Vol 20 (2023) - Issue 5

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'Exceptional Circumstances': Who Is the Proper Guardian of the Interests of Stakeholders in an Insolvent Company, Its Officeholders or Creditors?

Synopsis
In the recent case of Parles A.S. et al v Winsley Finance Limited, ('Parles') the British Virgin Islands High Court (the 'BVI Court') has confirmed that it has the necessary jurisdiction to grant Chabra relief (i.e. a freezing injunction over the assets of a person against whom the claimant has no cause of action) on the application of unsecured creditors in aid of intended or extant foreign insolvency proceedings.
In her first written judgment following her appointment as a Judge to the BVI Court, the Honourable Justice Mangatal conducted a careful and detailed analysis of the powers available to the BVI Court to grant injunctive relief in support of foreign proceedings following the recent statutory changes and the landmark decision of the Judicial Committee of the Privy Council in Broad Idea International Ltd v Convoy Collateral Ltd ('Broad Idea'). Amongst other things, the judgment considers whether foreign insolvency proceedings constitute 'proceedings' for the purposes of British Virgin Islands ('BVI') law; the extent to which relief should be granted on the application of a creditor, rather than an officeholder; and the relevance of whether the foreign insolvency proceedings are or will be located in a jurisdiction which falls outside of the BVI statutory recognition and assistance regime.
Traversing a number of commonwealth authorities, the BVI Court noted that it would only be in exceptional cases that freezing orders would be made at the behest of creditors rather than officeholders. Mangatal J found that the proper party to seek interim relief in support of insolvency proceedings would typically be the officeholder, usually a provisional liquidator, who, as the guardian of the interests of the insolvent company's stakeholders, is best placed to make an independent judgment as to the wisdom of such proceedings.
This is an important decision for the BVI and other common law jurisdictions, as it demonstrates the growing power and willingness of courts to actively intervene and protect the interests of parties, in both commercial and insolvency proceedings. It also however hints at the difficulties an officeholder from a country that falls outside the BVI statutory assistance regime may face when seeking interim relief.