Madoff case - Luxembourg court orders winding-up of Luxalpha and Herald (Lux) funds

On 2 April 2009, the Luxembourg District Court (Tribunal d'Arrondissement) has ordered the dissolution and winding-up of Luxalpha SICAV and Herald (Lux) SICAV (two funds which have invested in Bernard Madoff Investment Securities LLC) pursuant to article 104(1) of the Luxembourg law of 20 December 2002 relating to undertakings for collective investments, as amended from time to time.
This court decision means that the decisions taken by the CSSF respectively on 3 February 2009 and 11 February 2009 regarding the withdrawal of Luxalpha SICAV and Herald (Lux) SICAV became final.
The court decision provides that the Luxembourg liquidators of Luxalpha SICAV and Herald (Lux) SICAV represent these SICAVs as well as its investors and creditors, and that their powers will be exercised in Luxembourg and abroad pursuant to the unity and universality principle of the judicial winding-up of companies having their registered office in Luxembourg. The rule applies to movable and immovable property of the SICAVs even if these properties are abroad. The court decision furthermore states that the unitholders of Luxalpha SICAV will be considered as shareholders. The holders of units Luxalpha SICAV and Herald (Lux) SICAV will not need to file their statement of claims in order to assert their rights. They will be convened at least once a year by the liquidators in a general meeting in order to be informed of the results of the winding-up and the reasons why the winding-up procedure is not terminated. The first general meeting will be held before 31 October 2009.

by leohil

Madoff case (Luxalpha SICAV) - orders imposed by the CSSF on UBS (Luxembourg) S.A.

On 25 February 2009, the Luxembourg regulator (CSSF) (Commission de Surveillance du Secteur Financier) took the following decisions towards UBS (Luxembourg) S.A. The CSSF ordered UBS (Luxembourg) S.A.:

• to put into place the necessary infrastructure (i.e. all sufficient human and technical means and internal rules in order to carry out all the duties and tasks related to the function of custodian bank of a Luxembourg undertaking of collective investment in accordance with the law of 20 December 2002 on undertakings of collective investments, as amended from time to time (the "Law of 2002") and Circular IML 91/75. UBS (Luxembourg) S.A. is required to provide evidence of such adequate guarantees to the CSSF within a period of 3 months as of the date of notification of the decision of the CSSF to UBS (Luxembourg) S.A. It is important to note that the CSSF mentioned that the wrongful execution of the obligation of "due diligence" constitutes a serious breach of the supervisory duty (devoir de surveillance) of a custodian bank and can consequently constitute a violation of a contractual obligation in view of the legal provisions imposed by the Law of 20 December 2002. Article 36 of the Law of 2002 provides that "the depositary shall, be liable, in accordance with Luxembourg law to the shareholders for any loss suffered by them as a result of its wrongful improper performance thereof".
• to analyse and rectify all the structures and procedures in place in relation to its supervisory duty (obligation de surveillance) as custodian bank and UBS (Luxembourg) S.A. shall pay damages in case of breaches to the above-mentioned supervisory duty as custodian bank imposed upon by Luxembourg law, without prejudice to any contractual provisions to the contrary and/or as the case may be any court decision.

The right of injuction of the CSSF is based on article 59 of the Law of 5 April 1993, as amended from time (the "Law on the Financial Sector"), which provides in paragraph (1) that "where a person subject to the supervision by the CSSF is not complying with the provisions of any laws, regulations or memorandum and articles of association relating to him, or where his management activities or financial situation are not such as to constitute an adequate guarantee of proper discharge of his commitments, the CSSF shall enjoin that person, by registered letter, to remedy within such period as it may prescribe the situation found to exist".
It is furthermore important to set out what the consequences may be in case UBS (Luxembourg) S.A. would not comply with the above orders. These can be found in Article 59 paragraph (2) of the Law on the Financial Sector which provides that "if, by the end of the period prescribed by the CSSF pursuant to the preceding paragraph, the situation in question has not been remedied, the CSSF may:
(a) suspend the members of the administrative, executive or management bodies or any other persons who, by their actions, negligence or lack of prudence, have brought about the situation found to exist or the continued exercise of whose functions may prejudice the implementation of recovery of reorganisation measures;
(b)suspend the exercise of voting rights attaching to shares held by shareholders or members whose influence is likely to operate to the detriment of the prudent and sound management of the persion in question;
(c) suspend the pursuit of that person's business or, if the situation found to exist concerns a particular area of business, the pursuit of the latter."
The CSSF is entitled on the basis of article 53 of the Law on the Financial Sector to request from any person subject to supervision by it (i.e. UBS (Luxembourg S.A.) any information which may be of assistance in the performance of its tasks. The CSSF may in light of this provision inspect books, accounts, registers or any other deeds and documents belonging to such persons.
In view of the above, it will be important for UBS (Luxembourg) S.A. to evidence proof and provide the adequate guarantees (as mentioned above)to the CSSF within the prescribed period of 3 months.
The questions could also be raised what the legal impact is in court of such press releases. The legal impact in court of the content of such press releases is in my opinion limited as press releases or circulars issued by the CSSF so as to limit themselves so as to interpret the rules set out under the applicable Luxembourg laws, without being able in principle to create new rules. In other words, it is not the press release or a circular which can impose by themselves new obligations on parties but only the applicable laws. However, the interpretation made by the CSSF or by a Luxembourg administration is an indication of how the laws could be applied in court, taking into account that the courts could always adopt a different interpretation.

