Like a traditional partnership, an Exempted Limited Partnership ("ELP") does not have its own legal personality – in fact, it is more akin to a statutory trust with the General Partner ("GP") as trustee and the Limited Partners (the "LPs") as the beneficiaries. However, an interesting quirk of the Exempted Limited Partnership Act (2021 Revision) (the “ELP Act”) is that it applies the Companies Act (2021 Revision) (the “Companies Act”) winding up provisions to ELPs.
Historically, this has resulted in fairly regular applications to wind up ELPs as if they are equivalent to companies with their own legal personality, but the practice was recently challenged in In The Matter of Padma Fund L.P. FSD 201 OF 2021 (RPJ). In this case creditors sought an order that the Padma Fund LP (the "Partnership") be wound up pursuant to section 92(d) of the Companies Act, as applied by section 36(3) of the ELP Act, on the basis that the Partnership is unable to pay its debts. The GP argued that the petition was defective because a creditor's remedy is against the GP and not against the ELP itself.
Section 36(3) relevantly provides that “Except to the extent that the provisions are not consistent with this Act, and in the event of any inconsistencies, this Act shall prevail, and subject to any express provisions of this Act to the contrary, the provisions of Part V of the Companies Act (2021 Revision) and the Companies Winding Up Rules, 2018 shall apply to the winding up of an exempted limited partnership and for this purpose…” Given that section 36(3) expressly refers to the "winding up of an exempted limited partnership" it has unsurprisingly been assumed that it is possible to wind up an exempted limited partnership by application of the applicable provisions of the Companies Act. This assumption led Justice Kawaley in In the Matter of XIO Diamond (unreported, 30 April 2020, FSD 256 of 2019 (IKJ))) to expressly state that the jurisdictional basis for winding up an exempted limited partnership (on the just and equitable basis on an application by an LP) was section 36(3) of the ELP Act and Part V of the Companies Act. However, the Grand Court in Padma Fund confirmed that this interpretation is not correct and, in fact, "there is no jurisdiction for the court to make a winding‐up order against an exempted limited partnership on a creditor’s winding up petition". Instead, according to Justice Parker, the legislative purpose of introducing section 36(3) was to apply the applicable provisions of Part V of the Companies Act and the Companies Winding Up Rules, 2018 only after the commencement of the winding up in order to facilitate the orderly winding up of the partnership’s affairs.
The impact of this is that a creditor's remedy in respect of an ELP that cannot pay its debts is to pursue the GP rather than the ELP. Justice Parker noted that for this purpose section 91 of the Companies Act expressly confers jurisdiction on the Cayman Courts to wind up a foreign GP where it is a GP of a Cayman Islands ELP.
On the face of it, therefore, this decision does not seem to signal more than a procedural change; however, it is something that prospective creditors of ELPs should take note of because winding up a GP may well be considerably more challenging than winding up a specific ELP vehicle. This will particularly be the case where the GP administers a large number of funds and/or where the GP is incorporated in a jurisdiction that has a strong debtor-in-possession regime such as the US chapter 11 procedure, which will prevent any attempts to wind up the GP in the Cayman Islands.
If you would like any further information, please get in touch with your usual Bedell Cristin contact or one of the contacts listed.
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