This legal guide summarises the scope of directors’ duties when a British Virgin Islands company encounters financial difficulties.

Introduction

This legal guide should be read in conjunction with the legal guide entitled “Duties of a director under British Virgin Islands Law” which describes in further detail the duties which British Virgin Islands law imposes on a director generally.

While it had been clear for most of the recent economic downturn that the 24% of Hong Kong Stock Exchange (HKSE) listed companies incorporated in Bermuda may have recourse to the court in their place of incorporation to secure an adjournment or stay of an actual or anticipated winding up petition in Hong Kong, it is now equally clear that Cayman incorporated companies (which represent another 50% of the HKSE) will have similar access to restructuring assistance.

This briefing note provides an overview of some of the commercial reasons for and the technical legal requirements of a company wishing to acquire its own shares (also referred to as “share buy-backs”).

Statutory demands are often conflated with other debt recovery mechanisms available to creditors. Whilst a statutory demand may, in certain circumstances, be a useful tool in the debt recovery kit, its primary function is to establish whether a company can pay its debts as they fall due i.e. whether it satisfies the “cash flow test”.

In Guernsey, a company must pass both the cash flow and balance sheet solvency tests to meet the definition of solvency.

In the second part of our coverage of the Companies (Miscellaneous Provisions) (Covid-19) Act 2020 (the Act), we consider amendments made to certain insolvency provisions of the Companies Act 2014 (the 2014 Act). All of these measures apply for an "interim period", expiring on 31 December 2020 (unless extended by Government).

Dividends

Today 'soft touch' provisional liquidation is one of the most commonly deployed tools for facilitating a restructuring of offshore incorporated companies listed in Hong Kong and Singapore. However, when soft touch provisional liquidation was first developed by the Bermuda Court for this purpose, it was regarded as a tool of last resort.

On 21 July 2020 the Irish High Court approved a scheme of arrangement for the world's largest regional aircraft lessor Nordic Aviation Capital DAC (Nordic).

The scheme, which included a 12-month standstill and deferral of c. US$5 billion of secured and unsecured debt, was a market-first for the aircraft leasing industry and has been watched closely by others in the sector.

The Irish scheme had a number of innovative features:

The Bankruptcy (Netting, Contractual Subordination and Non-Petition Provisions) (Jersey) Law 2005 (the “Netting Law”) is a short piece of legislation of particular significance to financing transactions involving Jersey counterparties.

On 21 July 2020, the Irish High Court approved a scheme of arrangement for the world’s largest regional aircraft lessor Nordic Aviation Capital DAC (NAC).

The scheme, which included a 12-month standstill and deferral of c. US$5bn of secured and unsecured debt, is a market-first for the aircraft leasing industry in Ireland whose customer base has been seriously impacted by COVID-19. We look at the NAC scheme of arrangement and consider whether it is a viable restructuring option for the aviation sector more generally.

The relationship between arbitration clauses and winding up proceedings is a contentious issue in many jurisdictions and the debate shows no sign of abating. In the BVI, a recent case has further clarified the effect of an arbitration agreement on creditor's winding up proceedings pursued on the basis of a company's insolvency.