a former member, ranked after creditors who were not formerly members, but ahead of all current members. The language of s.37(7)(b) raised questions as to the priorities as between s.49(g) claimants and s.37(7) claimants, but there had not been detailed submissions on that point (paras 31-35).

Appeal dismissed, declarations granted

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06 Jul 2017

Privy Council (Cayman Islands)
Lord Neuberger, Lord Mance, Lord Clarke, Lord Sumption, Lord Carnwath

Jonathan Allcock

Practice areas
Company, Partnerships & LLPs
Insolvency & Restructuring