Skandinaviska Enskilda Banken AB v Conway & Anor (as Joint Official Liquidators of Weavering Macro Fixed Income Fund Ltd) [2019] UKPC 36

The Privy Council upheld decisions of the Cayman Islands Grand Court and Court of Appeal that share redemption payments received by the appellant Swedish Bank were voidable preferences.

Weavering Macro (“WM”) was incorporated in the Cayman Islands as an open ended investment company. Following the collapse of Lehman Brothers in 2008, WM received a wave of redemption requests totalling over US$220 million. In March 2009, the directors discovered that the company had been the subject of significant fraud by the Chief Executive Officer of its investment manager, Magnus Peterson, by inflating the net asset value (“NAV”) and entering into worthless interest rate swaps.

Swedish Bank Skandinaviska Enskilda Banken AB (“SEB”) was an investor in WM, and between 2006 and 2008 subscribed for $9.5 million shares on behalf of, amongst others, two Swedish mutual funds. 

Whilst the majority of redemption obligations in December 2008 and January and February 2009 remained unpaid, in December 2008 Magnus Peterson emailed WM’s administrator to ensure that SEB were paid and by February 2009 SEB had been paid its redemption proceeds in full by three instalments in the total sum of circa $8.2 million. During this period, a few other redeemers were paid but in excess of $134 million remained outstanding which could not be paid and on 19 March 2009 WM went into Liquidation.   

In August 2014, WM’s Liquidators issued proceedings against SEB that the redemption payments were unlawful preferences pursuant to s.145(1) Companies Law (2013 Revision) 2013 (Cayman Islands) (“the Act”) and as such $8.2 million plus interest was repayable to the Liquidators.

The Cayman Islands Grand Court found in favour of the Liquidators that the payments were invalid preferences and ordered their return. SEB appealed to the Cayman Islands Court of Appeal who also found in the Liquidators’ favour. SEB then appealed to the Privy Council.  

SEB argued 3 main points, (1) Fraud Point (2) 30 Day Point and (3) Unjust Enrichment.

Fraud Point

SEB argued the inflated NAVs were not binding as they had been inflated by fraud and therefore no redemption had taken place in accordance with WM’s articles of association. SEB argued that WM was not insolvent at the time the payments were made and those who had requested redemptions were not creditors within the meaning of section 145 of the Act.

The Privy Council distinguished this case from Fairfield Sentry, where the fraud was external to the company. Magnus Peterson was found to be a de facto director of WM and its controlling mind, particularly in relation to the payment of the SEB redemptions.

The Privy Council found that as the fraud was internal to WM, the NAVs on which the redemptions were based were not binding and could be avoided. However proceedings would need to be brought against the Liquidators by a party who had suffered loss as a result of the fraud and, as SEB had not been defrauded and in fact had received payments based on the inflated NAV, this argument failed.

30 Day Point

SEB also sought to argue that under WM’s articles, redemption payments were “generally made within 30 calendar days after the Redemption Day”. As the first payment to SEB was made within those 30 days, they argued that they had not been preferred over anyone else as while the other redeemers had requested a redemption on 1 December (“Redemption Day”) were not owed their redemption funds until the end of the 30 days. The Privy Council rejected this argument and held that the redeemers became creditors on Redemption Day.

Unjust Enrichment Point

SEB argued that it was entitled to rely on a defence to a claim for restitution on the basis of unjust enrichment as it had remitted all payments to the two Swedish mutual funds and had not been enriched, and would suffer unjust detriment if it were required to repay the Liquidators.

The Privy Council noted the distinction between acting as trustee and agent. SEB’s position as trustee in respect of dealings with WM, being the registered shareholder, meant that they were enriched by payments received even though it had fiduciary obligations to its clients.

The Privy Council therefore held that SEB were to repay the amounts received as preferences and could submit a claim in the Liquidation for the amounts due to them as an unsecured creditor.

In 2015, Magnus Peterson was sentenced to 13 years’ imprisonment.

For any more information please contact Olivia Reader or Alan Bennett from our Restructuring and Insolvency Team.

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