Jul 2026
The BVI Commercial Court appears to have created somewhat of a dichotomy of first instance decisions on the important issue of whether a liquidation order should place restrictions on a liquidator’s power to act without specific court sanction.
In the recent decision Guangzhou Leyi Investment Development Co., Ltd. v SZE Ming Limited (BVIHCOM2026/0136 dated 22 June 2026) Wallbank J departed from the approach adopted by Mithani J in Jin Yao Holdings Ltd v Forever Winner International Ltd et al. (BVIHCOM2023/0064 dated 8 December 2025) in relation to which powers should be subject to a blanket requirement for sanction and the application of section 186(3) of the BVI Insolvency Act 2003. This article examines both authorities and seeks to provide commentary as to the scope and effect of these differences in approach.
BVI Discretionary Insolvency Sanction Structure
While the authority of Jin Yao predates Guangzhou authority, it is instructive first to analyse the latter judgment of Justice Wallbank, since it provides a helpful overview of the BVI approach, and explains the rationale behind the so called “discretionary sanction regime” found in the BVI Insolvency Act 2003 as opposed to “statutory sanction regime” adopted (but later repealed) by the English Insolvency Act 1986.
The crucial distinction between the BVI Insolvency Act in this context and the English Insolvency Act is to be found in section 186(3) of the BVI Insolvency Act, which grants the Court a discretion to impose the sanction on certain powers of the liquidator:
(3) The Court may provide that certain powers may only be exercised with the sanction of the Court:
(a) where the liquidator is appointed by the Court, on his or her appointment or subsequently; or
(b) where the liquidator is appointed by the members, at any time.
In England, at the time when the BVI statute was enacted (i.e. in 2003) the English Insolvency Act, instead of leaving the question to the discretion of the Court, contained express statutory requirement for certain powers (as prescribed in Part I and II of Schedule 4 to the English Insolvency Act) to be exercised only with the sanction of the Court. Schedule 2 to the BVI Insolvency Act listing the liquidator’s powers did not contain such restriction. Therefore the difference between the BVI and the English regimes was that under the BVI law the Court retained discretion in identifying the powers that could be exercised only with the sanction of the Court, while under English law the Court had no such discretion (i.e. there was no provision equivalent to section 186(3) of the BVI Act).
As a result, in the BVI, judicial practice developed a standard form of draft order, that would require obtaining a court sanction in relation to the following powers set out in Schedule 2 to the BVI Insolvency Act:
- Power to pay any class of creditors in full.
- Power to make a compromise or arrangement with creditors or persons claiming to be creditors, or having or alleging that they have any claim against the company, whether present or future, certain or contingent, ascertained or not.
- Power to compromise, on such terms as may be agreed—
(a) calls and liabilities to calls, debts and liabilities capable of resulting in debts, and claims, whether present or future, certain or contingent, ascertained or not, subsisting or supposed to subsist between the company and any person; and
(b) questions in any way relating to or affecting the assets or the liquidation of the company;
and take security for the discharge of any such call, debt, liability or claim and give a complete discharge in respect of it. - Power to commence, continue, discontinue or defend any action or other legal proceedings in the name and on behalf of the company.
The above powers are materially the same as those set out in Parts I and II of Schedule 4 to the English Insolvency Act that contain a statutory requirement for such powers to be exercised only with the sanction of the English Court. However, there was one material difference between the BVI standard draft order and the English Schedule 4. The “power to carry on the business of the Company so far as may be necessary for its beneficial liquidation” was restricted under English law, but remained unrestricted under BVI law.
In 2015 the English law position was materially amended. In so far as relevant, Explanatory Notes to section 120 of the Small Business, Enterprise and Employment Act 2015 removing a need for sanction, provided as follows:
Section 120: Exercise of powers by liquidator: removal of need for sanction
716. This section amends Part 4 of and Schedule 4 to the Insolvency Act 1986. The amendment gives liquidators the ability to exercise any of the powers contained in Schedule 4 without the need to obtain sanction (approval) of either the court or a creditors’ committee (or where there is none, the Secretary of State or a meeting of creditors).
717. Removing the requirement to obtain sanction brings the provisions for liquidations into line with administration, in that administrators do not need sanction for any of the acts, which if undertaken by a liquidator would require sanction.
In contrast, BVI law continued to adopt the same approach, i.e. the so-called “discretionary sanction regime” approach.
In 2020 the Court of Appeal in the BVI issued two judgments: Phoenix Group Foundation et al. v Jackson et al. (BVIHCMAP2020/0019, unreported, delivered 17th November 2020) and Showa Holdings Co., Ltd v Gronow and Ayres (BVIHCMAP2020/0031, unreported, delivered 31st May 2021) which explained that under BVI law there are two types of decisions that a liquidator may face:
(i) the first type are effectively decisions for the Court to make and the liquidator is required to obtain Court sanction under section 186(3) of the BVI Insolvency Act;
(ii) the second type are decisions for the liquidators to take and the Court’s role is limited to exercise of a supervisory role to exclude ‘perverse’ decisions by granting a sanction following an application for directions made under section 186(5) of the BVI Insolvency Act.
