Judge Andrew Corlett said that Quadris Environmental Forestry Fund PCC and its former directors had to answer for the fund’s financial situation, local paper IOMToday reported.
The fund owes between $17.5m ($22.4m, €20m) and £52m to its American lender, although the precise amount of its total debt is not known.
Quadris opened in 2001 and was managed by a company called Floresteca SA. It collected over £100m to invest in Brazilian teak plantations.
But, after it posted a $20m (£15.6m, €17.8m) loss in 2016, the following year it declared default in the US and the Isle of Man Financial Services Authority started investigating it.
The Isle of Man court heard from the UK’s Financial Conduct Authority, which recommended the fund to be wound up as it could not pay its debts.
Quadris has no assets or cash available to meet its financial shortcomings and no agreement could be reached between the fund and the lender.
Calls for the green fund to be forced to wind up also came from a petition brought by Ethical Investors, a UK-based ethical investment boutique.
Clients who invested in Quadris have been told that they will receive zero pence for every pound invested.