The Role of a Joint Appointee in BVI Restructuring Processes Collaborating to maximize returns, deliver integrity and ensure independence.

During the last 18 months we have seen a number of new appointments in the British Virgin Islands (“BVI”) which have required appointees from different firms to act jointly as liquidators. Given the cross-border nature of most engagements, this, in itself, is not unusual and will likely continue to be a feature of many BVI liquidations going forwards. In our experience there is a delicate balance to be struck between the cost to the estate of a joint appointment and the need for a joint appointee to provide independence, professional rigour and challenge whilst assisting with efficient decision making and ensuring there are no perceived conflicts of interests as well as being a regulatory requirement in certain scenarios. This article examines some of the common driving forces behind the demand for a joint appointee and provides some practical guidance and considerations to help smooth what can be a challenging dynamic between the parties, when they are from different firms, backgrounds and perhaps also countries. There are inevitably different working practices and cultures, and they may, in normal circumstances, be market competitors not used to collaborating with others outside their firm towards a collective goal.

Overseas Liquidators

As readers may well be familiar with, in order to be eligible to act as an insolvency practitioner in the BVI, individuals must hold a license issued by the regulator, the Financial Services Commission ("FSC"). Residency in the territory of the BVI is one of the requirements of licensees set down by section 476 of the Insolvency Act, 2003 (as amended) (the "Act"). Notwithstanding the above, pursuant to section 483 of the Act, the legislation allows for an individual residing outside of the BVI to be appointed to act as an insolvency practitioner jointly with a BVI licensee, or the Official Receiver. Consequently, it is not uncommon for licensed insolvency practitioners in the BVI to be approached to act jointly with overseas professionals, particularly where the overseas appointee is not part of a group which has a local BVI office or resident Insolvency Practitioner. In such scenarios, prior written notice pursuant to section 483 of the Act must be provided to the FSC and an Overseas Practitioners Form must be completed by both the BVI licensee and overseas appointee, confirming that the overseas appointee:

• has sufficient qualifications and experience to act in the insolvency proceedings;
• has given written consent in the prescribed form;
• is not disqualified from acting as liquidator under subsection 482(2) of the Act;
• is not disqualified from holding a license under section 477 of the Act; and
• has sufficient security for the proper performance of his/her functions (i.e. insurance cover in excess of US$500,000).

Conflict Liquidators

Alongside the appointment of overseas liquidators, one of the primary justifications, and indeed needs, for joint appointments comes from a conflict of interest or indeed the risk of a perceived conflict of interest regarding one of the appointees. The BVI Insolvency Code of Practice (the "Code") outlines the Ethical Principals under which a licensee must at all times conduct their work, one being that the licensee act with a proper regard for the principals of integrity, objectivity, competence, due skill and courtesy and for the spirit that underlies them. The Code states that the greatest threat to a licensee's objectivity is likely to be a conflict of interest and details considerations which ought to be taken into account by insolvency practitioners when faced with both actual and potential conflicts of interest. Nevertheless, against the threat of a perceived conflict, the BVI Court has recognised that in certain circumstances it is in the best interests of the creditors of an insolvent BVI company to manage the conflict of interest risk by appointing a joint and independent liquidator, acting alongside the appointee who has, or who's firm has, either an actual or perceived conflict. Take, for example, a liquidator who has been appointed for some time over a group of companies ("Liquidator A"). Liquidator A has conducted detailed statutory investigations and asset tracing processes and has identified a BVI subsidiary that has a significant liability to the group. The BVI subsidiary also owns assets and the value of those assets is inherently linked to the wider operations of the group. Liquidator A is looking to recover an inter-company debt due to it from the insolvent BVI subsidiary but there are also other independent creditors who have valid claims against that subsidiary. In this scenario there is a potential conflict of interest should Liquidator A be appointed solely over the subsidiary in that Liquidator A would need to adjudicate the creditors' claims against the subsidiary, which importantly would include his own claim. However, it is also likely that the wider investigations and knowledge that Liquidator A already has from the work performed in their role of liquidating the wider group, will assist in the timely and cost efficient progression of the subsidiaries asset realisations and investigations into its operations. A conflict liquidator from an independent firm (" Liquidator B ") appointed to adjudicate the subsidiary's creditors' claims could be an option to remove the perceived conflict threat and to also help manage costs. All scenarios are going to turn on their unique facts, and as such, the insolvency practitioner must be mindful of the balance between managing conflict threats and acting in the best interest of the estate. In some scenarios, it will be necessary for Liquidator A to resign or decline the opportunity to act whilst in others Liquidator A and the Court may feel the perceived risk is one that is manageable or justified. Nevertheless, a useful consideration and tool when looking to manage these positions is the joint appointment route.

Practical Considerations

Once it is deemed that it is necessary for a joint appointee, be it by the petitioner, appointee, or the Court, we have learned from practical experience that there are some basic, and often simple, steps which can be taken to help drive efficiencies and assist in the smooth progression of a joint appointment. Whilst each appointee has his or her statutory duties to consider and ought not to simply be passive, practically, both liquidators cannot drive all aspects of the process and unnecessarily duplicate costs to the estate. The following steps have assisted us in managing workflow and expectations on a number of recent assignments:

• Establishing and documenting scope for each appointee early in the engagement and ideally prior to any appointment taking place (often referred to as a segregation of duties document or a protocol agreement);
• Determining if independent legal advisors are required for each appointee;
• Establishing billing parameters (e.g. rates, invoice milestones), review processes and regularly informing each other with regard to fee budget expectations and variances;
• Setting up regular calls and meetings to discuss progress, next steps and any possible scope issues. These meetings should be documented;
• Establishing protocols around correspondence and report reviews by representatives of each appointee;

Establishing protocols around agreement and sign off on major steps in the liquidation (e.g. asset realisation, litigation and distributions).It is not always easy for practitioners to collaborate amicably during a joint appointment, given they are likely to be accustomed to being the sole decision makers on most of their appointments, but through our experiences we have developed a methodology which removes the day to day tensions which can develop between the joint appointees. Ultimately, a collaborative approach between practitioners ought to ensure the most efficient and effective progression of a liquidation and avoid unnecessary disagreements. As a joint appointee, we are adept at ensuring appropriate rigor and challenge are applied to the process and have a team of insolvency practitioners who are experienced in collaborating with other professionals to deliver efficient and cost effective outcomes for creditors and other stakeholders.

How Can We Help

R&H Restructuring is a multidisciplinary team with offices in the Cayman Islands and the British Virgin Islands, with a diverse range of restructuring and insolvency experience and specialist skills in distressed situations. About us:

• Independent and generally conflict free;
• Innovative approach;
• Global reach;
• Broad range of expertise; and
• Flexible solutions.

In addition to the Rawlinson & Hunter affiliation, their ongoing strategic international partnerships provides them with immediate access to resources for effectively servicing clients anywhere in the world. This expertise includes restructuring, fund fiduciary, trust, corporate, accounting and fund administration professionals who hold relevant financial industry licenses in their respective jurisdictions, holding us to the highest of global regulatory standards. We regularly work with our colleagues in these affiliated companies to provide clients with a team tailored to their needs. Our services include:

• Financial Restructuring and Working Capital Management advice
• Acting as Restructuring Directors (CROs)
• Acting as Wind Down Agent and Voluntary Liquidators
• Set up and administration of Liquidating Trusts
• Acting as Court Appointed Liquidators and Receivers
• Schemes of Arrangement
• Forensic Accounting Support