The following guidance is a summary only.

• Under BVI law a company will be deemed to be insolvent if it is cash flow insolvent, balance sheet insolvent or "technically" insolvent (ie it has failed to satisfy a judgment debt or a statutory demand). Insolvency on any of these grounds will enable a creditor to apply to the court for the appointment of a liquidator, and may also have other consequences (for example, when a company is insolvent, directors owe their primary duties to the company's creditors). A company can also voluntarily appoint a liquidator by passing a qualifying members' resolution.
• Liquidation is a class right under BVI law, and any petition must be advertised so that members of the class are given notice and may support or oppose the making of an order. If a liquidator is appointed, then the liquidator's primary duty is to collect in all of the company's assets and then distribute them pari passu to the company's creditors, and the legislation confers upon the liquidator wide powers to enable him or her to do so. In appropriate circumstances the court will sanction the pooling of assets.
• Once a liquidator is appointed, unsecured creditors cannot commence legal proceedings against the company without leave of the court, and any rights of action against the company are converted into claims in the liquidation process. Secured creditors generally do not participate in the liquidation process, and may continue to proceed with any enforcement action directly against their collateral pursuant to a valid security interest. A liquidator has a right to disclaim onerous property and unprofitable contracts (but this cannot remove third party rights once they have vested). BVI law only provides for a very small class of preferential creditors, and these are rarely commercially significant in insolvent liquidations.
• Liquidation commences on the making of an order, and does not "relate back" to the time of the presentation of the originating application.
• When a company goes into insolvent liquidation, any mutual debts between the company and a creditor intending to prove in the liquidation will be set-off. However, the right of set-off is not mandatory, and can be waived by a creditor provided this does not prejudice other creditors. Any creditor who extended credit to the company at a time when it had notice of the company's insolvency (excluding balance sheet insolvency) cannot apply set-off. The IA has incorporated ISDA Model Netting legislation (pre-2007 form) and so any contractual netting provisions relating to financial contracts will prevail over the statutory insolvency set-off provisions.
• A liquidator may challenge transactions entered into in the twilight period prior to insolvency where such transactions constitute either an unfair preference, undervalue transaction, voidable floating charge or extortionate credit transaction. In each case (except for extortionate credit transactions) the company must have been insolvent (excluding balance sheet insolvency) at the relevant time or the transaction caused it to become insolvent. The relevant vulnerability period is two years for connected persons, or six months in all other cases. In each case, the statute contains relevant "safe harbours" to protect bona fide arm's length transactions. BVI law does not require demonstration of an "intention to prefer" to challenge a transaction as an unfair preference.
• A liquidator can also pursue former directors (including shadow or de facto directors) and officers of the company for either misfeasance or insolvent trading. If the directors knew or ought to have concluded that a company could not avoid insolvent liquidation, then the directors will be liable except to the extent they took every step reasonably open to them to minimise loss to creditors. A liquidator can also pursue any person involved where the company has been engaged in fraudulent trading.
• Liquidators may enter a funding arrangement whereby the funder receives a share of the recovery in the litigation.
• It is possible for an insolvent company to enter into a scheme of arrangement to restructure its debts. Companies proposing to implement a scheme of arrangement may also apply to the court for the appointment provisional liquidators on a “light touch” basis for the purposes of allowing a restructuring. Any scheme of arrangement must be approved by a majority in number and 75 per cent in value of the company’s creditors or shareholders (or class thereof) present and voting.
• The appointment of provisional liquidators on a “light touch” basis does not come with an automatic moratorium on creditor claims or actions as the company is not in official liquidation. To circumvent this, the BVI court can impose a “contingent moratorium” within the appointment order under section 174 of the IA.
• The IA also regulates receiverships, including administrative receiverships. Under BVI law it is possible to appoint an administrative receiver pursuant to a floating charge over all or substantially all of a company's assets and undertaking.
• Although the IA also makes provision for administration orders, these provisions have not yet been brought into force. There has been talk about potentially bringing them into force (the Government's earlier position had been that they would never be brought into force), but it is unclear at this time what decision is likely to be taken. The provisions in the BVI do differ in some key respects from the English legislation on which it was modelled. Administration orders, if brought into force, may be blocked by the holder of a floating charge and would create a moratorium on enforcing claims against the company, including secured creditors’ claims.
• It is also possible for an insolvent company to enter into a creditor's arrangement under a supervisor, and thereby restructure the company's debts. Such arrangements cannot affect the rights of secured creditors or preferential creditors without their consent. Such arrangements have not yet proved popular in the BVI.
• The IA also has two parts dealing with cross-border issues. Part XVIII sets out the UNCITRAL Model Law on Cross-Border Insolvency; this has not been brought into force. Part XIX deals with orders in aid of foreign proceedings, and broadly provides for the cooperation of the BVI court in a foreign liquidation in designated jurisdictions. Part XIX contains an express qualification that assistance cannot be rendered in such a way as to interfere with the rights of secured creditors under their security.
• In order to act as a liquidator in an insolvent liquidation, administrative receiver (but not a simple receiver), supervisor of an arrangement or administrator (if administration is ever brought into force), a person must be a licensed insolvency practitioner. A practitioner must be resident in the BVI to obtain a licence. However, it is possible for a foreign insolvency practitioner to be appointed jointly with the BVI-resident licensed insolvency practitioner.

For more information, please reach out to the authors.