Camulos Wins Liquidation Battle Against Angry Investor

Mar 30 2010 | 12:06pm ET

Camulos Capital has beaten back a bid by a disgruntled investor to force it to liquidate one of its hedge funds, winning an important victory for all Cayman Islands-domiciled hedge funds, according to its law firm.

The Caymans Court of Appeal threw out a winding-up petition against the Camulos Partners Offshore fund, ruling that it was improper to seek to liquidate a solvent hedge fund that refused to meet an investor’s demand. The investor in question, Austrian private bank Kathrein & Co., filed two contributory winding up petitions against the Camulos fund after Camulos suspended redemptions from the fund.

Kathrein in 2008 sought to redeem some US$27 million from the fund. It was not alone: Camulos, like many hedge funds that summer, was inundated with redemption requests, first offering an exchange to limit them—which Kathrein rejected—and then suspending redemptions entirely.

The private bank sued Camulos last April, demanding its US$27 million, including 15% in cash. Three months later, it threatened to seek the fund’s liquidation, filing the petition in September after a judge rejected Camulos’ bid for an injunction.

But it appears the hedge fund has had the last laugh: The appeals court directed Kathrein to employ regular legal channels to get its money back, ruling that winding up petitions cannot be used to place improper pressure on companies to give in to their demands. The court also ordered the bank to pay Camulos’ costs.

“The clear message is that disputes between an investor and a hedge fund should ordinarily be litigated in the usual way, i.e., by way of writ of summons or originating process in the Grand Court’s new Financial Services Division,” Walkers, Camulos’ Caymans lawyer, wrote. “It is inappropriate and likely to be an abuse of the Court’s process for an investor to seek to use the threat of a winding up petition as a means of placing undue and improper pressure on a company or fund to accede to its demands.”

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