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;
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.
- 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
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