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18 December 2014
Foreign insolvency and bankruptcy professionals often turn their attention towards the British Virgin Islands. Its volume of asset-holding structures and network of connected service providers and directors make it a fruitful hunting ground. However, to what extent and in what circumstances will they enjoy recognition in the British Virgin Islands? This update outlines the different ways in which assistance can be provided, notably in light of the recent Privy Council decision in Singularis Holdings Limited v PricewaterhouseCoopers  UKPC 36.
In the aftermath of Rubin v Eurofinance  1 AC 236, insolvency practitioners were deprived of the golden thread of universalism that elevated the enforcement of judgments in insolvency proceedings above that of other foreign judgments. However, the ability of foreign office holders to seek assistance such as disclosure and to flex their muscles abroad continues to develop through both statute and the common law.
In Singularis, the Grand Court of the Cayman Islands appointed litigators over Singularis Holdings Limited, a company incorporated in the Cayman Islands. The liquidators subsequently obtained an order from the Supreme Court of Bermuda requiring PricewaterhouseCoopers, which had previously acted as Singularis' auditor, to provide certain information. The order was ostensibly made under what was termed a 'common law power' in the same terms as Section 195 of the Bermudan Companies Act 1981. Section 195 could not itself be used in this case because it applied only to domestic insolvencies. Under the corresponding common law power, the Supreme Court of Bermuda ordered PricewaterhouseCoopers to provide information that it could not have been required to provide under Cayman Islands statutory insolvency provisions. The Court of Appeal overturned the Supreme Court's decision. The liquidators appealed to the Privy Council.
The Privy Council upheld the Court of Appeal's decision and found that PricewaterhouseCoopers could not be ordered to provide the information sought by the liquidators. Importantly, each member of the board agreed that a court with ancillary insolvency jurisdiction cannot provide relief that would be unavailable in the court in which the office holder was appointed. In this sense, the Privy Council has dialled back the principle of modified universalism (under which assistance can be provided to foreign office holders in insolvencies), which first arose in Cambridge Gas Transportation Corporation v Official Committee of Unsecured Creditors of Navigator Holdings Plc  1 AC 508. It is now clear that the proposition in Cambridge Gas – to the effect that once foreign office holders are recognised, they can do whatever they would have been able to do if they had been appointed in a domestic insolvency – can no longer be supported.
However, the fact that modified universalism has been dialled back somewhat does not mean that foreign office holders cannot seek assistance from foreign courts. This is because common law powers are still being developed. In this regard, the board was split on the question of whether there is a general common law power to assist foreign office holders by ordering the provision of information. Lords Sumption, Collins and Clarke (the majority) considered that such a common law power has developed, although Lords Neuberger and Mance considered that this was a step too far. The majority's position was as follows:
This development is significant for the British Virgin Islands because the provisions in Section XIX of the Insolvency Act 2003 which deal with the provision of assistance to foreign office holders apply only to countries that have been designated under the legislation. Currently, only Australia, Canada, Finland, Hong Kong, Japan, Jersey, New Zealand, the United Kingdom and the United States have been designated. Accordingly, only office holders in insolvency proceedings that have been commenced in these jurisdictions can avail themselves of the specific assistance provisions. These provisions, while more limited than those available in recognised main proceedings under the United Nations Commission on International Trade Law Model Law, still provide invaluable tools to a foreign representative. For example, a court may authorise the examination of a connected person or order the delivery up of the debtor's property or its proceeds.
However, the judgment in Singularis indicates that foreign office holders in insolvencies that have been commenced in non-designated countries will now also be able to come to the BVI court to obtain information under the common law, provided that a similar provision exists in their jurisdiction. The position in the British Virgin Islands has been unclear on this point until now. In an unreported decision in which an application for assistance was made by a foreign appointee from Curacao (a non-designated country), the Curacao appointee was granted evidence-gathering powers. However, Justice Bannister's obiter comments in In the Matter of C (A Bankrupt) (BVIHC 0140/2010) concluded that the common law approach to recognition and assistance did not survive the enactment of Section XIX of the Insolvency Act because these provisions were clearly meant to be restrictive. Singularis now makes it clear that it will be possible for foreign office holders from non-designated countries to seek assistance under the common law, at least insofar as obtaining information is concerned.
