Further to our update in November 2014, there has been a further decision in relation to Fairfield Sentry Limited, the largest feeder fund that invested into the fraudulent Bernard L. Madoff Investment Securities.
The Applicants in this case were former shareholders of Fairfield Sentry Limited and Fairfield Lambda Limited, both of which were BVI feeder funds which were wound up following the discovery of Bernie Madoff's fraudulent activities. The Applicants had redeemed their shares in the companies before the fraud was discovered, and the Liquidators sought to recover these payments in the US proceedings. The Liquidators also sought Declaratory Judgment in the US proceedings that the redemption of the shares were voidable transactions under section 249 of the BVI Insolvency Act 2003 ("the Act").
The Applicants sought an order under Section 273 of the Act reversing or modifying the Liquidators' decision to pursue the US proceedings. Section 273 states that any person aggrieved by an act, omission or decision of an office holder conducting the insolvency procedure may apply to the court and the court may confirm, reverse or modify the act, omission or decision of the office holder.
The Applicants also sought an order to discharge or vary the previous orders authorising the Liquidators to bring the US proceedings, or they sought injunctions restraining the Liquidators in the US proceedings.
The Liquidators defended the application on the basis that Section 273 should be given a restrictive meaning and that they should only be restrained if their actions were “so utterly unreasonable and absurd that no reasonable person would have done it”. The Liquidators also argued that an injunction would not be appropriate as the US proceedings were not “vexatious and oppressive”.
Leon J of the BVI court held that a court should not interfere in the decision of a Liquidator except in exceptional circumstances. In relation to Section 273, the court held that only a party with legitimate interest in the relief sought could make an application.
The court held that it would only interfere with a Liquidator's decision where (1) there was a legal issue such as competing claims or priorities, (2) the Liquidator was acting outside his or her discretion; or (3) the applicant had no other recourse to challenge the Liquidator's decision.
The court found that the Applicants had an alternative recourse, in that they could allow the US court to rule on the claims, and as such, the court would not interfere with the Liquidators' decision, even if the outcome were to be different in the BVI. Further, the court found it was for the US court to decide if the claims would be more appropriate to be brought in the US or BVI.
Finally, in relation to alleged voidable transactions, the court stated that it was "difficult to see" that the US court had power to grant relief under section 249 pf the Act, but that it was appropriate for the US court to consider whether it had power to many any declaration under the Act.
The ruling mirrors the UK courts' decisions in similar circumstances where the UK courts are slow to interfere in decisions of officeholders without good cause.