In a major development in BVI insolvency law and practice, the BVI Commercial Court has held in Constellation Overseas Limited (BVIHC (Com) 2018/0206 – 2012), that provisional liquidation is available to facilitate a restructuring. The decision brings the British Virgin Islands broadly into line with Cayman and Bermuda, where restructuring provisional liquidations have been used to support several landmark cross-border restructurings in recent years.
In the proceedings, six BVI companies (part of a group headquartered in Brazil) sought the appointment of provisional liquidators to support the group's restructuring, which had been driven by a Brazilian judicial reorganisation procedure. This was in turn supported by Chapter 15 proceedings in the United States. The companies required protection against predatory creditor claims afforded by the moratorium which had been imposed by a BVI provisional liquidation; there were no intentions to wind up the BVI companies or the group at the time.
The judge found that the BVI court has a "very wide common law jurisdiction" to appoint provisional liquidators for restructuring purposes, based on authority from the courts of England, Cayman and Bermuda (among others). He distinguished certain Hong Kong cases, which suggested that provisional liquidation was available only in the jurisdiction where the objective was a liquidation.
The essence of a restructuring provisional liquidation is that the company remains in the day-to-day control of its directors but enjoys protection from claims by individual creditors. The objective is to provide a better outcome for creditors than would be likely on a winding up.
The judge also found that "there is persuasive authority in England for using [provisional liquidation] in support of… a foreign restructuring process".
The key determining factors in favour of granting the order in this case were:
- the companies were cash-flow (but not balance sheet) insolvent;
- there was a real prospect of a restructuring being achieved, resulting in a better outcome for creditors than would be the case on a winding up; and
- the application was supported by several of the group's major creditors.
This ruling is welcome as it adds to the range of effective procedures available in the British Virgin Islands to facilitate cross-border restructurings.
However, the judge's decision to import what may be described as 'radical' innovations into a largely codified statutory insolvency regime may reignite the debate over the extent to which this is appropriate in insolvency law (see Singularis v PwC). As such, the decision will certainly influence the current debate in the British Virgin Islands on reforms to the insolvency legislation.
For further information on this topic please contact Ian Mann at Harneys' Hong Kong office by telephone (+852 5806 7800) or email ([email protected]). Alternatively, contact Andrew Thorp at Harneys' Tortola office by telephone (+1 284 494 2233) or email ([email protected]). The Harneys website can be accessed at www.harneys.com.
Vicky Lord, Harneys Partner, and Richard Brown, Harneys Counsel, are additional authors of this article.
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