A recent decision from the Commercial Court of the British Virgin Islands has clarified the position of a redeemed shareholder of a fund who has a claim for redemption proceeds which have become due and payable. In the matter of Western Union International Limited v Reserve International Liquidity Fund Ltd., the court considered the status of a redeemed shareholder both before and after the commencement of the liquidation of a fund and the operation of Section 197 of the Insolvency Act, 2003 (the “Act”). Section 197 states that:
“A member, and a past member, of a company may not claim in the liquidation of the company for a sum due to him in his character as a member, whether by way of dividend, profits, redemption proceeds or otherwise, but such sum is to be taken into account for the purposes of the final adjustment of the rights of members and, if appropriate, past members between themselves.”
In Western Union, the court considered when a shareholder’s redemption of its shares in Reserve International was completed and when a shareholder became a creditor of Reserve International in respect of the redemption proceeds. The court concluded that the effect of Reserve International’s Articles of Association was that if a redemption request was received by the fund before 5:00pm on a dealing day, the redemption of the shareholder’s shares was completed upon the same day.
The court held that a member who had submitted a redemption notice and whose redemption was completed before the commencement of the liquidation was a creditor for the unpaid redemption proceeds. In such circumstances, the redeemed shareholder would rank side by side with other unsecured creditors of the fund.
The court distinguished this from the position of a member who sought to claim in a liquidation as a creditor in respect of redemption proceeds arising from a redemption which had not been completed before the liquidation commenced (i.e., where a redemption notice had been submitted but the redemption date and/or the payment date had not passed before the fund either suspended redemptions/payments or was put into liquidation). In such circumstances, Section 197 would preclude the member in question from claiming the redemption proceeds in competition with other unsecured creditors of the fund, as it would still be a member. The court’s decision is under appeal.
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