Creditors of British Virgin Islands (“BVI”) incorporated companies are often concerned that by the time they obtain an order from the BVI Court placing the company into liquidation, it will have dissipated all of its assets and it will be expensive and futile to try to recover these through the Liquidator(s).
Whilst it is true that Liquidators often find that the companies they are appointed to have been stripped of their assets, the team at Grant Thornton are highly experienced and skilled in investigating these matters and developing and implementing cost effective strategies to maximise recoveries for creditors. This article demonstrates this using a recent liquidation appointment.
We were appointed as liquidators of the company (“Company”) by resolution of its members,
Upon undertaking initial investigations including obtaining information from the creditors of the Company and the Company’s advisors it was evident that all of the Company’s assets had been transferred away for no value prior to appointment. We were, as often we are, faced with a situation where all the assets have been stripped away leaving nothing for creditors and nothing to fund our investigations and recovery actions.
The director and shareholder (“UBO”) of the Company refused to co-operate with us and failed to provide us with any information or documentation. Using our powers as JLs to compel co-operation, we obtained information and documentation related to the Company’s affairs from a number of the Company’s service providers (the “Disclosed Information”).
Using the Disclosed Information and information obtained from creditors we established that the Company had at one time been the parent company of a complex group structure which held, through a number of subsidiaries (“Subsidiaries”), significant real estate interests in the UK (“Properties”). Further, we were able to develop a detailed picture of the Group structure from the date it incurred its liability to the material creditor (“Liability Date”) to date. It was abundantly clear that following the Liability Date all of the Subsidiaries had been transferred (“Transfers”), for no or a nominal amount, away from the Company into another structure owned and controlled by the UBO.
Using information obtained from the UK Land Registry we were also able to establish exactly what Properties were held by each Subsidiary at each Transfer date. Furthermore, using information from the Creditor and various other research tools we were able, in the vast majority of instances, to place a value on each Property at each Transfer date.
In conjunction with out BVI and English advisors, including Queen’s Counsel, we prepared a claim, to be brought in the BVI, against the UBO and the recipient of the Transfers (“Claim”). The Claim included a number of heads of claim, including but not limited to i) breach of director’s duties, ii) knowing receipt, dishonest assistance, iii) unlawful means conspiracy, iv) transactions at undervalue, v) transactions to defraud creditors and vi) misfeasance.
It was felt however that the Claim alone would be insufficient to obtain the desired outcome, and that it was highly likely that further dissipation would occur following the serving of the Claim and the determination of same.
Therefore, the JLs sought (and obtained) interim relief from both the BVI and English Courts.
On the JL’s application the BVI Court granted the following relief at an ex parte hearing:
- Proprietary injunctions in respect of the shares in the Subsidiaries which were the subject of the Transfers;
- Freezing orders against the recipients of the Transfers (“Transferees”) to prevent them from disposing of their assets;
- Chabra relief in the form of freezing orders against 30 parties who were not named defendants in the Claim but which held assets representing the value of the Transfers which were the subject of the Claim (“Chabra Companies”); and
- The appointment of the JLs as joint receivers and managers of the shares in the defendants to the Claim and the Chabra Companies.
Upon obtaining this relief, but before notifying the relevant parties of it and/or serving the Claim, we applied to the English Court for interim relief (“English Relief”) pursuant to section 25 of the Civil Jurisdiction and Judgements Act 1982 in support of the BVI proceedings. Specifically we sought (and obtained) inter alia the following relief:
- A proprietary freezing injunction preventing the Transferees from disposing of, dealing with or diminishing the value of the shares in the Subsidiaries previously owned by the Company which had been transferred to them;
- Freezing order preventing the defendants to the claim and Chabra Companies from disposing of or diminishing the value of their assets; and
- An order appointing insolvency practitioners from Grant Thornton’s London office as joint receivers and managers of over the Properties (totaling some 300) held by the Claim defendants and the Chabra Companies.
Following the granting of the English Relief we registered restrictions at the UK Land Registry against each Property to prevent them being dissipated or otherwise devalued by, for example, debt finance being taken or mortgages being registered against them.
The freezing order and receivership orders prohibited the UBO from operating his business in the way he wished to.
In due course, default judgement was obtained in respect of the Claim. The default judgement permitted us to transfer ownership of all of the Subsidiaries back to the Company.
These two steps resulted in the UBO having no option but to co-operate with us. Following this, in the first instance recoveries were made into the liquidation from a number of sources including rental collections from Properties and the sale of a property. These recoveries enabled us to make an initial distribution of approximately 33% to the Company’s unsecured creditors.
Subsequently, a restructuring of a significant part of the Group was undertaken pursuant to which sufficient funds were paid to the JLs to enable all of the Company’s unsecured creditors to be paid in full, including post liquidation interest.
Funding of the liquidation
As set out above there were no funds in the estate to meet the costs of the liquidation. The material creditor provided funding to meet some of the costs, however the liquidators (and their professional advisors) ultimately funded a significant portion of the liquidation costs by working on an unfunded basis.
Without this commitment and investment from the team it would not have been possible to obtain this result for the creditors.
This was a classic scenario where the wrongdoer thought he would not be held to account for stripping the assets, thankfully due to the work of the liquidators and their team this wasn’t the case.
BVI liquidations are often complex, involving asset tracing and recovery in a number of jurisdictions. It is essential that creditors of BVI companies appoint knowledgeable and experienced liquidators, such as those form Grant Thornton BVI, who can deliver an efficient and effective approach to recovering assets for creditors.
Grant Thornton BVI has the largest dedicated insolvency and asset recovery team in the BVI. On a combined basis Matthew Richardson and Mark McDonald have lived and worked in the BVI for over 25 years, they are regularly recognized for their expertise in tracing and recovering assets and they were both recognized as Asset Recovery Global Elite Thought Leaders by Who’s Who Legal: Asset Recovery in 2020.