Section 1782 of Title 28 of the United States Code (“1782 Discovery”) is an extremely powerful discovery tool available to Liquidators in the BVI to obtain Court ordered discovery from parties in the United States.
Section 1782 allows the relevant Court in the US to make an order against an individual / entity in the United States for production of records (or to be deposed) for use in a foreign proceeding (including a BVI liquidation).
In order to obtain Section 1782 relief there is no need to have commenced a bankruptcy proceeding in the US nor to have commenced a claim in the US. An applicant for 1782 Discovery need only show three things:
1 It is an “interested person” in a foreign proceeding (a BVI liquidator is such a person);
2 The proceeding is before a foreign “tribunal” (the appointment of a liquidator by the BVI Court meets this test); and
3 The person from whom evidence is sought is in the district of the court before which the application has been filed.
Whilst 1782 Discovery has extremely broad applications, this article focuses mainly on its use to obtain the US dollar banking history of a BVI company (and parties associated with it) and how this can be used to identify bank accounts held by the company, investigate where monies originated from, how funds were expended, to identify other assets held by the company and to identify parties who acted for or on behalf of the company.
When used correctly, 1782 Discovery can be an extremely useful tool in a Liquidator’s arsenal.
1782 to obtain US$ banking transactions
One key action a Liquidator will want to undertake shortly following appointment is to identify all bank accounts the company holds / held in order to secure any credit balances held for the company and to enable him or her to undertake a detailed forensic analysis of the company’s banking history to inter alia determine how the company’s cash has been used, to identify any instances of misappropriation, to identify any potential assets, and to identify related parties and professionals who acted for the company.
The issue though is often that Liquidators start with very limited information and it can take some time to individually identify all relevant bank accounts and obtain information from the banks if they are in un-cooperative jurisdictions. This lack of expediency may allow the subject of the liquidation to take steps to make whatever funds or assets may be available in those jurisdictions even more difficult to collect.
Discovery from entities or persons in the US is particularly important because BVI companies often undertake business in United States dollars (“US$”). All bank transactions in US$ made anywhere in the world must pass through an “intermediary bank” located in the US. Even if the transaction does not originate or conclude in the US, if a payment is made to the BVI company in US$, both the incoming and outgoing transfers would pass through a U.S. intermediary bank.
1782 Discovery allows the Liquidator to obtain, via a subpoena from the relevant US Court, details of all transactions (and relevant supporting transactions) processed by each the intermediary banks. This information is normally provided in spreadsheet form and can be easily analysed by the Liquidator.
Whilst 1782 will not provide details of non US$ denominated transactions, it is a quick and efficient way to obtain a full history of the company’s US$ denominated transactions. Furthermore, many of these transactions go through a clearing house for wire transfers, than can be subpoenaed, and will often produce information leading to potential accounts in other jurisdictions.
The ability to obtain this information via one application to the US Court can save significant time and costs vs trying to trace through various different bank accounts and piece the picture together bank account by bank account.
1782 Discovery against other parties
In addition to obtaining discovery from intermediary banks 1782 Discovery can be used to obtain discovery (including by deposition) of any party who may hold information, documents and/or assets for or on behalf of the company.
Examples where this can be useful include obtaining co-operation from directors / service providers, financiers who have provided funds to acquire assets, brokers who have been involved in the acquisition or sale of company asset, and any other party involved in the affairs of the company. All of these parties can be compelled to co-operate via a 1782 subpoena.
Grant Thornton BVI have used 1782 Discovery to great effect over a number of years and finds it to be a highly useful tool, which has enabled us to identify assets and pursue wrongdoers in the US and across the globe.