KRyS Global was appointed as liquidators over Fairfield, a BVI based fund, which had invested in the Bernard Madoff Ponzi scheme and suffered a net loss of $6 billion.
At the time of KRyS Global’s appointment, the fund was the subject of litigation by the US Chapter 11 bankruptcy trustee for Bernard L. Madoff Investment Securities and had no unencumbered assets. Initial inquiries determined that for any assets to be distributed to investors, a litigation driven strategy would need to be pursued.
In order to commence its litigation based recovery strategy in the United States, KRyS Global needed to address the claim made by the trustee to avoid the risk of the trustee seizing liquidation recoveries in the United States (and potentially elsewhere).
KRyS Global entered into a unique and highly creative settlement agreement with the trustee. Some of the critical elements of the agreement were as follows:
- An agreed sharing of litigation proceeds relating to certain defendants against whom both Fairfield and the trustee were pursuing litigation. The impact is that Fairfield will benefit from a share of the trustee’s recoveries against a defendant, even if Fairfield has lost its own cause of action against that same defendant;
- An agreement to cooperate and assist in asset recoveries; and
- In exchange for a cash payment to the trustee, Fairfield received an asset of equal (and subsequently greater) value.
In addition, the trustee supported KRyS Global in seeking recognition of its appointment pursuant to Chapter 15 of the US Bankruptcy Code.
KRyS Global was forward thinking, resulting in the issue being identified immediately and a strategy put in place to resolve it.
Using a pragmatic approach, KRyS Global was able to negotiate an arrangement, which not only resolved the litigation commenced by the trustee against Fairfield (thus avoiding the costs and resources needed to defend such a suit), but also put in place a mechanism whereby the interests of Fairfield and the trustee were aligned and focused on bringing assets into the estate.