Voluntary liquidation: An almost irreversible procedure

Can a company that has been voluntarily wound up be restored to good standing on an application by a former shareholder, liquidator, or director, who has a change of heart as regards the company’s liquidation? The answer to this question, an issue which presents itself from time to time, has now been reaffirmed, following the recent High Court decision[i] (the decision in the Four), which confirmed the BVI position as established in the case of Dedyson Enterprises Ltd v Registrar of Corporate Affairs (BVIHCM 2011/0008) and confirmed in Yeung Kwok Mung v The Attorney General and the Financial Services Commission (BVIHCM 2011/0002).

The claims, the subject of the decision in the Four, were brought by the former liquidator of four BVI companies: Brilliant Era Limited; Elite Source Ltd; Korri Capital Ltd; and Careland International Ltd (the Companies). The rationale behind seeking restoration of the Companies was twofold.  Firstly, it would allow listing requirements to be fulfilled, and secondly, restoration would show a longer track record and allow the history and the structure of the group of companies to be reflected more accurately – than if new companies were incorporated.

The Companies, if restored, were then to be listed on the Hong Kong Stock Exchange, as it had, in the former shareholders’ opinions, the geographical advantage of being close to Careland Shenzhen, which was located in Shenzhen, China, and which was originally held in the corporate structure, by Careland International Ltd, one of the Four.

Voluntary liquidation generally

Part XII of the BVI Business Companies Act 2004 (BCA), provides the regime under which solvent companies may be voluntarily liquidated. In order to satisfy the threshold established in Part XII, a company must first either be able to demonstrate that it has no liabilities, or that it is able to pay its debts as they fall due and that the value of its assets exceeds or is equal to its liabilities.

Once the threshold is satisfied, if it is determined that a voluntary liquidator should be appointed to wind up the company, various other requirements must be satisfied. For instance, the directors of the company are obliged to make a declaration of solvency, and approve a liquidation plan. In essence then, the process is a very involved one where calculated decisions must be taken if the end result is to be a voluntary winder.

If it is determined that a company that has been voluntarily liquidated should be restored, such a company can only be restored if, at the very least: the applicant nominates a person to act as liquidator of the company once it is restored; the person so appointed is eligible and has consented to act as liquidator once the company is restored; and satisfactory provision is made for the expenses and remuneration of the liquidator on restoration[ii].

Key Dedyson and Yeung Kwok principles and their consideration in the Four

Very early in the Judgment given in respect of the Four, it was determined that on the basis of a failure to provide for the expenses and remuneration of the liquidator on restoration (limb three of the section 218A(2) test), the application could not succeed. The Court nevertheless went on to consider the merits of the applications before it as well as the objections raised by Counsel for the Defendant. While the Claimant in each case was a different person, they all shared a common defendant.

A number of substantive objections were raised by Counsel for the Defendant. She observed that the companies did not appear to have any assets, nor in any case did it appear on the evidence that there was at least one creditor seeking to bring a claim. Furthermore, there was no indication that the restorations would be in the interest of justice and she finally observed that there were alternatives to restoration, and in respect of which, the learned Justice had this to say in the Yeung Kwok Mung case “if the difficulty can be resolved without restoration, then the alternative method is to be preferred.

Thematically, the decisions in Dedyson and Kwok make it clear that the Courts will require cogent and compelling reasons to reverse a liquidation in favour of those who had given assurances as to the completion of the process. Thus, any person who goes through the mechanics of winding up a company would be unable to simply change course and seek to reverse what had before the time of the application for restoration, been determined as at an end.

Post-Dedyson then, a former shareholder, liquidator or director could not on a whim avoid the dissolution of a company that had gone through the ringer of voluntary liquidation. While not an absolute determination, it is clear that on liquidation of a company, there should be finality in the process, save where (i) restoration would serve a beneficial purpose consistent with the requirements of justice; or (ii) there are newly discovered assets to be distributed by the company or claims to be made against a company which had not previously been made. Each of these requirements was easily dispensed with by Counsel for the Defendant, who demonstrated that they were not applicable in the instant claims.

