Bear Stearns's Cayman Funds To Appeal US Bankruptcy Ruling

by Glenn Shapiro, Tax-News.com, New York

13 September 2007

The liquidators of Bear Stearns's two Cayman-based bankrupt hedge funds have appealed last month's ruling in the United States Bankruptcy Court in Manhattan, which denied their request to liquidate in the Cayman Islands rather than in the US.

According to reports, a notice of appeal was filed in US District Court in New York on Monday by Simon Whicker and Kristen Beighton, liquidators for the Cayman Islands funds.

The liquidators are appealing the decision by Judge Burton R. Lifland on August 30, which denied the shuttered funds' Chapter 15 request, which covers cross-border liquidations.

Chapter 15 protection would have allowed the hedge funds to liquidate in the Cayman Islands while giving the funds a higher degree of protection from creditors in the US. But according to Judge Lifland, the funds did not have enough of a presence in the Cayman Islands to justify their Chapter 15 request.

"There are no employees or managers in the Cayman Islands, the investment manager for the funds is located in New York, the administrator that runs the back-office operation of the funds is in the US along with the funds' books and records," Lifland wrote in his ruling.

However, Lifland granted Bear Stearns 30 days to refile its request before investors are entitled to seize assets.

The two hedge funds in question, the Bear Stearns High-Grade Structured Credit Strategies Master Fund and the Bear Stearns High-Grade Structured Credit Strategies Enhanced Leverage Master Fund, invested heavily in collateralized loans backed by sub-prime mortgages. A large percentage of the funds' assets, most of which are in the US, had been repossessed by secured creditors, including Merrill Lynch and Bear Sterns itself, during the period before their bankruptcy. According to Reuters, the Bear Stearns funds once controlled around $10 billion in assets.

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