At a glance: the liquidation and reorganization processes in the British Virgin Islands

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Types of liquidation and reorganization processes

Voluntary liquidations

What are the conditions for a debtor to initiate voluntary liquidation proceedings and what are their effects?

Under section 199 of the Business Companies Act 2004 (the BCA), a voluntary liquidator may be appointed by resolution of the directors in accordance with section 199 (2) or by resolution of the members in accordance with section 199 (3) whether the company is solvent. In addition, members can, by qualifying resolution (usually at least 75 percent of the voting members), put a company into receivership under the Insolvency Act 2003 (the insolvency law).

In a voluntary solvent liquidation, a liquidator can only be appointed if the directors have made a declaration of solvency in accordance with Article 198 (1) of the AML. The directors must also file a liquidation plan.

If a business is going into liquidation under the Insolvency Law of 2003, an eligible insolvency practitioner must be appointed.

Voluntary reorganizations

What are the conditions for a debtor to undertake a voluntary reorganization and what are the effects?

The administrative provisions of the insolvency law are not in force, so this form of voluntary rescue procedure is not available in BVI.

However, the Insolvency Law provides for two mechanisms for carrying out a wide range of business restructurings by way of judicial approval:

  • arrangement schemes, which are equivalent to those available in England; and
  • plans of arrangement, which are equivalent to those available in US jurisdictions.

Both mechanisms provide for the conclusion of a compromise between a BVI company and its creditors or members (or a category of them). These agreements provide BVI companies with a mechanism to deal with dissenting voices and result in an agreement that binds the company and its members or creditors, or both (or a class of them).

In addition, informal reorganizations can be pursued with protection against formal insolvency proceedings. In Limited overseas constellations (BVIHC (Com) 2018 / 0206-2012), a creative approach was accepted by the BVI tribunal using an interim liquidation to support an ongoing restructuring in Brazil. Provisional liquidators had limited or “light” powers with a moratorium on claims in place. The management of the companies remained in place, with the provisional liquidators supervising and assisting the restructuring process.

Successful reorganizations

How are creditors classified for the purposes of a reorganization plan and how is the plan approved? Can a recovery plan release non-debtor parties from liability and, if so, under what circumstances?

In a plan of arrangement, the directors or voluntary liquidator of the company (if applicable) must approve the plan of arrangement.

In a scheme of arrangement, if a majority representing 75% by value of the creditors or of the class of creditors or of the shareholders or of the class of shareholders (as the case may be), present and voting at the meeting accepts the arrangement , this will bind all creditors or class of creditors, and on the company once approved by the court. If a company is in liquidation, the arrangement commits the liquidator and any person likely to contribute to the assets of the company at the time of its liquidation.

The categories of creditors are classified as persons whose rights are not so dissimilar that it is impossible for them to come together in view of their common interest. Exemptions from liability by a non-debtor or a third party are possible in a scheme of arrangement subject to the law applicable to the underlying obligation which allows it.

Involuntary liquidations

What are the conditions for creditors placing a debtor in involuntary liquidation and what are the effects? Once the procedure has started, are there any important differences compared to a procedure opened voluntarily?

A company can be placed in compulsory liquidation either by:

  • the adoption of a shareholder qualification resolution (requiring the approval of at least 75% of the shareholders (the memorandum or the articles of association of the company may provide for a higher threshold); or
  • court order, following a court application and hearing.

A lawsuit can be filed by:

  • the company itself;
  • creditor (including a judgment creditor);
  • a shareholder;
  • the monitor of an arrangement with a company’s creditors; and
  • in limited circumstances, the Attorney General or the Financial Services Commission.

There is a recent BVI court ruling that when a claim is made by a creditor, that creditor must serve a legal demand on the debtor company before making a claim, unless there is good reasons not to do so.

The court may appoint a liquidator when one of the following applies:

  • the business is insolvent;
  • in the opinion of the court, it is fair and equitable that a liquidator be appointed; and
  • in the court’s opinion, it is in the public interest that a liquidator be appointed.

Once appointed, the liquidator has control and custody of the assets of the company. The directors remain in office but they cease to have powers or functions, except with the express authorization of the liquidator or by virtue of the Insolvency Act.

Once an insolvent liquidation is in progress, there are no significant differences with proceedings initiated voluntarily or by court order.

Involuntary reorganizations

What are the conditions for creditors who undertake an involuntary reorganization and what are the effects? Once the procedure has started, are there any important differences compared to a procedure opened voluntarily?

The main reorganization methods available in the BVI (plans of arrangement and diagrams of arrangement) are all voluntary. Using a formal judicial insolvency proceeding to support a restructuring, such as the appointment of provisional liquidators, is a very different beast but can lead to similar results.

Accelerated reorganizations

Are there procedures for expedited reorganizations (eg “prepackaged” reorganizations)?

There is no BVI legislation dealing specifically with prepackaged reorganizations. However, it is possible for directors of a troubled business to line up a sale and then connect with an insolvency practitioner prior to their appointment as liquidator.

Unsuccessful reorganizations

How is a proposed reorganization rejected and what is the effect of an unapproved reorganization plan? What if the debtor fails to execute a plan?

A reorganization plan will be rejected if it is not approved by the required majorities of creditors or members, as the case may be, or if it is not approved by the court if such approval is required. There is no automatic consequence if a schema fails. However, if a debtor did not implement a plan, it is likely that a creditor would seek liquidation and be placed into involuntary liquidation.

Business procedures

Are there corporate procedures for dissolving a company? How do these processes contrast with bankruptcy proceedings?

At the end of a liquidation, a company will be dissolved. In the case of a solvent voluntary liquidation, for example, the liquidator will file a declaration with the registrar to confirm that the liquidation is complete. Upon receipt of the Declaration of Completion, the Registrar will remove the company from the register and issue a certificate of dissolution. The date of dissolution is the date of issue of the certificate. Immediately after the certificate is issued by the Registrar, the Liquidator will cause a notice of deregistration and dissolution in respect of the corporation to be published in the BVI Gazette.

The Registrar can remove a company from the register if the company does not pay its annual register fee (or any late payment penalty), if it does not have a registered agent, or if it fails to file a return, notice or a document required to be filed under the BVI Business Companies Act 2004. A company that has been administratively removed from the register is automatically dissolved seven years from the date of removal, provided it has not been reinstated in the register meanwhile. When a company has been removed from the register but has not yet dissolved, the company or a creditor, member or liquidator may request the registrar to reinstate the company in the register within seven years from the date of cancellation.

Any property that a company owns on the date of dissolution is transferred to the ownership of the Crown (i.e. the BVI government).

Closure of the case

How are liquidation and reorganization files formally concluded?

At the end of the liquidation, the liquidator must draw up a final report and serve it on each creditor of the company whose claim has been admitted and on all the shareholders of the company. This report must also be filed with the Registrar of BVI. The liquidator will then ask the court to be relieved of his appointment. The company is then dissolved and ceases to exist from that moment.

With respect to plans of arrangement, the terms of the plan or plan will determine when the arrangement will be concluded.


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