Vol 22 (2025) - Issue 3

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The Unfair Preference Regime and Challenges to Office Holder Decisions: Reasons to Incorporate in the BVI

Synopsis
The BVI has robust corporate insolvency legislation, fostering recoveries for creditors in the event of a liquidation. This article examines two areas where the BVI's legislation, as interpreted by its Courts, is particularly developed: unfair preferences and challenges to the decisions of liquidators, as well as other office-holders.
The strength of the BVI's corporate insolvency legislation provides a reason for companies to incorporate in the territory.
By way of introduction, unfair preferences, which are one of several voidable transactions provided for by the British Virgin Islands ('BVI') Insolvency Act, Revised Edition 2020 ('BVI IA'), offer an important potential avenue for recovery by a liquidator when a company is wound up. The purpose of the unfair preference regime is to uphold the fundamental insolvency principle of pari passu distribution – that all creditors of
a particular class should be treated equally in the distribution of assets, or any proceeds from the sale of those assets, and without preference to one another – by ensuring that any payments to creditors that were unfairly made in priority to other creditors during the lead up to a company's insolvency are returned to the liquidation estate. This article examines the key features of the BVI's unfair preference regime including, in particular, the test for what constitutes an unfair preference and how it differs favourably from that applied in certain other common law jurisdictions, facilitating recoveries by liquidators.
Separately, the article also examines the recent landmark Privy Council decision in Stevanovich v Richardson [2025] UKPC 18 ('Stevanovich'), which clarifies the interpretation of a 'person aggrieved' under section 273 of the BVI IA, a provision which allows for the decisions of liquidators and other office holders to be challenged.
By limiting the circumstances in which third parties may challenge such decisions, Stevanovich serves to encourage the orderly winding up of BVI companies.
Both the flexible unfair preference regime and the protections afforded by section 273 of the BVI IA highlight the advantages of the BVI as an offshore jurisdiction, both in terms of the BVI IA and the pragmatic approach of the BVI courts to its interpretation.