Redemption of shares and consideration
Discounted valuation
Finality of foreign judgments

Redemption of shares and consideration

In a decision of interest to a number of jurisdictions where these types of claims have been made, the BVI Commercial Court recently handed down judgment in the claim brought by the liquidators of Fairfield Sentry Limited, a BVI fund which invested in Bernard Madoff's investment vehicle. (1)

Before Madoff's arrest, investors in Fairfield had invested and redeemed in the normal way, based on a net asset value (NAV) calculated on a presumed value of Fairfield's investments managed by Madoff's company. After Madoff was arrested, Fairfield went into liquidation and brought claims against redeemers, arguing that a mistake had been made as to the NAV.

In a decision on certain preliminary issues, the court decided that it was not open to Fairfield to seek to recover the price it had paid for the shares of redeeming shareholders simply because Fairfield's calculation of the NAV was based on information which subsequently proved to be unreliable for reasons unconnected with any of the redeemers. The decision was grounded on the finding that the redeemers had given Fairfield good consideration in redeeming the shares and this was an absolute bar on the claim. (2)

The court found in favour of Fairfield on a second preliminary issue on an interpretation of which documents constituted certificates as to the NAV in the articles of association.

Discounted valuation

In a recent test case parties agreed on a protocol to value the shares following a Section 176 forced redemption.

However, one side argued that it was not possible to contract out of the statutory appraisal process, and that 'fair value' for valuation purposes of a Section 176 forced redemption necessarily meant that there would be no minority discount (following a number of common law jurisdictions).

The judge held that there was no reason why parties should not be allowed to contract out of the statutory valuation machinery, and that there were no policy reasons that would demand it. Although probably obiter but nevertheless a strong indication of the court's view, Section 179's fair value did not necessarily mean no minority discount – notably because Section 179 applied across five different circumstances and fair value was calculated according to a number of factors depending on the business and circumstances of an individual case.


In another of a series of restoration cases, the court ruled that a company formally in voluntary liquidation before dissolution cannot be restored to liquidation following restoration, but instead must be put back in good standing, and that a restoration application can be granted in only limited circumstances:

  • Where an application to restore is made by or in relation to a company whose liquidation has previously been reported to the registrar as completed, it will generally be difficult to see why the application should be granted, other than for the purpose of enabling newly discovered assets to be distributed by the company or claims to be made against it which had not previously been made.
  • Other than in exceptional circumstances, there are no good grounds for avoiding the dissolution of a company that has been wound up simply so that its owners can resume carrying on business through it as if nothing had happened.

The judge also issued procedural guidance that the proper party to name in a restoration application is the registrar of companies, and that the registrar will be awarded costs for the public interest requirement for him to attend the hearing through counsel. However, the attorney general should not be named as a party unless a specific issue of bona vacantia (ownerless goods) arises.

Finality of foreign judgments

In an application to wind up a BVI company the BVI court restated the rules on when a foreign judgment creates an issue estoppel. Following The Sennar [1985] 1 WLR 490, the court found that there will be an estoppel when a foreign judgment is:

  • of a court of competent jurisdiction;
  • final and conclusive; and
  • on the merits.

The court found that the foreign judgment in this case was final despite a challenge to it by third parties in another court and a potential dispute as to the amount of the creditor's claim in a foreign liquidation of the debtor. The court held that these factors would not themselves affect the judgment.

For further information on this topic please contact Phillip Kite at Harneys by telephone (+1 284 494 6059) or by fax (+1 284 494 3547) or by email ([email protected]).



(2) Aiken v Short [1856] 1H&N 210 and Barclays Bank v WJ Simms Son [1980] QB 677.