Back to Basics - Dispute Series
Winding-Up Petitions in the BVI – A Practical Guide For Creditors
Applying to appoint a BVI liquidator is one of the most cost effective and efficient tools available to creditors who want to recover debts or liabilities from BVI companies and is often a go-to strategy where simpler methods of debt collection have failed. Once appointed, a liquidator has a broad range of immediate powers including the ability to take possession and control of all of the company’s assets. In this guide, we highlight the process and the key principles for creditors to consider prior to and during the liquidator appointment process.
1. Appointment
Pursuant to s. 159 and 162 of the Insolvency Act, 2003 (as amended) (the Act), the Court may appoint an eligible insolvency practitioner as liquidator of a company if:
(a) the company is insolvent;
(b) it is just and equitable that a liquidator should be appointed; or
(c) that it is in the public interest for a liquidator to be appointed.
Although not the main focus of this guide, the appointment of a liquidator can also be achieved through a meeting with members of a company passing a qualifying resolution by a majority of 75%, or a higher majority if required by the memorandum or articles.
2. Standing as Creditor under the Act?
Pursuant to s. 162(2)(b) of the Act a creditor has standing to move a winding up petition. Pursuant to s.9(1) of the Act, a creditor is defined as a person who has a claim against the debtor (whether by assignment or otherwise) that is, or would be admissible in the liquidation of the debtor.
3. When is a Company Insolvent?
Under s. 8 of the Act, a company (or foreign company) is deemed to be insolvent if:
(a) the company is unable to pay its debt as they fall due;
(b) the value of the company’s liabilities exceeds its assets;
(c) it fails to comply with the requirements of a statutory demand for a debt that has not been set aside; or
(d) execution or other process issued on judgment, decree or order of a Virgin Islands court in favour of a creditor of the company is returned wholly or partially unsatisfied.
The pros and cons of issuing a statutory demand (see (c) above) are discussed in an earlier article Back to Basics – Disputes Series Statutory Demands in the BVI – Serve or Swerve?
4. Who can act as an Insolvency Practitioner?
The Act requires that at least one of the appointed liquidators (if more than one is appointed) needs to be a licenced and regulated insolvency practitioner that permanently resides in the BVI. Joint liquidator appointments are permitted (and are not uncommon) provided that they satisfy the requirements under s.483 of the Act.
5. What are the prospects of a liquidation application succeeding?
Winding-up petitions are frequently brought in the BVI’s Commercial Court. It is important to note that while the Court will consider all of the aforementioned criteria at each hearing – not only is this list not exhaustive – the Judge retains a broad discretionary power as to whether to grant the application with each case being determined on its individual merit. Since liquidations in the BVI are considered a class remedy, the Court will also take into consideration whether winding-up the company is in the best interests for all creditors as a whole, and not just for the benefit of an individual creditor.
Further guidance on the Court’s approach to winding up petitions can be gleaned from the recent Eastern Caribbean Court of Appeal decision in Sparkasse Bregenz Bank AG v Associated Capital Corporation BVI Civil Appeal No. 10 of 2002:
- If there is undisputed debt which is due and over the statutory limit, the Court will generally exercise their power and discretion to wind-up the company.
- The reason for an undisputed debt must be substantial and “genuine in both a subjective and objective sense”.
- The non-payment of debt “must honestly believed to exist” based on “substantial or reasonable grounds”.
- The dispute should be substantive enough for the Court to question the liability for the company to pay the debt. Therefore, the Court will dismiss the winding-up petition if there is a reasonably arguably defence to the debt.
Moreover, following the Privy Council decision in Sian Participation Corp (In Liquidation) v Halimeda International Ltd [2024] UKPC 16, the presence of an Arbitration Agreement does not negate the fact that the debt must be genuinely disputed on substantial grounds.
6. Appointment Timeline
Hearing dates are fixed at the Court office and the listing dates do vary depending on the circumstances and Court demands. However, an applicant can usually expect to receive a hearing date within 6-8 weeks of filing. This time period should also allow sufficient time for the Applicant to satisfy the statutory requirements (such as service and advertisement) to be completed.
If the application is not substantively opposed, the Court often appoints a liquidator at the first hearing. By contrast, if the petition is opposed (on more than just superficial grounds), the Court may be minded to adjourn the hearing to a later date.
7. Summary/Final Thoughts
Winding-up petitions continue to be one of the most effective mechanisms for creditors looking to recover existing debts. Our team is well placed to assist and advise in this regard and we routinely work with a broad range of BVI’s most experienced insolvency practitioners. We highly encourage any creditor (who is considering making such an application) to get in touch at the earliest opportunity so that we can advise on the most effective strategic approach. When assets are liquid and moveable, the timing of filing such an application (particularly if an interim appointment of a provisional liquidator is necessary) is often critical to ensure recoveries are maximised.
