Potentially catastrophic dissolution of BVI companies averted through restoration
In the recent case of Global Diversity Opportunity & Anr v The Registrar of Corporate Affairs, the BVI Commercial Court had to consider whether it could avert what it referred to as the “potentially catastrophic” consequences of two companies having been mistakenly liquidated.
Global Diversity and PA Grand are both BVI companies within the PAG group of companies which did business with an Australian property group. Global Diversity acted as the main lending vehicle to the Australian group and in turn sourced funding from a syndicate of lenders. PA Grand held a mortgage over a portion of land in Australia, containing 121 houses, as security for repayment of the loans by the Australian group.
At a time when Global Diversity had been repaid some, but not all, of the loans (and therefore still owed duties to the syndicate of lenders) and whilst PA Grand continued to hold the mortgage over the land in Australia, the companies were both placed into voluntary liquidation following what the Court described as a “massive breakdown of internal communications”. The result was that the loans worth hundreds of millions of AUD could not be recovered and the houses built on the Australian land could not be sold with free and clear titles.
With the uncovering of the error, an application for restoration was made to the Court. The BVI Commercial Court took the view that the companies could and should be restored to allow for their assets to be dealt with in run-off, but on the strict condition that the companies would not be allowed to carry on business more generally.
Some key considerations from the Judge were:
- A former director of a company has standing to make the application;
- In a case that requires the court to consider exercising its discretion, the stare decisis principles reflected in Huddersfield Police Authority v Watson should be taken into account. This entails distinguishing between (i) a finding that a particular consideration is relevant to the exercise of discretion, which will be binding; (ii) a finding as to the relative weight that should be attached to a particular consideration, the impact of which will depend on the surrounding facts; and (iii) a finding that a particular scenario should lead the court to exercise the discretion in a certain way (which is a factual assessment but should be used as guidance in later cases).
- In answer to the general position that an alternative to restoration is to be preferred, it is relevant to consider the level of complexity involved in exploring that alternative. A complex alternative will have less weight than a simple one.
- Because the BVI companies owed fiduciary duties to third parties the circumstances were appropriate for ordering restoration.
- There must be exceptional circumstances to allow a liquidated company to be restored to resume business. Jack J found that there were none here so the companies would be restored for run-off only.
The decision once again demonstrates the pragmatic way in which the Commercial Court balances adherence to long-established legal principles with commercially appropriate and ‘just’ decisions that take into account the interests of litigants and third parties alike.