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Abraaj Holdings files for provisional liquidation

26 June 2018
Managing resource
In response to the petitions for the liquidation of Abraaj Holdings ("Abraaj") submitted by Kuwait's Public Institution for Social Security ("KPIFSS") and Actus Fund, Abraaj has filed for provisional liquidation in the Cayman Islands.

Points to note:

  • With the support of its secured creditors, Abraaj has filed for provisional liquidation in the Cayman Islands.
  • PwC Corporate Finance and Recovery (Cayman) and PwC have been appointed as joint provisional liquidators and a moratorium on all unsecured claims has been implemented.
  • Abraaj has now reached agreement on principle terms for the sale of its Latin American, Sub-Saharan African, North African and Turkey funds management business and its limited partnership interest in underlying funds to Colony Capital.
  • Amanat Holdings is also in talks with Abraaj for the acquisition of its stake in Middlesex University Dubai campus.
  • An arrest warrant has been issued against Arif Naqvi, likely indicating creditors are trying to apply pressure where possible to circumvent the moratorium.

Provisional Liquidation

Abraaj has been under scrutiny for allegations of financial mismanagement of its $1 billion healthcare fund. At the behest of Abraaj, and subsequently of its investors, investigations into Abraaj's dealings were conducted separately by both KPMG and Deloitte. It was ultimately uncovered that whilst Abraaj had commingled approximately $95 million's worth of funds due to cash-flow problems, no evidence of embezzlement was found.

This spurred the separation of Abraaj Investment Management, the group's fund management business from parent company Abraaj, and the appointment of Omar Lodhi and Selcuk Yorgancioglu as co-chief executives in the stead of Arif Naqvi, Abraaj's founder.

On June 3rd, Abraaj defaulted on a $100 million loan to KPIFSS. KPIFSS has provided Abraaj with $738.1 million in loans and investments, of which only $346.2 million has been repaid to date.

Amid concerns that Abraaj's financial position may further deteriorate, KPIFSS and Actus Fund filed petitions in the Cayman Islands for the liquidation and winding-up of Abraaj.

Before the concerned court could deliver its decision on the petitions, Abraaj filed an application for provisional liquidation. The application was made with the support of Abraaj's secured creditors, who stated their desire for provisional liquidators to be appointed in order to formulate and implement a restructuring of Abraaj's liabilities.

Abraaj's application for provisional liquidation has been accepted, with the appointment of Simon Conway of PwC Corporate Finance and Recovery (Cayman) Ltd and Michael Jervis and Mo Farzadi of PwC as joint provisional liquidators. In addition, a moratorium is now in effect on all unsecured claims against Abraaj.

Court Supervised Restructuring

Abraaj has reached an agreement for the sale of its Latin American, Sub-Saharan African, North African and Turkish fund-management businesses, as well as its limited partnership interest in underlying funds to Colony Capital. The transaction has received in principal regulatory approval and is expected to close upon approval from the Grand Court of the Cayman Islands.

In addition, Abraaj is in advanced talks with Amanat Holdings for the sale of its stake in Middlesex University Dubai campus for approximately $100 million.

Creditors' Rights

Under the Companies Law of the Cayman Islands (the "Companies Law"), the rights of secured creditors and their ability to enforce security over the debtor's charged property are unaffected by winding-up proceedings and the implementation of a moratorium. 

Therefore, subject to the terms of the security documents in place, Abraaj's secured creditors are entitled to take enforcement action without the need to seek the permission of the court or the joint provisional liquidators. However, where the charged property does not raise sufficient proceeds to discharge the debt, the balance will be classified as an unsecured debt and the creditor will be ranked as an unsecured creditor.

Conversely, unsecured creditors cannot take enforcement action against debtors during provisional liquidation unless they are granted permission by the court. However, this does not necessarily preclude the creditors from taking legal action in jurisdictions other than the Cayman Islands.

On-going Updates

An arrest warrant has recently been issued against Arif Naqvi by a UAE public prosecutor in light of a cheque which was issued by Abraaj as partial security for loans of approximately $300 million. The Sharjah Court judge is set to rule on whether the cheque was issued without the necessary funds on June 28. If found guilty, Mr Naqvi and his colleague Muhammad Rafique Lakhani may face custodial sentences.

It is very likely that unsecured creditors will try to apply pressure wherever they can in order to try to gain an advantage over secured creditors.

Further Reading