Analysis & Insights
Welcome Guidance on Appointing Claimants to Intervene in Receiverships
20 Oct 2020
In a recent BVI Commercial Court’s decision in JTrust Asia Pte. Ltd. v Showa Holdings Co., Ltd and Ors, the Court provided welcome guidance and clarity on the standing of an appointing party to interfere in a receivership. Maples and Calder, the Maples Group’s law firm, acted for Showa, the successful respondent come counter-applicant in the matter, and the legal team was led by BVI Partner, Adrian Francis and Associates, Olga Osadchaya and Scott Tolliss.
JTrust is a company incorporated in Singapore. It commenced proceedings in the BVI in 2017, by which it claims approximately US$95 million from a BVI company, APF Group Co., Ltd. ("APF"), and a Japanese businessman, Mr Mitsuji Konoshita (together, the “Defendants”). JTrust obtained a worldwide freezing injunction against the Defendants in support of the BVI proceedings and subsequently obtained an order for the appointment of joint receivers for the purpose of identifying, protecting, preserving and recovering the assets of APF and its subsidiaries. Showa is a Japanese publically-traded company. It is not party to the receivership, but is affected by it by virtue of APF being its majority shareholder. On this basis and under the terms of the receivership order, the receivers have sought relief against Showa in the BVI, including but not limited to the removal and replacement of its board of directors.
In December 2019, the receivers successfully petitioned the Commercial Court to make an order permitting them to cause APF to exercise its voting rights to remove Showa's board of directors if Showa did not appoint an independent review committee (the "Committee") to review certain accounting practices and transactions that the receivers had identified as having taken place (the "Order").
Dissatisfied with the progress concerning the Committee's appointment, JTrust issued an application on 16 January 2020 seeking the following substantive heads of relief:
- that Showa or the receivers be directed to provide JTrust with an update as to the status of the appointment of the Committee;
- that the Order be amended to direct Showa and the receivers that all communication with the Chairman of the Committee be conducted by the receivers only (i.e. to the exclusion of Showa); and
- the receivers be directed to call an extraordinary general meeting of Showa in order to remove and replace its board of directors.
On 17 February 2020, Showa filed an application to strike out the JTrust’s application on the basis inter alia that JTrust did not have standing to make it.
By applying the principles articulated by Millet LJ in the Privy Council case of Deloitte & Touche AG v Johnson (which authority is binding in the BVI), Wallbank J directed himself to determine whether JTrust had standing to bring its application. In doing so, he first asked himself whether the power he was asked to exercise had been conferred by statute. In the circumstances, s.24(1) of the Eastern Caribbean Supreme Court (Virgin Islands) Act does not identify the category of persons who can apply for relief under this section; the inherent jurisdiction of the Court is equally wide. As such, the Judge found that JTrust was not disqualified from making the application.
The second consideration that the Court bore in mind is whether the applicant is the 'proper person' to invoke the Court's jurisdiction. Again being guided by Millet LJ's reasoning, Wallbank J found that the proper person is one who not merely has an interest in making the application or who may be affected by its outcome, but one who has a "legitimate interest in the relief sought".
In applying this test to each of the three heads of relief sought by JTrust, Wallbank J determined as follows:
- Wallbank J found that an appointing claimant, who might be in a position to provide important information or insights into the circumstances of a case that receivers might otherwise not be aware of or properly appreciate, has a legitimate interest in being provided with updates so that he can proffer his knowledge, if the court considers it appropriate. As such, JTrust had standing to apply for this head of relief. Indeed, the Judge found that the Court ought to generally treat an appointing claimant as a proper person to apply for updates to be given. In the circumstances, however, the Court declined to exercise its discretion to grant the relief on the basis that JTrust had in fact been provided with an update by Showa prior to JTrust issuing its application (thereby rendering the relief otiose).
- As regards the second head of relief, the Court held that JTrust was not the proper person to have sought it and therefore had no standing to apply for it. Wallbank J determined that the establishment of the Committee was a process that fell within the scope of the receivers’ investigations, and it is the receivers (and not JTrust) who have a legitimate interest in ensuring that this process is not perverted by undue influence. As such, the Court determined that as a matter of judicial restraint it should not hear JTrust in respect of this head of relief because, as per the learning of the Privy Council in Deloitte & Touche AG v Johnson, a general interest in the outcome is not enough. An additional factor of "considerable weight" that the Judge took into consideration is that there are in place two professional receivers, who are professionally advised both as to Japanese and BVI law, and who are at liberty to seek the Court's direction in respect of any course of action they choose. There was no evidence before the Court that the receivers needed JTrust's help to obtain this relief and it is the receivers who are best placed to know whether the relief sought was necessary. The fact that the receivers supported JTrust's application was irrelevant.
- On the basis of the same reasoning applied to the second head of relief, the Court found that JTrust did not have standing to ask the Court to direct the receivers to call an extraordinary general meeting of Showa to remove its board of directors.
The judgment acts as a sound reminder that, as a general rule in BVI receiverships, he who pays the piper does not call the tune. Indeed, a party’s standing to bring an application in the context of a receivership depends less on who the party is and more on its legitimate interest in the relief sought. While an appointing claimant certainly has standing to apply to change the appointed receivers or to terminate the receivership altogether, it should not assume that it has an entitlement to direct or interfere with an ongoing receivership. Upon appointment, the receivers, as officers of the Court who are most often professionally advised, have an obligation to ensure that the appointing order is complied with and enforced, and stand accountable not to their appointers but to the Court alone.
The Group's BVI office continue to assist Showa and other clients in numerous jurisdictions in circumstances involving the actions of officers of the BVI court, often operating in a distressed corporate setting.
For further information, please reach out to your Maples Group contact or one of the below contributors.
Partner British Virgin Islands
T: +1 284 852 3016
Associate British Virgin Islands
T: +1 284 852 3041
Associate British Virgin Islands
T: +1 284 852 3048