What is unclear is the scope of the common law power to obtain information. Sumption provided some limits, outlined above. Mance, however, considered that the position was still unclear and additionally, in his dissent, opposed the development of what he described as:
"a common law power to 'haul' anyone before the court (to use Dillon LJ's words in Ex P Tucker), to be interrogated and to produce documentation on pain of being in contempt, simply because it would be useful for the foreign liquidator to be able to do so and might enable him to locate some assets (or better understanding of the company's affairs)"
He considered such a development to be a "step leap" from the enforcement of the rights to identifiable assets.
He noted that granting a foreign liquidator the right to obtain such information goes far beyond what is available to ordinary litigants under the Norwich Pharmacal jurisdiction or where disclosure is ordered as part of a freezing order. He also focused on the uncertainty as to what information can be sought on the basis of Sumption's distinction between "information which can permissibly be sought and evidence which cannot". It may well be that in light of these concerns, the BVI court will be cautious in its approach to the scope of the common law power.
It is also unclear whether the majority's willingness to develop the common law with regard to obtaining information indicates that there may also be a common law power for ancillary courts to grant assistance more generally. On the one hand, there seems little justification for a foreign office holder being able to obtain assistance in relation to the provision of information, but nothing further. There must therefore be room for arguing that, in accordance with the principle of modified universalism, the common law has developed or should be developed to provide the right to other types of assistance covered in Section XIX of the Insolvency Act. However, the problem with this is that it would amount to accepting that legislation which does not apply to foreign insolvencies commenced in non-designated countries should apply to insolvencies from these countries 'as if' they had been designated. This would run straight into Collins' admonition that:
"to apply insolvency legislation by analogy 'as if' it applied, even though it does not actually apply, would go so far beyond the traditional judicial development of the common law as to a plan usurpation of the legislative function."
This approach was rejected in the British Virgin Islands in In the Matter of C (A Bankrupt), where Bannister refused to grant a Hong Kong trustee in bankruptcy the powers that he would have had if he had been appointed under the Insolvency Act provisions that apply to domestic bankruptcies (and which would have conferred greater powers than those under the assistance provisions). He considered that the court "has no jurisdiction to confer upon a stranger powers which a statute confers only upon individuals accepting specified appointments under the statute".
Further, the board in Singularis (especially the dissenting judges) was at pains to point out the limited nature of the incremental development of the common law. In light of this, it may be that the common law power will be interpreted restrictively as applying only to assistance in relation to obtaining information.
Foreign representatives have access to other methods of disclosure in the British Virgin Islands that stand outside insolvency powers. For example, disclosure applications under Norwich Pharmacal and Bankers' Trust v Shapira principles are commonly before the BVI courts. Letters of request from foreign courts in support of live proceedings are also frequently deployed.
The decision in Singularis does seem to have settled the question as to whether foreign appointees from non-designated countries may seek assistance from the BVI courts under the common law with regard to their ability to gather information. Whether they will be able to obtain further assistance beyond this under the common law remains to be seen. This is, however, an area of the common law that is clearly ripe for development. What has always been the case (and this is not changed by Singularis) is that foreign office holders, whether from designated or non-designated countries, will not be able simply to come to the British Virgin Islands and obtain blanket recognition with a raft of associated powers (see Picard v Bernard L Madoff Investment Securities LLC BVIHCV2010/0140). Office holders will need to seek bespoke assistance and show that there is a specific need for whatever assistance they seek.
For further information on this topic please contact Andrew Thorp or Claire Goldstein at Harney Westwood & Riegels by telephone (+1 284 494 2233), fax (+1 284 494 3547) or email (email@example.com or firstname.lastname@example.org). The Harney Westwood & Riegels website can be accessed at www.harneys.com.
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