Investors abused process — court

AUCKLAND: 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 Gouldowned general partner managing the fund.

ACC, CAML and Aurora Funds Management reached a deal to exit the fund before the judgement 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 and because the dispute raised 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.

‘‘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 was not a perfect manager did not 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’’ whose credibility was enhanced under crossexamination. He said Kerr was a very skilled and talented investor who did not pay an ideal amount of attention to adminis trative 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 evi dence 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 did not dissociate itself from the proposal to replace the manager.

Pyne Gould’s Kerr said the judgement 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 judgement 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 judgement and with the criticisms he makes of the petitioners and their witnesses,’’ Pickering 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