By virtue of his appointment, a liquidator steps into the shoes of the company and so the usual contractual, tortious and equitable remedies are actionable by the liquidator, acting in the name of the company. Claims are most likely to be based on the following:
- Contract: A proven breach of an officer’s express or implied contractual duties can potentially lead to an award of damages payable to the company. Helpfully, because many officers of BVI companies are professional ones, formal contracts setting out express duties are more likely to exist. The disadvantage of this is that such contracts are more likely to include indemnities and exclusion clauses.
- Tort: Officers are likely to owe separate tortious duties of care to a company. These are unlikely to differ radically from the scope of the contractual duties.
- Fiduciary duties: Perhaps most importantly, directors also owe fiduciary duties to a company, including the obligations to act for proper purposes and in the best interests of the company. Breach of these opens up a range of extremely useful and flexible remedies including restitution, rescission (if restoration to the original position is possible), an account of profits, payment of equitable compensation and/or replacement of property improperly acquired.
The BVI Angle
In the BVI, claims against directors and officers are particularly attractive because many of the officers will be professional appointees, either as individual or corporate directors. These entities frequently have access to professional indemnity insurance, making them a likely target for claims. Before bringing any claim, a liquidator will need to seek and obtain the permission of the BVI Court to pursue litigation. Although the BVI Court will examine such applications rigorously, the Court is likely to grant permission where there is a good arguable case against the proposed defendant(s).
The liquidator will need to consider whether the possible defenses of ex turpi causa non oritur actio (that a claimant cannot rely on his own illegal act as the foundation of the cause of the action) and/or contributory negligence may be raised. Wrongdoing on the part of the directors and officers may, under traditional company law principles, be attributed to the company. Arguably, the company is therefore technically relying on its own wrongful act as the foundation of the cause of action. Obviously a strict application of this principle could be unjust, as it would potentially prevent an "innocent" company from making a recovery against a wrongdoer. There is no BVI authority directly on point but, following the House of Lords’ decision in Moore Stephens v Stone Rolls Ltd  UKHL 39 (which is likely to be of persuasive authority in the BVI) the court will need to examine carefully the company structure – if a company also has numerous innocent officers and shareholders, it is less likely that this defence will succeed.
Another key issue to be aware of in the BVI is jurisdiction. Often BVI companies have professional directors and officers who are domiciled outside the BVI. To show jurisdiction a claimant must demonstrate one of the grounds within CPR7.3 such as a choice of forum clause, or the action being based, for example, on a breach of contract committed within the jurisdiction. Alternatively, the claimant may be able to sue a party domiciled in the BVI as of right (an "anchor defendant") and then use them as a springboard for permission to serve out against directors and officers domiciled elsewhere, if they are “necessary and proper” parties.
21st Century Developments: The Insolvency Act 2003
The BVI has been at the forefront of international insolvency law in developing an Insolvency Act tailored to the needs of offshore companies. The Insolvency Act 2003 (IA) identifies a number of remedies which can also assist liquidators in swelling the asset pool available to creditors and shareholders:
- s.254 – Delinquent Officers: If an officer (or certain other individuals) have misapplied or retained money or assets of the company, or are guilty of misfeasance or breach of fiduciary duty, then the Court can make an order that they repay or accounts for money or assets, or pay compensation to the company;
- s.255 - Fraudulent Trading: Where the Court is satisfied that, at any time before the commencement of the liquidation of the company, any of its business has been carried on (a) with the intent to defraud creditors or (b) for any fraudulent purpose, then the Court can declare a person knowingly a party liable to make a contribution to the company’s assets; and
- s.256 – Insolvent Trading: The Court can make an order against a director or former director if at any time before the commencement of liquidation, he knew or ought to have concluded that there was no reasonable prospect of avoiding insolvent liquidation. The Court can order that the person makes such a contribution as the Court considers proper to the company’s assets.
Who is a Director?
Usefully, s6 of the IA recognizes that a "director" includes a person occupying or acting in the position of director by whatever name called and a person in accordance with whose instructions a director or the board of the company may be required or is accustomed to act. Again, there is no BVI case directly on point, but the English decision in Michael Holland v Commissioners of Revenue and Customs  UKSC 51 is likely to be persuasive in the BVI. Broadly, in assessing whether an individual should be held personally liable, courts will look at whether the individual was doing anything which went outside the scope of his employment as professional director.
Another useful tool for liquidators is Part XI of the IA, which contains various powers enabling them to gather information and obtain evidence. Amongst other things they can request statements of affairs and seek information “reasonably required” from various individuals including directors and officers. Although they must be careful not to conduct a fishing expedition, liquidators can use these powers to obtain information prior to bringing claims to find out, at minimal cost, whether or not claims may be viable.
The Regulatory Angle
The IA also sets out circumstances in which the Official Receiver can apply to the Court for disqualification of a director.
Under section 262(1)(c) the court may make a disqualification order against a director or former director of an insolvent company if he has been guilty of fraud in relation to the company, or of any misfeasance or breach of duty as a director. The court must be of the opinion that the person’s conduct as a director makes him unfit to be concerned in the promotion, formation or management of companies or in their liquidation or dissolution.