What are the principal insolvency procedures for companies in the British Virgin Islands?
Are any of the procedures available on a provisional basis?
What requirements should be satisfied for the procedures to be pursued?
What are the procedures, and how long do they typically take?
Can any procedure be pursued without the involvement of the court?
What is the effect upon the control of the company and its assets during those procedures?
Is there an automatic moratorium, and, if so, when does it come into effect, and what is its effect?
Can a company be forcibly wound up other than when insolvent?
To what extent are the procedures designed to facilitate a rescue of a company's business?
Can the procedures be used to facilitate the sale of all or part of the insolvent company's business?
What are the principal insolvency procedures for companies in the British Virgin Islands?
The principal insolvency procedures are:
- liquidation (insolvent, voluntary or compulsory);
- creditors' arrangements; and
- schemes of arrangement.
Plans of arrangement and solvent liquidations are outside the scope of this summary. Receivership is dealt with in the Insolvency Act 2003 (the Act), but it is a method of enforcement for secured creditors, not an insolvency procedure. Part III of the Act, dealing with administration, is not in force.
Are any of the procedures available on a provisional basis?
Yes. A provisional liquidator can be appointed if:
- an application to appoint a liquidator (with good arguable grounds) has been made but not yet determined; and
- the company consents or the court is satisfied that it is necessary for the maintenance of assets or it is in the public interest. Importantly, following the decision in Constellation Overseas Ltd, a "light- touch" or "soft-touch" provisional liquidator can be appointed in aid of restructuring.(1)
What requirements should be satisfied for the procedures to be pursued?
There are several requirements for each procedure.
Compulsory liquidation
For compulsory liquidation, the requirements and conditions are the following:
- There must be an application by the company, a creditor, a member, the supervisor of an arrangement, the Financial Services Commission, or the attorney general.
- The potential grounds for an application are that the company is insolvent, the court considers it just and equitable to liquidate, or that it is in the public interest to do so.
- The company is insolvent where:
- it fails to comply with, or set aside, a statutory demand;
- the execution or process of a judgment, decree or order is returned unsatisfied;
- it is unable to pay its debts as they fall due; or
- the value of its liabilities exceeds that of its assets.
- The application must be served at least 14 days before the hearing and is typically heard on specified liquidation days (usually one or two Mondays per month).
- It must be advertised (in the British Virgin Islands and in any jurisdiction appropriate to bring it to the attention of creditors) not less than seven days after service and not less than seven days before the hearing.
- The application must be determined within six months of issuing unless, before then, an extension is granted.
Insolvent voluntary liquidation
The requirements of this procedure are:
- a resolution of 75% of the members (unless the M&As require a higher percentage);
- the prior written consent of a BVI-licensed insolvency practitioner; and
- no pending application before the court to appoint a liquidator.
Creditors' arrangement
The requirements of a creditors' arrangement are that the company must be insolvent, and a 75% majority by value of the creditors must approve the arrangement.
Scheme of arrangement
Finally, the requirement of a scheme of arrangements is that it must be approved by a majority in number and 75% in value of the creditors.
What are the procedures, and how long do they typically take?
Three procedures are possible, each within their own time frame.
Liquidations
When liquidating a company, the liquidator must:
- within 14 days of appointment, advertise their appointment, file a notice of appointment with the registrar, and serve notice on the company;
- within 21 days of appointment, hold a meeting of creditors;
- take possession of, protect and realise the company's assets, distribute the assets or the proceeds of their realisation to creditors, and distribute any surplus to the members; and
- provide all creditors and the registrar with a final report.
Depending on the nature of the assets and the adjudication of claims by creditors, the procedure can take from a few months to several years.
Creditors' arrangement
In the case of a creditors' arrangement:
- a proposal is made between creditors and the company;
- an interim supervisor is appointed (with notice to the registrar);
- a creditors' meeting occurs with the aim of approving the arrangement;
- a supervisor is appointed (again with notice to the registrar) in order to implement the arrangement; and
- any modification of the initial proposal requires adjournment of the creditors' meeting.
The time frame depends on the compliance and agreement of the creditors but can be relatively quick.
Scheme of arrangement
Lastly, the scheme of arrangement is a three-stage process: a court hearing convenes the creditors' meeting, the creditors meet and then a hearing takes place to seek approval.
This process can be relatively quick, subject to the notice requirements for the meeting (usually not less than 14 days).
Can any procedure be pursued without the involvement of the court?
Yes. Voluntary insolvent liquidation does not necessitate the involvement of the court. Also, a creditors' arrangement can be pursued without the involvement of the court.
What is the effect upon the control of the company and its assets during those procedures?
There are several effects upon the control of the company and its assets, depending on the different procedure.
Liquidation
Upon appointment by the members or the court, the liquidator receives custody and control of the assets of the company. The powers of the directors and members of the company cease, save for very limited exceptions.
Provisional liquidation in aid of restructuring
The day-to-day management of the company is generally left to the directors and managers of the company, subject to the terms of a court-approved protocol and the supervision of the provisional liquidator.
Creditors' arrangement and scheme of arrangement
The only effects are those agreed between the company and the creditors.
Is there an automatic moratorium, and, if so, when does it come into effect, and what is its effect?
Yes, there is an automatic moratorium. Upon the appointment of a liquidator, no one may continue or commence an action against the company or in relation to its assets or enforce or continue to enforce any right against or over its assets. This does not affect the rights of secured creditors.
Can a company be forcibly wound up other than when insolvent?
Yes, if:
- it does not have a registered agent;
- it fails to file any return, notice or document required to be filed under the Act;
- the registrar is satisfied that the company has ceased to carry on business;
- the registrar is satisfied that the company is carrying on a BVI business without having such licence, permit or authority;
- the company fails to pay its annual fee or any late payment penalty by the due date; or
- the court considers it is just and equitable, or in the public interest, that it should be wound up.
To what extent are the procedures designed to facilitate a rescue of a company's business?
Traditionally, the British Virgin Islands has essentially been a creditor-friendly jurisdiction. The purpose of liquidation is to release the company's assets and to make distributions according to the priority of creditors. It is not designed to rescue the company and there is no equivalent of Chapter 11 protection from creditors. However, the recent common law development in Constellation Overseas Ltd, permitting provisional liquidation in aid of restructuring, facilitates the restructuring of BVI companies and of multi-jurisdictional groups containing BVI companies.
Additionally, both creditors' arrangements and schemes of arrangement can facilitate a permanent or temporary rescue of the business.
Can the procedures be used to facilitate the sale of all or part of the insolvent company's business?
A liquidator has the power to sell the business and assets of the company.
Either a creditors' arrangement or a scheme of arrangement could include a proposal for sale.
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.
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