BVI court-appointed receiverships: draconian or versatile remedy?

Historically receiverships were viewed as a draconian remedy of last resort. Today, however, receivers are appointed to address a wide range of legal circumstances. This guide summarises key features of the court-appointed receiver.^[1]

A receiver is traditionally appointed to get in and hold or secure funds or other property for the benefit of those with an interest in the property. Receivership is primarily an enforcement procedure. It contrasts with liquidation in that it is not a collective insolvency procedure for the benefit of the general body of creditors or the company.

The primary sources of law regarding receiverships in the BVI are: (1) section 24 of the Eastern Caribbean Supreme Court (Virgin Islands) Act (Cap 80); (2) Part 51 of the Eastern Caribbean Supreme Court Civil Procedure Rules (Revised Edition) 2023; (3) Part IV of the Insolvency Act 2003, (4) Part VI of the Insolvency Rules 2005; and (5) common law and equitable principles derived from English law.

The process for the appointment of a receiver commences with a notice of application to the court supported by affidavit evidence. To exercise its discretion, the court needs to be satisfied from the supporting evidence that it is just and convenient for a receiver to be appointed. The court will determine whether to attach conditions to an appointment. On a case-by-case basis, the court will determine whether the applicant is required to provide a cross undertaking in damages.

The law has evolved to accommodate a wide range of circumstances in which the court will exercise its discretion to appoint a receiver. Following decisions like Parker v the London Borough Council of Camden  [1986] Ch 162 and Masri v Consolidated Contractors International (UK) Ltd (No 2)  [2009] QB 450, the BVI Court has appointed receivers by way of equitable execution to secure assets subject to a freezing injunction or to protect and preserve assets pending litigation. The BVI Court will follow English law to appoint receivers in the context of a joint venture where there has been a misappropriation of assets, fraud or bribes.

The types of assets over which a receiver may be appointed include:

• Shares
• Bank accounts
• Reserved rights under a trust
• LLP interests
• Contractual rights
• Beneficiary entitlement

The appointment of a receiver over the assets of a company does not affect its corporate existence, but it places the company's powers to conduct its business in abeyance. This means that the company, acting by its directors, has no power to enter into business contracts, sell, pledge or otherwise dispose of any property that is in the receiver's possession or under the receiver’s control. Otherwise, directors remain in office and their powers remain exercisable so far as they are not incompatible with the right of the receiver to exercise the powers conferred on them.

A court-appointed receiver is an officer of the court who is to be nothing more than the hand of the court with only the power and authority given to them by the court.

The receiver's primary duty according to the Insolvency Act, is to exercise their powers in good faith and for a proper purpose and in a manner which they believe, on reasonable grounds, to be in the best interests of the person in whose interest they were appointed. To the extent consistent with that primary duty, the receiver is to have reasonable regard to the interests of: (1) the company; (2) its creditors; (3) sureties who may need to fulfil obligations to the company; and (4) persons, claiming through the company, having an interest in assets over which the receiver is appointed. The persons listed at (1)-(4) are collectively referred to as Interested Parties.

On appointment, the receiver is required "forthwith" to notify the company and the Registrar of Corporate Affairs of their appointment.

The receiver's powers come from the order appointing them. Their express powers include the implied authority to do acts that are incidental to, or consequential upon, the express powers. Where the receiver needs to take steps to preserve an asset, but they do not have express or implied power to undertake the required task, they will need to seek the court's permission before proceeding.

Additionally, the Insolvency Act gives the receiver statutory powers that will apply unless expressly dis-applied by the court order. The receiver has power to: (1) demand and recover income generated by the secured asset, whether by action or otherwise; (2) issue receipts for income recovered; (3) manage, insure, repair and maintain the secured assets; and (4) exercise, on the company's behalf, the right to inspect books or documents relating to the secured asset, which is held by someone other than the company.

The appointment of a receiver over a company does not automatically vest the assets of the company in the receiver. They are entitled to possession of the assets over which they are appointed and the parties hold the assets for them as custodians. Under BVI law, if a receiver is appointed over shares, they will need to have the shareholder execute a share transfer form to effect the transfer of shares to them. If the receiver is to exercise voting powers to change control of a parent company or its subsidiary boards, this power must be expressly given as appointment as a receiver does not vest this right in the receiver. For property located in a foreign jurisdiction, the receiver would need to obtain possession of the foreign assets in accordance with the laws of that jurisdiction.

When exercising a power of sale, the receiver owes duties to the Interested Parties to sell for the best price reasonably obtainable and to segregate the monies they receive from the secured asset from other monies under their control. The receiver will be in breach of their duties if, on selling an asset, they fail to obtain the best price reasonably obtainable and fail to have reasonable regard to the Interested Parties. They will not be able to assert the defence that they acted as an agent of the company or under a power of attorney. They will also not be entitled to compensation or indemnity from the company's assets for liabilities arising because of their breach of duty in relation to the secured asset. Subject to the receiver fulfilling their duties to Interested Parties, they are personally liable for contracts they enter into to secure the asset. They are, however, entitled to indemnification from the assets of the company.

Only specific categories of persons may apply to the court to seek the removal of the receiver provided they can justify the removal. The Insolvency Act gives standing to the company, its directors, creditors or any person with a legitimate interest in the receiver’s removal. In JTrust Asia Pte v Konoshita  BVIHCMAP 22/2020, the BVI Court of Appeal confirmed the guiding principles for challenging a receiver's decision in relation to the exercise of their powers. The threefold considerations are: (1) whether the receiver has power to perform an act; (2) whether the receiver genuinely holds the view that the act will benefit the company and its creditors; and (3) whether the receiver is unconflicted and acting rationally.

The receiver is entitled to remuneration as agreed by the person appointing them or as may be fixed by the court. On completion of the receivership, the receiver should notify the company and file a notice of completion with the Registrar of Corporate Affairs.

^[1]This guide does not cover receivers appointed in the commercial context to enforce the security given over an asset by way of a mortgage or charge over shares. See How to enforce security in the BVI - outside of court and Enforcing security over mortgage assets in the British Virgin Islands for guidance on out-of-court receiverships.