Insolvent liquidations in the British Virgin Islands

Liquidations in the British Virgin Islands can be either an insolvent liquidation governed by the Insolvency Act 2003 (as amended), or a solvent liquidation governed by the BVI Business Companies Act (as amended). This article provides a brief overview of insolvent liquidations.

Insolvent liquidation

The purpose of an insolvent liquidation is to bring a company’s affairs to an orderly end by settling the company’s debts and other affairs, as well as taking possession of any company assets and distributing them. An appointed liquidator can also bring claims to set aside certain transactions entered into by the insolvent company before it went into liquidation.

Under the Insolvency Act, a company will be considered insolvent in the BVI if, inter alia, the company fails to comply with the requirements of a statutory demand (which has not been set aside) or the company is unable to pay its debts as they fall due.

In the BVI, the appointment of a liquidator over an insolvent company under the Insolvency Act can be achieved by way of either a qualifying members’ resolution, or an application to the BVI court.

If an application for a liquidator’s appointment has been filed and either not yet determined by court, or withdrawn, the court may, on application, appoint the official receiver or an eligible insolvency practitioner as the provisional liquidator of the company.

Such interim relief can be utilised where, for example, there is an urgent need to preserve the company’s assets.

The court may appoint a provisional liquidator if either the company consents, or the court is satisfied that the appointment of a provisional liquidator is necessary to maintain the value of assets owned or managed by the company, or it is in the public interest.

Effects of liquidation

Once a liquidation process has commenced, some of its effects include: the liquidator has custody and control of the company’s assets; and the company’s directors and other officers remain in office, but they cease to have any powers, functions or duties (other than those required or permitted or authorised by the liquidator).

Liquidator duties

The principal duties of a company liquidator include: to take possession of, protect and realise the company’s assets; and to distribute the assets or the proceeds of realisation of the assets.

Notice of appointment

A liquidator shall provide notice of their appointment and shall, within 14 days of the date of their appointment:

• Advertise their appointment;
• File notice of their appointment with the Registrar of Corporate Affairs;
• Serve notice of their appointment on the company; and
• If they have been appointed in respect of a company that is or has been a regulated person, serve notice of their appointment on the Financial Services Commission.

A liquidator who contravenes these requirements commits an offence.

General powers

Liquidators of a BVI company have powers to carry out the functions and duties of a liquidator and the powers conferred on them by the Insolvency Act. The liquidator will have the powers specified in schedule 2 of the Insolvency Act, which include the power to pay any class of creditors in full and the power to commence, continue, discontinue or defend any action or other legal proceedings in the name and on behalf of the company.

Termination of liquidation

The liquidation of a company terminates on the first occurrence of:

• The making by a court of an order terminating the liquidation, or such later date as may be specified in the court order;
• The filing by the liquidator of a certificate of compliance, as required by the Insolvency Act, if appropriate; or
• The making by a court of an order exempting the liquidator from filing a certificate of compliance.

An application can be made to court to terminate a liquidation. This may be made by the liquidator, a creditor and a director, among others. The court may, at any time after the appointment of a liquidator of a company, make an order terminating the liquidation if it is satisfied that it is just and equitable to do so.

The liquidator will have certain statutory administrative tasks after completing their duties in relation to the liquidation of the company. The liquidator shall, inter alia, file with the registrar a copy of the final report and a statement of realisations and distributions sent to the creditors and members of the company.

Edmond Fung is a senior legal manager at Loeb Smith Attorneys in Hong Kong.