In a major development in BVI insolvency law and practice, the BVI Commercial Court has held in the case of Constellation Overseas Limited and 5 others (BVIHC (Com) 2018/0206 – 2012) that provisional liquidation is available to facilitate a restructuring. The decision brings the BVI broadly into line with Cayman and Bermuda, where restructuring provisional liquidations have been used to support a number of landmark cross-border restructurings in recent years.
In the proceedings six BVI companies (part of a group headquartered in Brazil) sought the appointment of provisional liquidators to support the group’s restructuring, which is driven by a Brazilian Judicial Reorganisation procedure. That was in turn supported by Chapter 15 proceedings in the USA. The companies required the protection against “predatory creditor claims” afforded by the moratorium imposed by a BVI provisional liquidation; there was no current intention to wind up the BVI companies or the group.
The judge found that the BVI Court has a “very wide common law jurisdiction” to appoint provisional liquidators for restructuring purposes, based on authority from the courts of England, Cayman and Bermuda (amongst others). He distinguished certain Hong Kong cases that suggested that provisional liquidation was only available in that jurisdiction where the objective was a liquidation.
The essence of a restructuring provisional liquidation is that the company remains in the day to day control of its directors, but enjoys protection from claims by individual creditors. The objective is to provide a better outcome for creditors than would be likely on a winding up. The judge also found that “there is persuasive authority in England for using [provisional liquidation] in support of… a foreign restructuring process.”
The key determining factors in favour of granting the order in this case were:
- the companies were cashflow (but not balance sheet) insolvent;
- there was a real prospect of a restructuring being achieved, resulting in a better outcome for creditors than would be the case on a winding up;
- the application was supported by a number of the group’s major creditors.
This ruling is to be welcomed as adding to the range of effective procedures available in the BVI to facilitate cross border restructurings.
However, the judge’s decision to import what may be described as “radical” innovations into a largely codified statutory insolvency regime may reignite the debate over the extent to which this is appropriate in insolvency law (see Singularis v PwC). As such, the decision will certainly influence the current debate in the BVI on reforms to the insolvency legislation.