Torchlight investors abused process in wind-up attempt, Caymans court rules

Friday 28th September 2018

The Cayman Islands Grand Court has found investors in the Torchlight fund abused the process in trying to wind up the distressed asset vehicle linked to Pyne Gould Corp.

Government agencies Accident Compensation Corp and Crown Asset Management Ltd were among petitioners seeking to have the Torchlight entity wound up after they lost faith in the Pyne Gould-owned general partner managing the fund.

ACC, CAML and Aurora Funds Management reached a deal to exit the fund before the judgment was released. However, the Cayman Islands judge said it was in the public interest to publish the ruling to publicly exonerate Pyne Gould managing director George Kerr and Russell Naylor of the harsh criticism they'd faced and because the dispute raised a number of significant issues of law.

Justice Robin McMillan said the investors abused court process by bringing the petition for an improper purpose to "obtain accelerated liquidity". A court should only wind up an entity in an extremely serious situation, he said.

"The court is of the opinion that to wind up the partnership would not be in the interests of the limited partners taken as a whole because to do so could be financially devastating," the judge said.

Justice McMillan said the few instances where Torchlight's general partner wasn't a perfect manager didn't prove the investors' claim on the balance of probabilities. He preferred the evidence provided by the general partner over the investors.

The judge said Naylor was a "most impressive witness" . He presented evidence in a straightforward way and his credibility was enhanced under cross-examination. He said Kerr was a very skilled and talented investor who didn't pay an ideal amount of attention to administrative duties, but was honest and reliable.

"It would be fair to say that while Mr Kerr's business skills are exceptional and the limited partners have unquestionably benefited from them his governance style has not been quite so highly developed," the judge said. "However, if that became the sole measure for winding up a solvent business there might not be many businesses that unequivocally survived."

In contrast, the judge said CAML chair Gary Traveller's evidence was formulaic and less than persuasive and CAML general manager Sharon Burleigh was unconvincing.

Justice McMillan said evidence from Greg Marshall of Logic Funds Management was "calamitous" with fervent attacks on Kerr's integrity. Marshall was involved in concocting a plan to replace the fund's manager, in theory to protect the interests of investors but in reality "for their own enrichment", the judge said.

The judge said ACC investment manager Nicholas Bagnall's evidence was unpersuasive, and that it was troubling ACC didn't disassociate itself from the proposal to replace the manager.

Pyne Gould's Kerr said the judgment was a complete vindication of the fund, its performance and its management.

"What should be concerning to many is the judge rejected the evidence of senior New Zealand public servants and directors, who were described in the judgment as ‘less than persuasive’, ‘formulaic’, ‘unconvincing, ‘tenuous’, ‘unreliable’, ‘emotional’ and ‘irrational’," he said.

ACC chief executive Scott Pickering said he was disappointed the judge issued the ruling having already made an order to end proceedings.

“We respectfully disagree with the judge’s decision to publish his judgment and with the criticisms he makes of the petitioners and their witnesses," Pickering said. "We are committed to the agreement the parties entered into so we don’t wish to make any further comment on the proceedings or the settlement."

Pickering defended Bagnall's track record as outstanding and affirmed his confidence in ACC's investment chief, who has held the role since 1999. The workplace insurer's investment team outperformed its benchmarks in 24 of the 25 years to June 30, 2017, achieving annual compound returns of 10 percent through that period.

“He is a long-time public servant who cares deeply about the sustainability of the ACC scheme and the important role he, and the investment team, play in ensuring that happens," Pickering said.

CAML's Traveller and Burleigh and Logic Funds' Marshall didn't respond to BusinessDesk inquiries by the time of publication.

(BusinessDesk)

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