BVI Court utilises provisions of BVI Arbitration Act for the first time to appoint Receivers from Grant Thornton over a BVI company
In a landmark decision, the BVI Court has for the first time used the provisions of the BVI Arbitration Act to appoint individuals from Grant Thornton BVI and Grant Thornton Vietnam as receivers over a BVI company. The receivers were appointed to preserve value pending the outcome of foreign arbitration proceedings.
The applicant was involved in foreign arbitration proceedings and the defendant in those arbitration proceedings owned the shares of the BVI company. The applicant was ultimately able to satisfy the BVI court that there were genuine reasons for its concerns about the dissipation and preservation of the assets owned by the BVI Company and on that basis the Court made the appointment.
The Receivers used their standing to change the directors and legal representatives of the group companies to gain control over the full structure.
The decision shows how parties can seek interim relief against BVI companies to preserve the value of assets pending the outcome of foreign arbitral proceedings.
Power of BVI courts under the Arbitration Act 2013
Under section 43 of the Arbitration Act 2013 the Court may, in relation to any arbitral proceedings which have been or are to be commenced in or outside the Virgin Islands, grant an interim measure. Section 33 defines types of interim measures available with subsection 33(2)c providing a means of preserving assets out of which a subsequent award may be satisfied.
The aim therefore of the court appointed receiver was to preserve the assets of the defendant subject to obtaining an Arbitration Award which would then be registered in the BVI and enforced against the UBO’s shares in the BVI Defendant company.
There was a concern by the creditor that there was a real risk of a significant loss in value of the project if a receiver wasn’t appointed immediately to oversee the underlying business and take active steps – including obtaining critical funding for the underlying business - preserve its value.
The judge was convinced of the need for a receiver and ordered that receivers were appointed over the shares of the BVI defendant company on an interim basis for the purpose of preserving its value. The order went on to state that the Receivers may exercise in relation to the Shares all the powers, authorities and things which they would be capable of exercising (including without limitation voting rights) if, and as if, they were the absolute beneficial owners of the same.
Using these powers the Receivers were able to change the directors of the subsidiary companies and change the legal representatives to gain control over the full structure and, with the Court's sanction, borrow the funds requried to ensure that the business remained a going concern and a valuable asset against which the subsequent award could be enforced.
This is clearly a powerful and flexible tool for creditors to deploy as part of their asset recovery strategy and the BVI Courts have once again shown themselves as willing to assist creditors and in this case putative creditor rights. It is particularly useful where action is required to be taken in order to preserve the value, rather than merely freezing the assets.
This process can also be used in other jurisdictions where equivalents to Arbitration Act is in effect. Similar processes have been used in Hong Kong / China disputes.