Background on CHYS & CPN Administration and FAQs on the Administration Process

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29 November, 2021

CHYS & CPN Administration

Background on Administration

Cytonn Investment Management PLC offers over 12 different portfolios across our various products in real estate, regulated products, and privately offered investment products.

The onset of Covid-19 in 2019 strained the liquidity of real estate funds globally because there was increased demand for cash from real estate funds and reduced inflows into real estate funds; real estate being an illiquid asset, real estate funds quickly became illiquid, see our statement released at the onset of the pandemic here. Given the illiquidity of the funds, the Board of Investors invoked the Force Majeure clause hence the 15 month moratorium (from March 2020 to June 2021) for our two real estate funds, that is, Cytonn High Yield Solutions (CHYS) and Cytonn Project Notes (CPN); during this moratorium CHYS and CPN were estimated to be able to service 50% of their interest obligations.

While CHYS was established and named in consultation with management of Capital Markets Authority (CMA) once the moratorium was in place, CMA management orchestrated a sustained negative publicity campaign against CHYS, ostensibly to dissociate themselves from the fund. The negative publicity campaign by CMA hit a crescendo with a frivolous criminal complaint calculated to totally muddy the waters; no fund can remain operational with such negative publicity. The effects of the incessant negative publicity driven by CMA management, in an already very difficult Covid operating environment proved a lot more damaging to the funds and their investors than Covid; inflows plummeted, outflows escalated, investor confidence in the funds was eroded leading to closure of the funds by the Board of Investors.

Following the closure, a few investors took legal steps that would essentially put them ahead of the other investors in terms of recovery of investments. To protect the interest of all investors, the Board of Investors recommended the funds proceed to administration to give them room to restructure and refund investors and also to equally protect the interest of all investors.

FAQs on Administration

What is Administration?

It is important to start by pointing out that Administration is not liquidation or receivership.

Administration is a procedure that allows for the reorganization of a company/fund or the realization of its assets under the protection of a statutory moratorium. When a fund enters into administration, a licensed insolvency practitioner is appointed as the fund’s administrator. The administrator takes over the control of the fund’s business and assets from the directors, in order to achieve one of the statutory purposes of administration which are:

To maintain the fund as a going concern,
To achieve a better outcome for the fund’s creditors as a whole than would likely to be the case if the fund was liquidated (without first being under administration),
To realize the property of the fund in order to make a distribution to one or more secured or preferential creditors

Why was it important to put CHYS and CPN under Administration?

To create a conducive environment that allows for a restructuring to turn around performance of the two funds and pay back investors in the long run. Administration also protects all investors equally.

Do clients continue to earn interest during Administration?

No, Client Investments do not continue earning interest during administration.

Is there a difference between Pre and Post Covid when it comes to administration?

There is no difference between pre-covid and post Covid Investors within CHYS and CPN Funds because the entire fund has now been put under administration, something that the board and management had not foreseen at the time of distinguishing between pre and post.