Facts
Insolvency Act 2003
Comment


In the Three Arrows case,(1) the BVI Court has endorsed what is believed to be its first extra-territorial order summoning directors of a BVI company (in liquidation) to appear for private examination by joint liquidators.

Facts

Three Arrows conducted a high-profile and prominent cryptocurrency business as a digital asset hedge fund, reportedly operating assets in excess of $10 billion at one stage. Owing to the volatility in the crypto market, the company entered liquidation in June 2022 with significant liabilities.

Upon a company entering insolvent liquidation, it is paramount that officers of the insolvent company urgently coordinate with the liquidators so that immediate steps can be taken to protect and secure what remains of the company's assets. Without this assistance, a liquidator must build the company's books and records from scratch, which not only wastes valuable time and increases costs, but also puts any unsecured assets at considerable risk.

The founders of Three Arrows are Mr Su Zhu and Mr Kyle Davies, and they remained in office as directors of the company prior to its insolvency. It became clear soon after the joint liquidators' appointment that the founders were not going to cooperate or lend their assistance to the ailing company in any meaningful way, particularly after the founders failed to respond to a section 276 Notice (under the Insolvency Act 2003), requiring them to prepare and submit a statement of affairs of the company. Failure to comply with a section 276 Notice alone is an offence under the Insolvency Act and carries a fine for non-compliance.

Insolvency Act 2003

Section 282 of the Act gives liquidators a power where, by giving notice in writing, certain individuals who are thought likely to be in possession of relevant information concerning a company's affairs (including its directors) are required to:

  • provide information;
  • attend on the office-holder; or
  • be examined on oath.

A failure to comply with such a notice without reasonable notice constitutes an offence under section 282(3) of the Act. In addition, section 284 of the Act provides for applications to be made for the same persons (including the company's directors) to be examined before the Court.

In the present case, despite multiple further requests, the founders did not cooperate with the joint liquidators, despite the clear and pressing need for them to do so. The joint liquidators accordingly felt compelled, in fulfilment of their duties, to apply to the BVI Court to seek an order summoning the founders for examination. While section 284 of the Insolvency Act is clear that such a power exists, there are no reported cases of directors, who are resident outside of the British Virgin Islands, being compelled to appear before the BVI Court.

Comment

It is surprising that there is no existing authority confirming the extra-territorial effect of section 284 – particularly in a jurisdiction where hundreds of thousands of offshore companies are run by directors who reside outside of the country. Indeed, the present case shows the stark need for liquidators to have access to such powers.

To date the Court has not rendered a written judgment and the order was obtained ex parte. However, confirmation of the availability of this power to a liquidator's arsenal will come as welcome news to the many prominent insolvency practitioners in the British Virgin Islands.

For further information on this topic please contact Daniel Mitchell, Grant Carroll or Brian Lacy at Ogier by telephone (+1 284 852 7300) or email ([email protected], [email protected] or [email protected]). Alternatively, please contact Justin Davis at Ogier's Hong Kong office by telephone (+852 3656 6000) or email ([email protected]). The Ogier website can be accessed at www.ogier.com.

Endnotes

(1) BVIHC(COM) 2022/0119, Russell Crumpler and Christopher Farmer as Joint Liquidators of Three Arrows Capital Ltd (in liquidation) v (1) Zhu Su (2) Kyle Davies.