Can directors or shareholders be required to contribute to the liquidation estate?
What liability can directors or other officers attract in respect of an insolvent company?
In what circumstances can directors be disqualified as a consequence of a company being wound up?
This Q&A on contributions to liquidation estate and liability of officers is part of a series on restructuring and corporate recovery jurisdiction in the British Virgin Islands.(1)
Can directors or shareholders be required to contribute to the liquidation estate?
Yes, directors or shareholders are required to contribute to the liquidation estate in the case of:
- delinquent officers (misapplication of assets, misfeasance or breach of duty);
- fraudulent trading (intention to defraud creditors or the company had some other fraudulent purpose); or
- insolvent trading, namely when the director knew or ought to have known that there was no reasonable prospect of avoiding insolvency (unless they also took every reasonable step to minimise loss to creditors).
What liability can directors or other officers attract in respect of an insolvent company?
The liability differs according to their different roles.
Delinquent officers
Possible orders against delinquent officers are:
- to repay, restore or account for money or other assets;
- to pay compensation; or
- to pay interest.
Fraudulent trading or insolvent trading
The court may order the payment of a contribution to the company's assets.
In what circumstances can directors be disqualified as a consequence of a company being wound up?
Directors can be disqualified when they have been convicted on indictment of an offence:
- in connection with the promotion, formation, management or dissolution of a company that is or becomes insolvent; or
- under the act that related to a company that at any time becomes insolvent.
A director can also be disqualified when they:
- had an order for fraudulent trading or insolvent trading made against them;
- are guilty of fraud in relation to an insolvent company or of any misfeasance or breach of duty to it as a director; or
- in the opinion of the court, conducted themself as a director of an insolvent company (and other companies) in such manner as to make them unfit to be a director.
For further information on this topic please contact Brian Lacy, Nicholas Brookes, Anthony Oakes or Ray Wearmouth at Ogier by telephone (+44 1481 721 672) or email ([email protected], [email protected], [email protected] or [email protected]). The Ogier website can be accessed at www.ogier.com.
Endnotes
(1) For the previous articles in the series, please see:
- "Restructuring and corporate recovery jurisdiction guide for British Virgin Islands: domestic procedures";
- "Restructuring and corporate recovery jurisdiction guide for British Virgin Islands: cross-border assistance"; and
- "Restructuring and corporate recovery jurisdiction guide for British Virgin Islands: avoidance transactions."