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Industry Updates

Foreign Insolvency Representatives - Widening the Scope of Recognition

18 Oct 2013

The subject of recognition of foreign insolvency representatives at common law and its interrelationship with statutory insolvency provisions has been a hot topic in the British Virgin Islands ("BVI") in recent years - as it has in England and other offshore jurisdictions, notably the Cayman Islands, Bermuda and Isle of Man - particularly in light of the Privy Council and English Supreme Court decisions in Cambridge Gas Transportation Corp v Official Committee of Unsecured Creditors of Navigator Holdings Plc and ors 1 and Rubin v Eurofinance 2

In the BVI, the question of whether common law recognition is available alongside the statutory provisions in the Insolvency Act, 2003 (the "Act") was apparently settled in 2010 in the case of Picard v Bernard L Madoff Investment Securities LLC 3 ("BLMIS").  In BLMIS, Mr Picard (the trustee for the liquidation of BLMIS) sought recognition as a foreign representative under Part XIX of the Act.

The BVI Commercial Court refused Mr Picard's application on the principal ground that it was not possible for a foreign representative to obtain recognition at large, and that foreign representatives are confined to the grant of specific discretionary relief under section 467.  In reaching this conclusion, the BVI Commercial Court considered the interplay of Parts XVIII and XIX of the Act.  Part XVIII contains cross-border insolvency provisions which essentially adopt the UNCITRAL model law on insolvency.  However, Part XVIII has never been brought into force.  Part XIX contains provisions allowing for foreign representatives in insolvency proceedings from a specified list of countries (each a "relevant foreign country") to seek orders in aid of those proceedings from the BVI courts.  The US is one of the "relevant foreign countries". 

The BVI Commercial Court decided that Parts XVIII (although not in force) and XIX together were a complete code for the recognition of foreign insolvency appointees, such that no common law basis for recognition survived.  As a consequence, only a foreign representative (as that term is defined in the Act) from a relevant foreign country could seek the assistance of the BVI Court, and that assistance would be limited to the relief available under Part XIX.  The Court made clear that it was open to Mr Picard to apply for specific relief under the relevant part(s) of section 467 as appropriate. 

However, in a recent case (In the matter of C (a bankrupt)4) the BVI Commercial Court was invited to reconsider BLMIS on the application of Hong Kong trustees in bankruptcy (Hong Kong also being a "relevant foreign country").  The applicants in that case applied for recognition at common law of the bankruptcy proceedings and their standing as trustees.  They asked that by way of assistance upon such recognition, they be granted the powers which they would have had if they had been appointed as bankruptcy trustees under the Act.  Alternatively, they sought orders under section 467 for declarations that they are the validly appointed Hong Kong trustees of the bankrupt's estate and entitled to deal with the bankrupt's estate in the BVI.  They also sought disclosure orders against various registered agents of BVI companies said to be owned by the bankrupt.

The applicants argued that BLMIS had been wrongly decided and that (1) common law recognition was still in principle available for all foreign insolvency appointees, and had not been legislated away by the Act and (2) the common law allowed the Court to provide a foreign appointee with the statutory remedies that would be available on a domestic insolvency.  

The Judge considered the historic line of English and Privy Council authorities culminating in Schmitt v Deichman 5, as well as the recent Cayman Islands Grand Court decision in Picard v Primeo Fund (unreported, 14 January 2013), and disagreed with the applicant's arguments other than in one important respect.  

As to the applicants' first argument, the Judge followed his decision in BLMIS and found that the common law approach to recognition and assistance does not survive generally in the BVI in parallel to Parts XVIII and XIX.  However, he found that (contrary to his decision in BLMIS), section 470 of the Act (found in Part XIX) preserves the common law principle of recognition and assistance for a foreign representative from a relevant foreign country, alongside the statutory provisions of Part XIX.

As to the trustees' second argument, the Judge disagreed with the applicant.  Critically, he found that "what the Court does when recognizing foreign proceedings at common law, is to deploy its own powers in aid of the foreign proceedings.  It does not invest the foreign office holder with powers of his own" and 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".

In making these findings, the Judge expressly departed from the judgment of Plowman J in Schmitt v Deichman and he also disagreed with the decision of Jones J in Picard v Primeo Fund to the extent that Jones J's decision went beyond the ambit of the types of common law assistance delineated by Lord Collins in Rubin

This new judgment would appear to settle the interplay of common law and statutory recognition in the BVI, at least until and unless the Court of Appeal or the legislature intervenes.  As to the latter, a revision to the Act including potential changes to the recognition regime is currently under review and will be watched with interest by practitioners, and reported here.

1 [2007] 1 AC 508

2 [2013] 1 AC 236

3 BVIHCV 0140 of 2010; 12 November 2010

4 BVIHCV 0080 of 2013; 31 July 2013

5 [2013] Ch 61

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