Service area / Restructuring and Insolvency

Location / British Virgin Islands

Date / February 2019

This article considers how to challenge an act, omission or decision of an office-holder.

The right to bring a challenge derives from Section 273 of the BVI Insolvency Act 2003, which provides:

A person aggrieved by an act, omission or decision of an office holder may apply to the Court and the Court may confirm, reverse or modify the act, omission or decision of the office holder.

There are limits on the ability of shareholders to ratify dubious acts of the directors – it cannot be effective if the interests of existing creditors have become paramount (so as to subordinate the duties owed to shareholders) and are prejudiced. This is particularly relevant to upstream guarantees. On 6th February, the Court of Appeal gave its 51-page judgment in BTI 2014 LLC v Sequana S.A which is relevant to exactly this point.

A number of interesting cases relating to professional indemnity insurance passed through the courts in 2018, and this article looks at four of them.

Euro Pools plc (in Administration) v RSA [2018] EWHC 46 (Comm)

Kicking the year off was the Euro Pools decision in January 2018.

The insured specialised in the design and installation of swimming pools. The products that were the source of this dispute were the movable swimming pool floors and the vertical booms that enabled division of the pool.

Court confirms dividends can be transactions at an undervalue

The Court of Appeal has confirmed that a dividend paid by a company to its shareholders can constitute a transaction at an undervalue under insolvency law.

What happened?

At the initial hearing, the High Court found the dividend was caught by section 423 and was therefore invalid. Importantly, it said that a dividend could constitute a transaction at an undervalue. This was an important confirmation, and the High Court has since followed this approach (for example, in Dickinson v NAL Realisations (Staffordshire) Ltd).

A real, as opposed to remote, risk of insolvency is not necessarily enough for the duties of a board of directors to switch from being owed to its shareholders to being owed to its creditors.

What should your company do if faced with a statutory demand or a winding up petition? Time is of the essence where there is a threat of formal insolvency proceedings. If a winding up petition is being threatened it must not be ignored. The consequences that can flow once a winding up petition has been advertised can be devastating, both to the company's reputation and its financial position.

We identify some of the key considerations and steps that should be taken immediately so as to reduce any damage that a winding up petition can cause.

In April 2018, the United States Supreme Court approved rule changes to both the Federal Rules of Civil Procedure (the Civil Procedure Rules) and the Federal Rules of Bankruptcy Procedure (the Bankruptcy Rules). The rule changes became effective on December 1, 2018. While the modifications are not as monumental as those made in previous years, one set of changes, focusing on electronic service, will certainly impact the day-to-day practice for bankruptcy professionals.

What is a Statutory Demand?

A Statutory Demand is a formal 21-day demand for payment issued by a creditor to a debtor.

When can a Statutory Demand be issued?

You can issue a Statutory Demand if your debt is owed from a limited company or an LLP and is a liquidated sum of more than £750 or when a creditor is owed a debt from an individual, a sole trader or a partnership as long as the debt is for a liquidated sum of more than £5000 and is unsecured.

In BTI 2014 LLC v. Sequana SA & Ors [2019], the Court of Appeal upheld the High Court decision that dividends can be challenged as transactions defrauding creditors under the Insolvency Act 1986.

In BTI 2014 LLC v. Sequana SA & Others [2019], the Court of Appeal upheld the decision of the High Court that dividends can be challenged as transactions defrauding creditors under section 423 of the Insolvency Act 1986 (the '1986 Act').

The first instance decision: