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Hedge Fund Liquidators’ Considerations When Dealing with the United States



One of the structures often encountered by insolvency practitioners who reside and practice in jurisdictions outside of the United States, and those who act for them, are hedge funds. Given the proximity of the Caribbean to the United States (and specifically those jurisdictions that are recognized international financial centers such as the Cayman Islands, the British Virgin Islands and Bermuda; anecdotally referred to as ‘offshore’), and the specialization in those jurisdictions in the provision of certain financial services and products to the US market (for example hedge funds registered offshore), it is no surprise that when things go wrong, legal advisors and other professionals are often called upon to look back as to what may be available in the US. This especially applies when assessing what assets or information may exist in the US and what options are available to investigators to retrieve or collect them. This is certainly the case with offshore hedge funds, where the connection to the US may be as simple as an account with a bank or an US institution, or as elaborate as the hedge fund having been managed, administered and, for all intents and purposes, operated out of the US despite being registered offshore.

When offshore hedge funds find themselves in financial difficulty or insolvent, or the subject of fraud or mismanagement, it is customary for creditors or members to want to ascertain promptly what is happening and take decisive action to place someone independent and competent to conduct such an investigation. One of the more frequently used options is for the creditor or member to apply for the hedge funds to be ‘wound up’, in which case a liquidator is appointed, or where insolvency is unclear, seek the appointment of an insolvency practitioner to assume control of the company and gather in its assets and investigate the alleged problem (referred to as a ‘provisional liquidation’).

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