In the latest liquidation order made by the BVI Court against a treasury company within the massive Pacific Andes Group, the Court took a robust stance on the conduct of the company’s board, especially in relation to its poor financial record keeping and position taken during the company’s provisional liquidation.
Not only was the company insolvent but its directors acted in such a manner that substantiated a winding-up on just and equitable grounds (see Loch v John Blackwood). The deployment of winding-up orders on just and equitable grounds has been limited in the BVI in recent years. The early statutory introduction of minority oppression remedies (in 2004) provided the Court with a host of alternative remedies at their disposal. Further protection is supplied by the Insolvency Act that provides that a liquidation order will only normally be made where there is no alternative remedy available. Traditionally, in cases such Aris Multi-Strategy Lending Fund Ltd v Quantek Opportunity Fund, Ltd, the BVI Courts have been reluctant to wind-up companies on the basis of their operational function. The Court in the recent case of Parkmond Group Limited (in liquidation) v Richtown Development Limited (in liquidation) took a more robust approach. The application was the latest in a long running dispute regarding the insolvent Pacific Andes group. Richtown was described by its directors as performing the treasury facility for the group as a whole. The winding-up petition was based on three grounds, cash-flow and balance sheet insolvency as well as just and equitable grounds.
The applicants were able to show that the company was insolvent on both insolvency tests. The Court then went further to consider the inability of the company’s directors to provide accounts and underlying documents to show the true financial position of the company (in accordance with section 98 of the BVI BCA). It was this failure combined with previous issues of conduct that were enough to provide the basis for a winding-up on just and equitable grounds. The decision is an important one. The Court will scrutinise directors’ conduct, notably in relation to accounting practices and full compliance with Court orders and improper conduct could sound the death knell of the company.