The Abraaj Group was a high-profile private equity firm in the Middle East, with an estimated US$14 billion assets under management. In 2018, the Group collapsed amid serious allegations of fraud, mismanagement and comingling of funds which had been concealed from as early as 2014. On 11 September 2019, the Group’s holding company (ABRAAJ Holdings Limited) and primary investment manager (Abraaj Investment Management Limited (AIML)) were both placed into official liquidation in the Cayman Islands.
Since the collapse, there have been regulatory and legal proceedings worldwide against various Group entities and former directors. For example, the Dubai Financial Services Authority fined AIML in July 2019 almost US$300 million for misleading and deceiving investors, and fined Arif Naqvi, the Group’s founder and former CEO, some US$135 million in January 2022 – the largest ever fine imposed on an individual by the Authority. In the United States District Court in New York, both the Department of Justice and the Securities and Exchange Commission have issued proceedings against AIML, Naqvi and other senior executives for their involvement in the fraud. Naqvi, who is currently in the United Kingdom, has recently unsuccessfully appealed in the English courts the UK’s decision to extradite him to the US.
In the Cayman Islands, there have also been proceedings in the Financial Services Division of the Grand Court for and against entities within the Group by parties seeking to recover funds. These proceedings include: (i) a claim by Mr Abdulhameed Jafar to recover some US$300 million from the Group which he agreed to lend in 2017; and (ii) a claim by the joint official liquidators of ABRAAJ Holdings to recover some US$110 million against a holding company of certain “Healthcare Funds” in the Group. A common thread to most Abraaj related claims is the difficulty in obtaining sufficient information and documents, given the way the Group had been managed.
On 10 March 2023, the Grand Court published a new decision confirming the broad statutory entitlement of a limited partner under section 22 of the Exempted Limited Partnership Act (the Act) to obtain true and full information from the general partner of a Cayman exempted limited partnership (ELP) – the Neoma Private Equity Fund L.P. (NPEF IV) – which was once an investment fund in the Abraaj Group. In granting summary judgment to the limited partners against NPEF IV’s general partner – ABRAAJ General Partner VIII Limited (GP) – and fund manager (Manager), Justice Parker in Neoma Manager (Mauritius) Limited, in its capacity as the manager of Neoma Private Equity Fund IV L.P. v Abraaj ABOF IV SPV Limited & Ors (the Neoma Proceedings) has directed the GP and Manager to provide true and full information to the limited partners, notwithstanding their various arguments seeking to resist section 22 disclosure, including on the grounds that the documents sought would be provided on discovery in the substantive proceedings.
Exempted Limited Partnerships
By way of context, ELPs – which are popular private equity fund vehicles in the Cayman Islands – are not legal entities in their own right but rather the assets and liabilities vest in a general partner on trust for the benefit of the limited partners (section 16 of the Act). The liability of limited partners is capped up to the amount they agree at the outset to contribute to the partnership (sections 4(2) and 20 of the Act). They cannot take part in the conduct of the business; and if they do, they will lose their limited liability status (section 20 of the Act). Accordingly, the limited partners will not have information concerning the day-to-day operations and business activities of the partnership, unless they are provided with it. For this reason, section 22 of the Act seeks to address the imbalance of information as follows:
Subject to any express or implied term of the partnership agreement each limited partner may demand and shall receive from a general partner true and full information regarding the state of the business and financial condition of the exempted limited partnership.
Past Grand Court decisions such as Dorsey Ventures Limited v XIO GP Limited (FSD 38 of 2018, Unreported 22 October 2018) and In the Matter of Gulf Investment Corporation v The Port Fund LP (FSD 235 of 2019 and FSD 13 of 2020, Unreported 16 June 2020) have broadly interpreted section 22. In Dorsey, the Court held that section 22 is a general and unqualified right, and so qualitatively different from the specific rights granted under a limited partnership agreement. Port Fund followed Dorsey in holding that section 22 is very wide and unqualified, and the information provided needs to be “true and full”, not just “true and fair”.
In the Neoma Proceedings, there were two novel features on the facts which made the context particularly interesting in respect of section 22: first, the applications were made in circumstances where there was already ongoing substantive litigation on foot brought by the Manager, on behalf of the GP, against the limited partners; and second, the applications were brought by summary judgment application in respect of the limited partners’ section 22 counterclaims against the GP and Manager in the substantive litigation.
The Neoma Proceedings
On 14 July 2019, the Manager was appointed to NPEF IV, following its acquisition of the management rights to NPEF IV out of the provisional liquidation of AIML. Under a new limited partnership agreement that was agreed at the same time, the Manager has the responsibility to determine each limited partners’ capital account balance in NPEF IV by way of an adjustment process and then, ultimately, to wind-down the fund. Importantly, the new limited partnership agreement did not purport to limit or restrict a limited partner’s entitlement under section 22, notwithstanding that it was known to the parties when the Manager was appointed that NPEF IV’s records were incomplete.
In this context, the Manager issued proceedings seeking declarations as to its calculation of certain limited partners’ opening capital account balances. The defendant limited partners argued that the Manager prematurely commenced the proceedings because further information and documents were required to conduct proper investigations, including by way of section 22 requests of the GP. Accordingly, those defendants filed “holding” defences and counterclaims seeking inter alia relief under section 22 against the GP/Manager.
The Manager and GP resisted the applications by arguing, in the main, that the documents/information sought:
- had already been provided (which if disputed, requires a complex legal and factual inquiry not appropriate for summary judgment), or were not in the Manager or GP’s possession, custody or control;
- fall outside the scope of section 22; and
- would be provided in any event at the discovery stage of the substantive proceedings (which, if the applications were dismissed, would commence imminently). The Manger and GP said that if it happened that the documents and information sought were not provided on discovery, the limited partners could then proceed with their section 22 applications.
