Vol 2 (2005) - Issue 4

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British Virgin Islands Administrative Receivership and English Insolvency Law

The nearly simultaneous passing of the Insolvency Act 2003 in the British Virgin Islands (the ‘BVI Act’) and the Enterprise Act 2002 (the ‘Enterprise Act’) in the UK is likely to give rise to some interesting cross-border issues for practitioners structuring secured financing transactions or considering steps to enforce security created by debtors with cross-border operations.

At a time when, in the UK, secured creditors and their advisors are facing the diminution of receivership as an institution under the Enterprise Act (with the option of administrative receivership being limited to pre-commencement floating charges and to other specialized corporate financing situations), the BVI Act introduces administrative receivership and administration in a way which borrows from the original English position under the Insolvency Act 1986, with the administration procedure being entirely court-driven and the holder of a floating charge having an effective right of veto.

In recognition of the lack of an established set of international rules to govern the interaction of UK insolvencies and insolvencies elsewhere in the world, this article seeks to look at some of the practical cross-border legal issues which may arise. Given the widespread use of BVI companies with assets and liabilities in the UK, the issues are far from academic and a proper understanding of how the two regimes will interact is essential.

For the purpose of this article, we have taken as our starting point an insolvent BVI company with assets and liabilities in the UK and have focused on the approach an English court might take to the BVI insolvency, and how it might deal with the existence of a BVI administrative receiver. Although, in practice, arguments as to the location of the centre of main interest are likely, we have also assumed for present purposes that this is clearly in the UK. We have also ignored transitional aspects.

Relevant substantive BVI provisions

Administration under the new BVI Act is a court-driven ‘breathing space’ for an ailing company, during which the rescue of its business (or a part of it) or the disposal of its assets more advantageously than would be the case in a liquidation can be attempted.
The provisions in the BVI Act relating to administration borrow heavily from the English Insolvency Act 1986. An administrator is appointed by order of the court, which must be satisfied that one of the statutory purposes exist. The administrator takes control of the company and must formulate proposals for consideration by the company’s creditors. If these are approved the administrator then manages the company’s business, assets and affairs in accordance with the proposals until the statutory purpose is achieved or the administrator is of the opinion that it cannot be. Administration can be blocked by a secured creditor who has the ability to appoint an administrative receiver and, accordingly, this is likely to increase significantly the use of floating charges in financing transactions concerning BVI companies.
At the same time (and again borrowing substantially from the English 1986 legislation) the BVI Act provides a statutory codification and amendment to the existing BVI law of receivers and introduces the concept (which is new to the BVI) of an ‘administrative receiver’. The administrative receiver is a receiver of the whole or substantially the whole of the business undertaking and assets of a company, appointed by a floating charge holder (or in some circumstances by the court).