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Liability of directors of a British Virgin Islands company in insolvent liquidation
20 January 2025 . 9 min readA liquidator of a British Virgin Islands (“BVI”) company which is in insolvent liquidation can make various applications against current directors or former directors of the company. This includes any shadow or de facto directors. The relevant legislation is the Insolvency Act 2003 (as amended). This Briefing sets out the (potential) liability of directors of a BVI company which is in insolvent liquidation. For the purposes of this Briefing, “directors” mean current directors or former directors (including shadow or de facto directors).
Misfeasance
On the application of the liquidator, the court may make an order where it is satisfied that a director:
- has misapplied or retained, or become accountable for any money or other assets of the company; or
- has been guilty of any misfeasance or breach of any fiduciary or other duty in relation to the company.
The court may make one or more of the following orders against the director, namely that they:
- repay, restore or account for the money or other assets, or any part of it;
- pay to the company as compensation for the misfeasance or breach of duty such sum as the court considers just; and
- pay interest to the company at such rate as the court considers justs.
The court shall not make an order (as stated above) unless it has given the director the opportunity to:
- give evidence, call witnesses and bring other evidence in relation to the application; and
- be represented (at their own expense) by a legal practitioner who may put to them, or to other witnesses, such questions as the court may allow for the purpose of explaining or qualifying any answers or evidence given.
Fraudulent trading
On the application of the liquidator, the court may make an order where it is satisfied that, at any time before the commencement of the liquidation of the company, any of its business has been carried on:
- with intent to defraud creditors of the company or creditors of any other person; or
- for any fraudulent purpose.
The court may declare that any director who was knowingly a party to the carrying on of the business in such manner is liable to make such contribution, if any, to the company’s assets as the court considers proper.
Any money paid to, assets recovered or other benefit received by the liquidator as a result of an order made are deemed to be assets of the company available to pay unsecured creditors of the company.
Insolvent trading
On the application of the liquidator, the court may make an order against a person who is or has been a director of the company if it is satisfied that:
- at any time before the commencement of the liquidation, that person knew or ought to have concluded that there was no reasonable prospect that the company would avoid going into insolvent liquidation; and
- they were a director of the company at that time.
The court may order that the person concerned makes such contribution, if any, to the company’s assets as the court considers proper. However, it should be noted that the court shall not make such an order if it is satisfied that after the director first knew, or ought to have concluded, that there was no reasonable prospect that the company would avoid going into insolvent liquidation, they took every step reasonably open to them to minimise the loss to the company’s creditors.
The facts which a director ought to know or ascertain, the conclusions which they ought to reach and the steps reasonably open to them which they ought to take are those which would be known or ascertained, or reached or taken, by a reasonably diligent person having both:
- the general knowledge, skill and experience that may reasonably be expected of a person carrying out the same functions as are carried out by that director in relation to the company; and
- the general knowledge, skill and experience that that director has.
Any money paid to, assets recovered or other benefit received by the liquidator as a result of an order made are deemed to be assets of the company available to pay unsecured creditors of the company.
Fraudulent conduct
Where a liquidator of a company is appointed by the court, a person who is or has been an officer of the company is deemed to have committed an offence if, at any time whilst an officer or during the period of 12 months preceding the commencement of the liquidation, they have:
- made or caused to be made any gift or transfer of, or charge on, or has caused, permitted or acquiesced in the levying of any execution against the company’s assets; or
- concealed or removed any of the company’s assets since, or within, 60 days of the date of any unsatisfied judgment or order for the payment of money obtained against the company.
A person is not guilty of a fraudulent conduct offence:
- by reason of conduct constituting an offence under sub-paragraph (a) above which occurred more than 5 years before the commencement of the liquidation; or
- if they prove that, at the time of the conduct constituting the offence, they had no intent to defraud the company’s creditors.
Disqualification orders
In addition to the above, a disqualification order may be made against a director. A disqualification order is an order that a person shall not, for the period specified in the order, engage in a prohibited activity without the leave of the court. A person engages in a prohibited activity if, inter alia, they are a director of a company. An application for a disqualification order may not be made more than 6 years after the date on which the company concerned became insolvent. However, it should be noted that applications to the BVI courts for disqualification orders tend to be less common that the other applications mentioned in this Briefing because only the Official Receiver (and not liquidator) may apply to the court for a disqualification order against a person.
Further Assistance
This publication is not intended to be a substitute for specific legal advice or a legal opinion. For specific advice on the matters covered in this Briefing, please contact your usual Loeb Smith attorney or any of the following:
E: gary.smith@loebsmith.com
E: robert.farrell@loebsmith.com
E: ivy.wong@loebsmith.com
E: elizabeth.kenny@loebsmith.com
E: cesare.bandini@loebsmith.com
E: vivian.huang@loebsmith.com
E: yun.sheng@loebsmith.com