Absolute Capital Management seeks to head off Cayman lawsuit

Troubled hedge fund manager Absolute Capital Management says its proposals to restructure five of its funds in order to avoid having to take a loss on positions taken in small, thinly-traded equities are winning support from investors ahead of a deadline for feedback on Friday.

In a statement, Absolute Capital says it is making good progress in securing investor support for the funds' restructuring proposals, having received indications of support from substantially all of the shareholders, representing some 70 per cent of the shares of the funds in question, with which it has held informal discussions. Meetings and teleconference calls with the balance of fund investors are carried out this week.

The firm says it received notice on October of two petitions filed in the Grand Court of the Cayman Islands by John Bruhl, a shareholder in the Absolute European Catalyst Fund and Absolute Octane Fund, requesting the court to order that the two funds be wound up and Krys & Associates Cayman be appointed provisional liquidators.

The Absolute European Catalyst Fund and Absolute Octane Fund oppose the petitions and have been successful in having the applications for the appointment of provisional liquidators adjourned from the originally scheduled hearing date of October 10 to October 31 at the earliest.

The company says the delay will provide sufficient time for investors to make known their views on the proposed restructuring. In opposing the petitions, the funds have the support of several large investors who have made written submissions to the court and/or directed their own Cayman counsel to intervene.

In the meantime, the funds have undertaken not to modify the rights of shareholders without approval from shareholder meetings. Should the Absolute European Catalyst Fund and Absolute Octane Fund receive sufficient investor support for the proposals by Friday, the Absolute Capital will call extraordinary general meetings to seek formal approval for the modification of shareholder rights envisaged in the restructuring proposal and amendments to the funds' articles of association. Approval for the restructuring plans will require backing from shareholders representing at least three-quarters of the funds' shares at meetings that are likely to be held before October 31.

Nevertheless, a number of shareholders opposed to the restructuring plan has retained the London office of international law firm Simmons & Simmons to establish the Absolute Investors Action Group, and has advertised in the Financial Times for more investors to join them.