Vol 2 (2005) - Issue 1

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The British Virgin Islands Insolvency Act 2003 - Practical Experience after the First Four Months

The long awaited BVI Insolvency Act 2003 was enacted on 16 August 2004. The detailed Rules are drafted and are expected to be issued at any time. A number of articles have already been written which set out the main terms of the Act. The purpose of this article is not to repeat them but to use recent cases to demonstrate how the Act works in practice.

Background

The case we will look at is the liquidation of a BVI company, Moore Park Investment Inc (MPII). As is often the case where BVI companies are involved, MPII was part of a complex investment scheme.
There has been extensive publicity recently about the arrest and imprisonment of a Swiss investment manager, Dieter Behring, who claimed to be able to make substantial returns for investors using an investment system he had developed known as Swiss Pulse. Mainly Swiss, and to a lesser extent German, investors invested money into a number of Bahamian mutual funds which, via conduit companies, passed the money to MPII which issued loan notes to the conduit companies in consideration. Other investors, as individuals or through separate funds, also invested in MPII’s loan notes.
It appears that MPII in turn made funds available to Mr. Behring or companies he may have been associated with. The directors of the Bahamian funds and MPII sought clarification from Mr. Behring as to the identity of underlying assets in which he had invested investors’ money. At the same time, negative publicity in Switzerland about the Swiss Pulse system served to intensify investors concerns. Matters were brought to a head when MPII was unable to meet its obligations in respect of redemptions for loan notes lodged for redemption by investors.
In October 2004, the directors of 7 Bahamian funds and 2 Bahamian registered conduit companies took steps to commence liquidation proceedings in the Bahamas. At the same time, the director of MPII commenced proceedings for it to be placed in liquidation too.

The process

The director of MPII had a number of choices available to him to commence liquidation proceedings in the BVI. They were:

- Appoint a liquidator by a resolution passed by the sole shareholder of MPII (which was a company controlled by the director).

- Apply to Court for liquidation on an application made by the Company, the director or member (other parties would have had the right to seek the appointment of a liquidator, including the BVI Financial Services Commission on the grounds of either the insolvency of the company or it being just and equitable).

- Apply to Court to seek the immediate appointment of a provisional liquidator, to be followed if appropriate, in due course, by full liquidation.

Shareholder’s resolution

The option of a resolution by the shareholder was rejected because:

- The director wished to be seen to have acted responsibly in taking steps to initiate liquidation in light of a realistic assessment of the financial position of MPII, but he also wished to engage in a process involving external supervision from the outset.

- If liquidation had been initiated by this route, it would have been necessary to convene a meeting of creditors within 21 days of the date of the resolution.