The Insolvency Act 2003 of the British Virgin Islands (the “IA”) provides that the netting of financial contracts is legally enforceable notwithstanding any provisions of the IA or the Insolvency Rules. Significantly, this means that where an insolvent entity that is party to a financial contract goes into liquidation, what might otherwise be a voidable transaction will be upheld if carried out pursuant to a netting agreement.

Reports last week of the significant increase in corporate insolvencies and voluntary liquidations in England and Wales for Q2 demonstrate the combined impact of government COVID-19 support being withdrawn, soaring energy and fuel costs, and weakening demand – and are being reflected in the nature of the instructions coming into our global jurisdictions from distressed companies across the globe.

As well as issuing claims in mistake and restitution in the BVI Commercial Court and the US State Supreme Court, the liquidators of Fairfield Sentry Limited (“the Fund”) also petitioned for and, on 22 July 2010 obtained, Chapter 15 recognition in the United States Bankruptcy Court for the Southern District of New York.

The uncertainty that has descended on global economic markets brought about by the global covid-19 pandemic has been widespread and unprecedented. Anyone looking for clear wisdom on the likely trends in restructuring as we look now to the second half of 2022 and beyond may find the milky darkness of a Magic 8-ball a better barometer of future forecasting.

Here, we provide an overview of the offshore restructuring landscape in light of governmental fiscal stimulus measures introduced due to coronavirus either being reduced, withdrawn or, in some cases, never being put in place.

Liquidators were appointed over Fairfield Sentry Limited, Fairfield Sigma Limited and Fairfield Lambda Limited (together “the Funds”) by orders of the BVI High Court dated 21 July 2009, 21 July 2009 and 23 April 2009 respectively. Fairfield Sentry Limited was the largest “feeder” fund to Bernard L Madoff Investment Securities LLC (“BLMIS”) and invested approximately 95% of its assets with BLMIS. BLMIS was placed into liquidation proceedings in the United States in December 2008, after it was revealed that Bernard Madoff operated BLMIS as a Ponzi scheme for many years.

Introduction

The current geo-political climate is contributing to the rapid rise to inflation rates in many countries around the world. Governments have reacted with an inevitable increase to interest rates to try and offer some form of counterbalance to rising costs in an effort to stymy localised, and more widespread, economic recessions.

The First Creditor Driven Schemes

The Commercial Court has very recently sanctioned four schemes of arrangement pursuant to section 179A of the BVI Business Companies Act 2004. These were the first two creditor-driven schemes to be proposed and sanctioned in the BVI. There has been one other scheme proposed and sanctioned in the BVI but this was a member’s scheme and was altogether more straightforward. Ogier BVI was instructed in relation to all four schemes.

The First Scheme

In relation to a secured party enforcing its rights under a mortgage or charge of shares in a BVI company, the secured party will typically exercise its rights under BVI law to sell the shares or to appoint a receiver in respect of them. Such rights may generally only be exercised after a default has occurred and has continued (without rectification for 14 days following notice of the default) for a period of at least 30 days. These time periods can be shortened by contractual agreement in the relevant security document.

The British Virgin Islands Commercial Court has recently delivered a decision in Western Union International Limited v Reserve International Liquidity Fund Ltd which addresses the issue of when during the redemption process a redeeming investor becomes a creditor of the fund and is therefore entitled to apply for the appointment of a liquidator.

A recent matter which came before a strong Court of Appeal panel demonstrates that the BVI Court will continue to come to the aid of creditors pursuing unpaid debts and that they should not necessarily be deterred from pursuing a debt in the BVI even if the security over the debt is in issue.