British Virgin Islands: Recognition Of Foreign Office Holders In The BVI: The Sequel

Unlike any of the other jurisdictions in which Appleby operates, the BVI is unique in having implemented, but not brought into force, the UNCITRAL Model Law. In the last edition of Resolution, Eliot Simpson contrasted the treatment which Irvin Picard, the Trustee in bankruptcy of the estate of Bernard L Madoff Investment Securities LLC, received in the Courts of the Cayman Islands and in the British Virgin Islands. He obtained recognition in the former, but not in the latter.

In this sequel, we explain the evolution of the jurisdiction to recognise foreign office holders in the BVI, and suggest that, were Mr Picard to apply again, he would most likely receive the order he sought.

The Insolvency Act 2003 contains two sets of material provisions. Part XVIII is entitled "cross border insolvency". It is, in short, an enactment of the UNCITRAL Code – but it is these provisions which have not been brought into force. As Bannister J explained:

Part XIX is, however, in force. Section 467 provides that a "foreign representative" may apply for an order under subsection (3). A "foreign representative" is defined as meaning a person appointed in a "foreign proceeding", which is defined as meaning a judicial or administrative proceeding in a "relevant foreign country." A "relevant foreign country" is one designated for these purposes.

These provisions were first tested by Irvin Picard, in Picard v Bernard L Madoff Investment Securities LLC (BVIHCV 140 of 2010). Picard sought an order for his own recognition either at common law, or under the Insolvency Act 2003. The bewildered reader may wonder how relief could have been sought under the Insolvency Act under provisions not then, and not now, in force. The answer was to be found in section 467(3), which confers the power to "make such order or grant or other such relief as [the Court] considers appropriate." The argument was that this was sufficiently widely crafted to encompass a power to grant recognition.

Bannister J disagreed. He went further and held that the enactment of a statutory regime had the implicit effect of repealing the common law power of recognition, so that there was no longer any common law power to recognise. Picard was instead granted limited relief under section 467(3) – albeit relief which was no doubt perfectly adequate on the facts of that application.

Bannister J had the opportunity to reconsider his approach in Picard in C (a bankrupt) (BVIHCV 80 of 2013). That was a case in which a Hong Kong appointed trustee sought to recover property of the bankrupt in the BVI.

Wrong Analysis

Bannister J, holding that part of his analysis in Picard had been wrong, accepted that the common law concept of recognition and assistance survived (by virtue of s.470 of the IA) in respect of "foreign representatives" (as defined in s.466) – in other words, those within a designated jurisdiction – but not otherwise. Bannister J concluded that it would be anomalous if officeholders within designated jurisdictions were unable to obtain recognition at common law, whilst those in non-designated jurisdictions could. To that extent, the reasoning that the common law was implicitly repealed by the statute survived. The position therefore seems now to be that recognition is available in respect of appointments in Australia, Canada, Finland, Hong Kong, Japan, Jersey, New Zealand, the United Kingdom and the United States of America, but not elsewhere.

Foreign Office Holder

In giving his judgment Bannister J reviewed a number of authorities on recognition at common law. He commented that "as the cases referred to by Lord Collins show, what the Court does when recognising foreign proceedings at common law, is to deploy its own powers in aid of the foreign proceedings. It does not invest the foreign office holder with powers of his own." He went on to conclude:

Picard was appointed within a designated jurisdiction.

Bannister J concluded that he had therefore been wrong to have refused him the relief sought.

A subsidiary, but related, issue which has arisen on a number of occasions recently is whether or not a foreign liquidator or receiver of a foreign parent company requires recognition in the BVI before being entitled to assume control of a BVI subsidiary, with a view to taking control of assets further down the structure.

Receiver's Intention

In one such case Appleby represented a receiver appointed by the Delaware Court of Chancery over a company incorporated in that jurisdiction, in order to enforce orders of the court. The appointment was therefore not on insolvency grounds. The receiver's intention was to exercise the voting rights of the company in its BVI subsidiary, replace the director, and take control of the asset-holding company in China. The replacement of the director in the BVI subsidiary by shareholder resolution was challenged by the former director by proceedings in the BVI court. He sought declarations that the receiver's actions were unlawful since he had not obtained recognition. Bannister J summarily dismissed the former director's claim.

We would suggest that in the non-insolvency background to that case, it is legitimate to compare the receiver to the holder of a power of attorney over the parent company, valid under the law of the place of incorporation, exercising the parent's right to replace the director. Recognition was therefore not required: what the Receiver was doing, he was entitled as a matter of pure title to do because, as a matter of Delaware law, he was validly in control of the parent and was therefore able to exercise its voting rights. That the Insolvency Act (by s.467) entitles a foreign representative to apply to court to compel delivery up of assets is irrelevant; this is, we suggest, likely to be regarded as a facilitative provision, to be used in the face of non-cooperation, rather than being the basis of the representative's right of possession or delivery.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.