There was no doubt that Counsel for each Claimant would have somewhat of an uphill struggle in seeking to persuade the Court that it should not consider itself bound by the Dedyson and Yeung Kwok Mung decisions, or alternatively that the Dedyson case could be distinguished and could not be deemed as persuasive authority as it had particular facts which were very different to the claims of the Four. Nevertheless, in the face of the daunting and seemingly insurmountable challenge before him, Counsel defended his clients’ position, and urged the Court to seek guidance from various English precedents, none of which were, in the end considered to carry the weight sought to be ascribed to them as against either Dedyson, Yeung Kwok Mung or sections 218A and 218B of the BCA.

In fact, at paragraph 16 of the Dedyson Judgment, the learned Judge observed that outside the scope of the two justifications for ordering the restoration of a company that had been voluntarily liquidated, that it would only be in the most exceptional circumstances that one could justify the restoration of a company for the resumption of business as usual.

While it was common ground that there could likely be instances where exercise of the Court’s discretion as provided for in section 218A, of the BCA there was a divergence of opinion as regards the circumstances under which such discretion ought to be exercised. In particular, Counsel for the Claimants contended that per Laddie J in the English case of Re Priceland [1997] 1 BCLC 467 “exercising the discretion against restoration should be the exception and not the rule”. This rationale as well as the rationale of the other English precedents, were opposed as it was pointed out that the restoration sought in each such case was a result of dissolution by administrative striking off and not following the procedure of placing the companies into and completing the process of voluntary liquidation. Unlike in the case of administrative striking off, it was argued that in the case of a voluntary liquidation, there is a deliberate act to bring about the permanent death of a company.

Added to the common law position, was the fact that the legislature had amended the BCA which now makes it clear that a company restored following the process of voluntary liquidation is not a company in good standing but is instead returned to the status it would have been in prior to the dissolution, that being ‘In Liquidation’.  Similarly, when a company is dissolved following administrative striking off, on restoration it is not returned to good standing until all back fees and penalties are paid.

It was even argued that while the value of the undistributed assets in each of the companies was nominal, that the restoration of each company was commercially sensible and went hand in hand with the light touch regulatory regime of the BVI which enabled companies to be easily incorporated, maintained and restored, and that such restorations would cause no prejudice to the jurisdiction or the Registrar, the Court took a more measured approach in assessing the claims, by pointing out the wide range of effects which a restoration in this context would have. In particular, the Court noted that a restoration would resuscitate the rights and obligations of third parties and that such could result in prejudice to the third parties concerned.

The Court therefore disagreed with Counsel for the Claimants that the Dedyson case created a fetter on its discretion to order restoration, and clarified that the decision merely “signposts matters which will assist a court in the exercise of the statutory discretion”, and further illustrated the clarifications brought about post Dedyson, in the form of the addition of sections 218A and 218B to the Part XII regime of the BCA.


In the end, the Court advanced that the onus would be on a Claimant seeking restoration in the context of voluntary liquidation, to satisfy it that the circumstances warranted restoration, and to address to the Court’s satisfaction the potential prejudice that could befall third parties. In this case the Claimants’ cases fell far below this mark and their applications for restoration therefore failed.


[i] See 2015 decision of the BVI High Court in the consolidated matters of: Elite Source Limited v the Registrar of Corporate Affairs (BVIHCV 0077 of 2013); Korri Capital Limited v the Registrar of Corporate Affairs (BVIHCV 0078 of 2013); Careland International Co. Limited v the Registrar of Corporate Affairs (BVIHCV 079 of 2013); and Peng Xiaohong v the Registrar of Corporate Affairs (BVIHCV 080 of 2013)

[ii] BCA section 218A(2)