DD Growth Premium 2X Fund (the Company), was a Cayman Islands Ponzi scheme that concealed vast trading losses by attributing fanciful values to worthless bonds. As the GFC unfolded in 2008, RMF Market Neutral Strategies Limited (RMF) redeemed US$23m for its shares in the Company (the Payment). The Company was placed in liquidation a short time later and the Company's liquidators sought to claw the Payment back.
Under Cayman Islands law, capital payments to shareholders are only lawful if the company remains solvent following the payment. A 3/2 majority of the Privy Council held that payments from the Company's share premium account toward the premium payable on share redemption were deemed capital payments to which the solvency test applied. As the Company had been insolvent, the Payment was unlawful.
The liquidators' argument that the Payment should be returned on the ground of unjust enrichment failed. The Privy Council found that the redemption of the shares created a valid debt to RMF, even though the Payment was unlawful. The Privy Council allowed that it was possible, albeit unlikely, that RMF was a constructive trustee of the funds on the ground of knowing receipt, and remitted the matter to the Grand Court to determine if RMF knew the Payment was unlawful.
The decision can be found here.