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First reported BVI Court order to pool liquidation estates

Grant Thornton has made the first published application to the Court in the British Virgin Islands to pool/notionally pool the assets and liabilities of three different liquidation estates in order to allow for a more cost-efficient running of the estates and to enable accelerated distributions to creditors.


In or around 1999, it was discovered that Paulo Maluf, the former Mayor of Sao Paulo, and other closely related to him had perpetrated a wide-scale fraud against the Municipality of Sao Paulo (the “Municipality”) under which around US$200 million was stolen from the Municipality's Treasury through bribes, kick-backs, secret commissions and other fraudulent payments in connection with a major public works road construction project (the "Fraud").

Grant Thornton have recently been appointed by the BVI Court to three BVI companies involved in the Fraud (the “Companies”).

Our investigations have shown that the Companies were owned and controlled by the Malufs and created for the sole purpose of receiving and laundering the proceeds of the Fraud. The only material creditors of the Companies are the Municipality and the Federal Republic of Brazil (the “Brazilian Creditors”), who have a significant claim against the Companies on a joint and serval basis.

It was evident from our investigations that the affairs, assets and liabilities of the Companies were inherently intertwined and the Companies had effectively been run as one entity. Further, the Companies had significant claims against each other. Trying to disentangle the affairs of the Companies to fully investigate and establish their claims against each other would be a very costly and artificial process of no benefit to the Brazilian Creditors. 

Whilst the Companies have valuable assets and causes of action, only one estate has liquid assets. As a result of this, as set out in our prior article, two of the liquidations were being funded by a combination of i) a funding facility from Grant Thornton and ii) the professionals providing their services on an unfunded (or partially unfunded) basis.

In view of the above dynamics, we needed a mechanism that would enable us to i) consolidate the cost and asset position across the estates, ii) override the inter-company positions and concentrate on running the estates as efficiently as possible and iii) allow us to make payments to the Brazilian Creditors as quickly as possible.

Our solution

To achieve this, we applied successfully to the BVI Court for an order that the estates of the Companies be treated as being, and be, notionally pooled for the purposes of inter alia the determination of distributions and the payment of fees and expenses (the “Pooling”).  The judgement will be uploaded to the Eastern Caribbean Court website in due course.

The Pooling will allow the liquidations to be managed on a more cost effective basis and crucially will allow us to focus efforts on returning assets to the Brazilian Creditors rather than expending time and expense investigating and establishing the competing claims between the Companies.

As a result of this important ruling, we will be making a significant interim distribution to the Brazilian Creditors shortly.

Once again, we welcome this decision from the BVI Court, which clearly demonstrates the approach the BVI Court adopts in assisting office holders to effectively investigate estates which have been used as vehicles of fraud.

This novel approach once again demonstrates Grant Thornton’s innovative approach to progressing effectively large and complex liquidation and recovery matters.