Under English law (as amended), such decisions are made exclusively by the liquidators, therefore there are no decisions that fall within the first type category, save that under English law the liquidator may seek a direction from the Court, which is a mechanism also available under section 186(5) of the BVI Insolvency Act.
The Scope of the Disagreement
On a closer look at the two authorities, both accept that the Court retains discretion under section 186(3) of the BVI Insolvency Act. However, the difference of approach appears to relate to how the BVI Court should exercise such discretion.
Wallbank J suggested that on each application for appointment of liquidators the Court should assess whether or not the exercise of the powers of a liquidator should be restricted and the test is whether any powers that the liquidators may exercise involve “decisions of a particularly significant or momentous nature for the conduct of the liquidation and/or of a legal nature” … “that the liquidators will or might take to administer justice to and between interested parties as Officers of [the BVI] Court“. Such decisions are “inherently momentous” and because of their critical nature impacting the progress of liquidation are made effectively by the Court and require to be sanctioned by the Court. Routinely, such powers are powers 1 to 4 of Schedule 2 to the BVI Insolvency Act. Having said that, Wallbank J accepted that depending on the circumstances of the case, it is possible that not all such powers will be restricted by the need to apply for a Court sanction or there may be additional powers which may require the sanction of the Court. Wallbank J concluded that “the requirement for sanction is for the protection of the liquidators and for the creditors/contributories”. On other occasions, when the liquidator is seeking a direction from the Court under section 186(5) of the Insolvency Act, such sanction is sought primarily to exclude a risk that the liquidator’s decision could be considered to be ‘perverse’ and challenged later.
By contrast, in Jin Yao the BVI Commercial Court (per Mithani J) held that it is not for the Court to limit the discretion of the liquidators as to how they exercise commercial decisions, because the Court does not take commercial decisions and should not interfere and “even in the case of a liquidator seeking the Court’s directions, the Court will not be willing to give them unless there is a genuine dilemma about how a liquidator should proceed”. The liquidators, being professionals, were expected to exercise their professional judgment and make decisions by following the guidance of (then) Snowden J in the English authority of Re Longmeade Limited [2016] EWHC 356 (Ch). That guidance provides that liquidators should act “in what they believe to be the best interests of the insolvent company and all those who have an interest in its estate”, “may, but are not obliged to consult with creditors (or contributories)”, and “should normally give weight to the reasoned views of the majority of such [uninfluenced] creditors (or contributories)”. That guidance also explains that “the Court should not generally become involved in giving directions to liquidators as to how to make commercial or administrative decisions”. The Court’s jurisdiction to restrict the power of a liquidator should be exercised on seldom occasions and there should be “compelling reasons” to scrutinise the decisions of liquidators. In so far as the BVI standard form of draft order requires certain powers to be exercised only with the sanction of the Court, Mithani J considered that “a significant number [of applications] are unnecessary and are brought only because the liquidation order requires it”. It should be noted that Mithani J, in support of the suggested “change” to the BVI approach, made particular emphasis on section 185(2) of the BVI Insolvency Act which provides that “the liquidator shall, subject to this Act and the Rules, use his or her own discretion in undertaking his or her duties”.
What Matters in Practice
The starting point is that Schedule 2 of the BVI Insolvency Act containing powers of the liquidator does not contain a statutory requirement to obtain a sanction of the Court and the sanction regime under BVI law is “discretionary”. It appears that both authorities accept this. There is no doubt that any approach that reduces the administrative burden associated with the exercise of powers of liquidators must be a welcome development. However, the question is whether the judicial practice that has developed in the past 14-15 years to restrict powers 1 to 4 of Schedule 2 is still relevant today and whether the test should be that the decisions that the liquidators take when exercising such powers are very significant and momentous irrespective of whether there is a dilemma or the bar should be higher and the Court should only interfere when there is a genuine dilemma as to how the liquidator should exercise certain powers.
On the face of it the “standard” form of draft order that was developed through judicial practice provides benefit to both the creditors/contributories and to BVI legal practitioners as it safeguards the liquidation from any present or future challenge and permits the creditors/contributories to be heard on an application for the required sanction. With this in mind, it is difficult to see how the suggested approach could be challenged and successfully appealed to the Court of Appeal. It is yet to be seen whether the two authorities will create a “fork in the road” or whether the decision of Mithani J will be confined to the facts of Jin Yao. However, a prudent petitioner and BVI legal practitioner would treat the “change” evidenced by the Mithani J approach with some caution, because the consequences of not obtaining a court sanction in relation to “inherently momentous” decisions, if that is BVI law, could result in a challenge of the liquidator’s office. The cautious approach may be the preferred approach, being the end of the matter.