Official and provisional liquidations
The creditor-friendly Cayman Islands insolvency regime provides the optimal forum for enforcing investor rights and ensuring a transparent and effective cross-border wind-up. Our appointees have acted in a large number of major compulsory and provisional liquidations of Cayman Islands funds.
As such, our team has extensive experience in complex cross-border fund liquidations across the range of investment strategies and structures. We’ve worked with stakeholders, legal advisors and regulators to deliver:
- The unwind and realisation of a wide range of investment portfolios, including collateralised debt obligations (CDOs), management buyouts (MBOs), illiquid class 3 assets, private equity, real estate, loan books and receivables, and derivative and convertible instruments;
- Numerous complex cross-border asset realisations, including Middle East, EMEA, North and South America, Southeast Asia and China;
- Close collaboration with investors, creditors and other financial stakeholders;
- Challenging jurisdiction to ensure investors are protected through the Cayman Islands regime;
- Forensic investigation of conduct of service providers, trading strategies and valuation methodologies;
- High-profile, successful litigations against service providers and directors.
Voluntary liquidation and corporate simplification
Our dedicated team delivers voluntary liquidation and corporate simplification solutions to investment managers and administrators. Our experience, strong relationships with service providers and regulators, and focus on pre-planning enables us to deliver the most cost effective and timely solutions for both simple shell company liquidations and the wind-down of complex corporate and partnership structures.
We’ll agree on cost and timing with you in advance and support you in your pre-planning and investor communications strategy.
Our depth of experience in the alternative investment market means we’ve developed solutions for the range of issues often encountered in the wind-down of investment structures, such as:
- Investor communications, (including K1s and passive foreign investment company requirements)
- Solutions for rump of illiquid and contingent assets
- Unclaimed funds and redemptions
- Onshore tax provisioning issues
- Cayman Islands Monetary Authority audit waivers and reporting requirements
- Unwind of complex structured finance and derivative positions
Investigations and inspections
Our team has conducted a wide range of investigations on behalf of investors, creditors and regulatory authorities. In many cases, these investigations have taken place under the umbrella of formal appointments, such as liquidations, controllerships and inspectorships. Alternatively, investigations may be conducted voluntarily, subject to agreed-upon procedures.
Alternative investment vehicles and their investment managers rigorously protect proprietary knowledge, including details of investment strategy, positions and liquidity. This approach is understandable. However, in stressed circumstances, and in particular where redemptions have been suspended or side-pocketed, a lack of transparency often impairs investors’ ability to price their holdings and develop their own mitigation strategies. Minority investors faced with the prospect of long suspended, gated or side-pocketed redemptions often find themselves with limited understanding of the issues faced by the fund. This in itself can erode confidence.
Where liquidity preservation tools, such as suspensions or gating, are required to protect the interests of investors, it’s essential that the investment manager ensures adequate information flow to the investor group.
Third-party NAV reporting and annual audits are clearly of value. However, investors in stressed and distressed funds benefit from a real-time, independent, commercial perspective to close the information gap and fully understand the unwind strategy. One key to resolving potential investor disputes is to establish an independently validated fact base, for which a Cayman Islands inspectorship provides a useful tool.
Under Cayman Islands law, a fund may appoint an inspector without the need for court intervention to perform a limited-scope review and provide investors with an independent validation of the fund’s liquidity position and unwind strategy. Alternatively, a one-fifth minority group of investors may petition the court for appointment of an inspector.
The scope of an inspector’s review will usually be limited to cover the requirements of the company, management and investors and may include:
- Liquidity review: review the fund manager’s short- and long-term cash-flow model.
- Valuation methodology: review the methods applied to illiquid assets in the context of market conditions.
- Investment strategy: review the investment approach adopted to date in the context of the fund’s offering documents and the proposed strategy to mitigate stressed circumstances and unwind positions.
By limiting scope, the costs of inspectorships may be determined from the outset and will generally be met by the fund.
PwC’s advisory team has extensive experience in preparing inspectorship opinions for investment funds and Cayman-domiciled holding companies and investors. In doing so, we’ve successfully worked with investment managers and company management to establish a common, independent fact base that enables directors and managers to resolve potential issues.
Due diligence and fund restructuring
The recent global financial crisis and a number of high-profile fund blowups have generated increased focus on adequacy of due diligence in the alternative investment industry.
A robust due diligence process will examine the breadth of financial, commercial, governance and operational features of a target investment. Diligence doesn’t stop at the point of investment: ongoing diligence enables astute investors to spot adverse market or operational changes and exit positions first.
PwC advisory has a depth of experience in identifying liquidity and wider performance issues on behalf of investors and regulators. We’ll support your due diligence process with independent external review, providing our report and recommendations to support your business case analysis.
In most cases, a hedge fund manager will get only one opportunity to restructure operations in the face of liquidity constraints or market stress. As such, it’s imperative that the restructuring put in place is fit for purpose, both from a legal and commercial/operational perspective. In our experience, a flawed restructuring will inevitably lead to insolvency at a later date, with consequent losses for investors.
Our advisory team has identified, developed, implemented and reviewed restructuring solutions across a wide range of commercial concerns. Our experience in alternative investment means we know what will and won’t work from a commercial and operational perspective.
We’ll work with fund managers and service providers to help develop, review or report on restructuring proposals. As an experienced, independent party, we bring comfort to investors and additional insight to the process. This can be critical when asking an investor base to participate in a restructuring plan or when communicating the details of liquidity measures to investors.