by leohil

Madoff case - Herald (Lux) - Decision by the CSSF to withdraw the fund from the list

On 11 February 2009, the Luxembourg regulator (CSSF) has announced, in view of the establishment of the responsibilities of the various intermediaries in relation to HERALD (LUX) and the custodian bank HSBC SECURITIES SERVICES (LUXEMBOURG) S.A., to take the following two decisions, namely (1) to withdraw HERALD (LUX) from the list on the basis of article 94 (2) of the Law of 20 December 2002 on undertakings of collective investments which provides that maintaining an entry on a list shall be subject to observance of all the provisions of laws, regulations or agreements relating to the organisation and operation of UCIs and the distribution, placing or sale of their units and (2) thereafter to request the judicial liquidation of HERALD (LUX).
The decision to withdraw HERALD (LUX) from the list of authorized UCIs is based on the fact that Luxalpha SICAV does not observe any longer the provisions in relation to the organisation and functioning of Luxembourg undertakings of collective investments. This withdrawal has as consequence the suspension of all payments made by HERALD (LUX) and the prohibition by HERALD (LUX) to perform any acts other than conservatory acts. The decision of withdrawal will become permanent after a period of one month, except in case of appeals. As soon as the decision of withdrawal will become permanent, the CSSF will request from the Luxembourg court (tribunal d'arrondissement) the judicial liquidation of HERALD (LUX). In case of a liquidation decided upon by the court, the court will appoint a liquidator to realize the assets of the SICAV.
Should you have any questions, feel free to contact me at oliviersciales@cs-avocats.lu.

by leohil

Madoff case - Luxalpha SICAV - Decision by the CSSF to withdraw the fund from the list and request of liquidation

On 3 February 2009, the Luxembourg regulator (CSSF) has announced, in view of the establishment of the responsibilities of the various intermediaries in relation to Luxalpha SICAV and the custodian bank UBS (Luxembourg) S.A., to take the following two decisions, namely (1) to withdraw Luxalpha SICAV from the list on the basis of article 94 (2) of the Law of 20 December 2002 on undertakings of collective investments which provides that maintaining an entry on a list shall be subject to observance of all the provisions of laws, regulations or agreements relating to the organisation and operation of UCIs and the distribution, placing or sale of their units and (2) thereafter to request the judicial liquidation of Luxalpha SICAV.
The decision to withdraw Luxalpha SICAV from the list of authorized UCIs is based on the fact that Luxalpha SICAV does not observe any longer the provisions in relation to the organisation and functioning of Luxembourg undertakings of collective investments. This withdrawal has as consequence the suspension of all payments made by Luxalpha SICAV and the prohibition by Luxalpha SICAV to perform any acts other than conservatory acts. The decision of withdrawal will become permanent after a period of one month, except in case of appeals. As soon as the decision of withdrawal will become permanent, the CSSF will request from the Luxembourg court (tribunal d'arrondissement) the judicial liquidation of Luxalpha SICAV. In case of a liquidation decided upon by the court, the court will appoint a liquidator to realize the assets of the SICAV.

by leohil

Luxembourg - Investment Funds - CSSF press release on the Madoff case

The CSSF has recently announced in its press release of 23 January 2009 that a number of Luxembourg funds and sub-funds as set out hereunder have decided to suspend their NAV as well as redemptions, subscriptions and conversions of shares / units:
- Herald (Lux)

• Sub-fund US Absolute Return Fund

- Luxembourg Investment Fund

• Sub-fund U.S. Equity Plus

- Luxalpha Sicav

• Sub-fund American Selection

- Norvest

• Sub-fund Arbitrage

- Global Fund Selection Sicav

• Sub-fund Balanced Sub-fund
• Sub-fund Growth Sub-fund
• Sub Fund X-tra Alternative Investments Sub-fund

- Carat (Lux) Sicav
- Sub-fund Global One
- LRI Invest Alpha Stable €
- BG Umbrella Fund

• Sub-fund BG Global Classic
• Sub-fund BG Global Dynamic
• Sub-fund BG Global Challenge
• Sub-fund BG Global Balance
• Sub-fund BG Global Discovery
• Sub-fund BG Stable Value

- M.A.R.S. Fund

• Sub-fund One (c)

- Pareturn

• Sub-fund Best Selection

The CSSF furtermore noted that the above UCIs are currently exposted up to EUR 1,7 billion.

by leohil