Protection from predatory creditor actions in the BVI: the imposition of a “moratorium” in all but name
As reported in our Century Sunshine blog, Justice Jack, in the BVI Commercial Court recently appointed joint provisional liquidators over four BVI companies on a “light touch” basis following the precedent set down in Constellation.
The terms of the joint provisional liquidators’ appointment mean that they will supervise the ongoing management of the companies by the existing boards of directors and ensure that the companies work towards a “holistic” restructuring of the wider Group’s debts. However, the appointment of the provisional liquidators would not have automatically imposed a moratorium on creditor claims or actions because the companies are not considered to be in (full) liquidation. This meant that, without some added layer of protection, the companies would still be prone to predatory creditor actions and claims, which could potentially undermine the wider Group restructuring.
The companies were able to circumvent this concern by having the Court impose a “contingent moratorium” within the appointment order.
Section 174 of the BVI Insolvency Act provides that where an application for the appointment of a liquidator has been filed but not yet determined, a person who would have the power to apply for the appointment of a provisional liquidator (which includes the company itself) may apply to stay any action or proceeding that is pending against the company in the BVI courts. In this case the companies sought a term in the order that would automatically impose a stay, pursuant to s.174, in the event that any suit action or other proceeding is commenced against the companies. This term, which was specifically considered and approved by the Court, means that the companies will not be required to apply to the court for a stay each and every time a suit or action is commenced against the company and should ensure that any associated costs with such applications are avoided.
The use of s.174 in this way is believed to be novel and has the effect of putting in place a moratorium in circumstances where provisional, but not full, liquidators have been appointed and where no automatic protection would automatically arise.
Harneys acted for the Century Sunshine Group in appointing the provisional liquidators. Bermuda law advice was provided through Zuill & Co., an independent Bermudian law firm in exclusive association with Harneys.