BRITISH VIRGIN ISLANDS Trends and Developments Contributed by: Matthew Freeman and Stuart Rau, Maples Group
In its judgment, the board identified that there are three categories of persons that may have standing to utilise provisions under insolvency legislation for aggrieved or dissatisfied persons to challenge deci - sions made by office holders. SS could not rely on the first category as he was neither a bankrupt nor a contributory, nor could he rely on the second category as he was not a creditor. Therefore, SS’s application could only be made out under the third category, which is engaged when a person’s legitimate rights or interests are directly affected by a decision taken by an office holder pursuant to powers conferred on the office holder that are peculiar to the applicable insolvency regime. In her judgment, Dame Janice Pereira (previously the Chief Justice of the Eastern Caribbean Supreme Court) confirmed that a number of factors are to be considered when determining whether a person can utilise the third category. Dame Pereira noted that SS was a former sole director of BCG and a defendant in the Main Proceedings. Secondly, she also determined that the liquidators’ powers were peculiar to the insol - vency regime, as their power to admit a claim is pro - vided by Sections 208 to 215 of the Act. Thirdly, the board had to consider whether the decision to admit the Claim directly affected SS’s rights or interest. SS submitted that the admission of the Claim directly affected his interest because, but for the admission of the Claim, the company would be solvent and the Main Proceedings seeking contribution from SS would not have been commenced. Therefore, reversing the admission of the Claim would inevitably discontinue the Main Proceedings. Further, that SS could defend the Main Proceedings should not negate standing under Section 273 of the Act. The liquidators submitted that the Main Proceedings were the most appropriate forum for determining the question of admissibility of the Claim. The board confirmed that the applicability of the third category requires specific analysis and will be fact- sensitive. In this instance, if the Claim was inadmissible, the Main Proceedings would end. The sole connecting
factor relating to SS was the existence of the Main Proceedings, and within such proceedings SS had the option of challenging the admissibility of the Claim. Therefore, SS’s interest was best described as a defendant with a contingent liability to contribute to the estate of the company in insolvency, which in turn is dependent on the validity of the liquidator’s admis - sion of the Claim. Consequently, the decision to admit the Claim did not directly affect SS’s rights. None of his rights or inter - ests directly touched upon or concerned the admin - istration of the insolvent estate. That SS could defend the admissibility of the Claim in the Main Proceedings was a reason not to broaden the scope of the third category. This decision brings welcome clarity to BVI insolvency law and to who may qualify as an “aggrieved person” under Section 273 of the Insolvency Act. The courts will be reluctant to widen the field so as to engage the third category, and careful analysis will be necessary to ensure that potential applicants meet the threshold test. Duty of directors when a company is insolvent The case of Byers and Richardson (as Joint Liquida- tors of Pioneer Freight Futures Company Limited) and Pioneer Freight Futures Company Limited (In Liquida- tion) v Chen Ningning has been before the BVI court and the appellate court for over a decade, and the case continues to develop the insolvency regime in the territory. In its most recent decision, the BVI Court of Appeal reaffirmed the rule in West Mercia that directors have a common law duty to consider and give appropri - ate weight to the interests of the company’s creditors when they know or ought to know that the company is insolvent or bordering on insolvency. The Court of Appeal reiterated the long-held rule that, once a company is insolvent or of questionable sol - vency, any loss to the general body of creditors is equated with that of the company. The court determined that when a payment is made by an insolvent company to one of its creditors, in prefer -
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