In the recent decision of Kenneth Krys and Joanna Lau (as Joint Liquidators of Fairfield Sentry Limited in Liquidation) and Stichting Shell Pension Funds, HCVAP 2011/036, the ECSC Court of Appeal provided some clarification of its decision in Westford Special Situations Fund Limited v Barfield Nominees Limited et al HCVAP No. 14 of 2010.
The main issue at stake in Shell was the question of Shell’s submission of its proof of claim in the BVI liquidation anf whether this constituted a submission to the BVI jurisdiction in respect of the liquidation process. The Court of Appeal found that it was, and found that Shell ought not to be permitted to pursue Dutch proceedings where, by virtue of its pre-judgment garnishment orders, it might gain a priority over Sentry’s general body of creditors having claimed in the liquidation.
A side issue was that Shell’s claim was limited to a claim for redemption proceeds only. At the time of hearing, the liquidators of Sentry had not ruled on the proof of claim. The Court of Appeal surmised that this was likely due to the current state of the law post-Westford. In clarifying its decision in Westford, the Court of Appeal said that Westford held only “that a redeeming shareholder claiming redemption proceeds was not a creditor for the purposes of bringing insolvency proceedings under the Insolvency Act 2003 of the Virgin Islands.” Pereira J. noted that she had deliberately underlined this section of her judgment “to make clear that Westford did not decide that an unpaid redeeming member is not a creditor of the company.”
Her Ladyship noted that Westford “merely decided that as between outside creditors and redeeming members, who may be termed “inside” creditors, the Insolvency Act 2003 subordinated the “inside” creditor’s rights to those of the “outside” creditor.”
This was based on the reasoning that the Insolvency Act 2003 restricted the right of an inside creditor (whose claim was derived from the inside creditor’s character as member) to bring insolvency proceedings as a creditor in reliance on such a claim.
Her Ladyship further made clear that there was no statement in Westford which could or should be taken to mean that an unpaid redeemer is not a creditor of the company at all (footnoting by way of example that section 62(1)(c) of the BVI Business Companies Act 2004 provides in part that a redeeming shareholder ranks as an unsecured creditor of the company for the sum payable on redemption as from the date of redemption).