The Judge rejected those arguments and found that the Manager and GP had no reasonably arguable defence to the applications. His Lordship thus directed performance of their obligations under the Act and the relevant limited partnership agreement. The Judge also stayed the substantive proceedings for three months from the date the information and documents is provided by the Manager/GP, and awarded costs to the applicant limited partners. The most useful principles from the judgment about section 22 are:
1. Discovery should not precede section 22 disclosure
- The Court held, importantly, that the section 22 right is a substantive legal right, not a procedural right. It exists independently of and in addition to the procedural rights afforded to the parties under the relevant court rules in the context of discovery. The granting of summary judgment under section 22 is not a case management decision, and therefore should not ordinarily be influenced by case management considerations (at ). The implication of this is that discovery cannot be used in a way to limit or prevent a limited partner’s section 22 entitlement. This is a potentially powerful reading of limited partners’ section 22 rights in litigation involving the general partner, in that they will retain their entitlement to true and full information from the general partner notwithstanding the ongoing litigation.
- Section 22 is broader than discovery in that (i) the former requires production of “true and full information”, not just documents (at ); (ii) discovery is limited to documents which are or have been in the party’s possession, custody or power, whereas section 22 extends to making requests of third parties (at  and ); and (iii) discovery is restricted to matters in issue in the action (at ).
- In any event, it would be unsatisfactory for the parties to carry out a discovery exercise, only then to have to redo the process based on any new issues arising from the section 22 information (if it was subsequently ordered). It would be particularly unfair to the limited partner defendants to be required to proceed to discovery without full information being provided to which they are statutorily entitled (at ).
- The Court made clear that while a limited partner’s motives or intended uses for the section 22 documents do not affect the right, the parties are still expected to conduct litigation reasonably and efficiently in accordance with the Overriding Objective (at (d)).
2. Further broad guiding principles for section 22
- Section 22 is a free standing right. In the abstract, the Court was not prepared to say that there are no practical and purposive boundaries built into the statutory right. With sufficient evidence, it may be that such boundaries can be drawn if it is in the interests of justice. What is required to fulfil the obligation to provide “full information” will vary from case to case depending on the circumstances and the test is essentially a functional one (at (c), (j)). The nature of the partnership’s business and its mode of conduct will be relevant factors to this question. For example, if the mode of the relevant partnership’s business was to perpetrate a long-term and systematic fraud, that would indicate that the limited partners should be given particularly wide rights of disclosure in order to be able to understand the affairs of the partnership. (See generally Inversiones Friera SL v Colyzeo Investors II LP  1 BCLC 469 and Inversiones Frieira SL v Colyzeo Investors II LP  EWHC 1450 (Ch)).
- If judgment calls have been made by a general partner where there are discrepancies or incomplete information, that should be identified and explained, and the general partner should err on the side of ‘over provision’ rather than ‘under provision’ so the limited partners can sift through the information for themselves (at (e)).
- It is no defence to section 22 for the general partner to say that the partnership would expend significant time and resources answering the requests of only a few limited partners (at (j)).
3. Clarifying the types of the documents that can be obtained under section 22
- All materials and advice produced by the manager and paid for by the partnership should in principle be available to the limited partners so far as they relate to the partnership business (at (v)). The categories of documents that should be made available include: the Manager’s documents and working papers insofar as they relate to the partnership (at (g), (i)); reports and minutes of meetings between the general partner and manager (at (v)); valuations of the partnership investments and, if those valuations were based on the manager’s own data, the underlying data (at (iv)); and any document that the general partner or manager relies on to establish rights as between members of the partnership (at ).
- If the manager has failed to maintain books and records of the partnership (in accordance with section 21 of the Act), the limited partners are entitled to see (i) the primary documents from which such books of the partnership would have been prepared and (ii) the underlying documents establishing the existence of assets or liabilities (at (iii)).
- If the general partner has undertaken an assessment relying upon supporting documentation and internal data or information (as was the case in the Neoma Proceedings), the limited partners are entitled to that underlying information so they can properly understand that assessment (at (e)). It may be necessary to create entirely new documents, for example a schedule, in order to satisfy the true and full obligation (at (f)).
- If the material requested does not exist, the general partner should, in such circumstances, explain what searches have been conducted and why it is not possible to retrieve or find the relevant information (at (k)).
This decision is important for investors and fund managers alike in Cayman ELP structures. It confirms that the general partner is an agent of the limited partners – the latter having paid for all the activities of the former – and therefore the limited partner has a broad entitlement to demand and receive information from the general partner. The decision is of particular interest because the section 22 entitlement prevailed in the context of an alleged widespread fraud – and in novel circumstances where there were already substantive proceedings on foot with discovery available in the proceedings.
Going forward, the decision confirms that section 22 prevails as a substantive right available to limited partners to true and full information from the general partner, while those limited partners also retain their procedural rights in the underlying litigation, such as in relation to discovery.
Sebastian Said and Daniel Coelho appeared for the Fourth and Sixth Defendants in the proceedings, who were applicants in the summary judgment applications. Nico Leslie and Nathalie Koh from Fountain Court assisted the Appleby team. Clare Stanley KC of Wilberforce Chambers instructed by Walkers appeared for the First Defendant. Sue Prevezer KC of Brick Court Chambers instructed by KSG appeared for the Manager and General Partner, assisted by Quinn Emanuel Urquhart & Sullivan, LLP in London.