Nov 2025
On 20 June 2025, the Eastern Caribbean Court of Appeal (sitting in the BVI) delivered its judgment in Byers & Richardson (as JLs of Pioneer Freight Futures Company Ltd) v Chen Ningning (aka Diana Chen), BVIHCMAP 2024/0009. The Court held that once a company is insolvent or on the brink of insolvency, a director who causes or allows a payment that favours one creditor over the general body of creditors can be ordered to compensate the company, even where the transaction simply swaps one liability for a reduction in cash and so appears “balance‑sheet neutral”. The order here required US$13 million plus interest at 5% from 29 November 2009, coupled with a subrogation mechanism that prevents any windfall to the estate. The decision fixes the practical contours of the so‑called West Mercia duty in the BVI and is already shaping board behaviour and litigation strategy.
The facts are stark. Pioneer Freight Futures (PFF), a BVI company trading FFAs, repaid US$13 million to Zenato Investments in three tranches in November 2009 while insolvent. Ms Chen was the sole signatory on the relevant bank account. Years of litigation followed. In 2021, the Privy Council determined that Ms Chen remained a de jure director when the payments were made and that her failure to stop them breached her fiduciary duties. It remitted the matter back to the BVI Commercial Court to determine the financial consequence of that breach. At first instance the trial judge declined compensation on the footing that the repayments were “net‑neutral”, but the Court of Appeal reversed that decision in 2025, holding that the wrong is measured by depletion of the estate available to creditors, not by changes to the company’s net assets on paper.
The Court of Appeal’s reasoning is anchored in the rule in West Mercia, applied in modern form after the UK Supreme Court’s guidance in BTI 2014 LLC v Sequana. The director’s duty is to the company, but once insolvency looms the company’s “interests” must be viewed through a creditor‑protection lens. That lens matters for remedy. The Court made clear that any reduction in the pool available for pari passu distribution is a compensable corporate loss, even if the company’s balance sheet shows no net decrease. To hold otherwise, the Court said in substance, would render the creditor‑duty a toothless dog and invite selective payouts in the twilight zone.
Equally important is what did not matter. Whether the director personally benefited from the transaction was irrelevant to the existence of compensable loss. The focus is on the collective effect on creditors and on the director’s breach of duty in allowing the preference to occur. That stance follows naturally from the purpose of the creditor‑duty and avoids doctrinal dead‑ends about “gain‑based” remedies where the breach is a mis‑allocation of the dwindling corporate pot rather than personal enrichment.
The remedy chosen is instructive for practitioners. The Court ordered equitable compensation of the full amount of the payments but paired it with subrogation that places the director in the shoes of the repaid creditor to the extent necessary to avoid over‑compensation. Practically, the estate is treated as if the US$13 million had never left, ensuring dividends attributable to that notional sum benefit the body of creditors, while any surplus that would create a windfall is recouped to the director. So, whilst directors cannot point to “neutrality” to avoid liability, they are not made to overpay.
The Court also explained how this common‑law protection coexists with the statutory avoidance code in the Insolvency Act. The West Mercia route is not displaced by the statute, it sits alongside as a broader fiduciary framework that protects the general body of creditors when insolvency is in view, filling gaps where technical elements of a preference or undervalue claim cannot be met. For liquidators and claimant boards, that parallel track expands the toolkit. For defence teams, it narrows the shelter available in purely accounting arguments.
Many will ask how this sits with two prominent UK Supreme Court decisions of recent years. First, Sequana confirms there is no stand‑alone duty owed to creditors. Rather, the content of the director’s duty to the company shifts as financial distress deepens. Byers v Chen is consonant with that structure. Once insolvency is inevitable or sufficiently probable, creditor interests become paramount and the court can restore the estate for their collective benefit. The appeal court expressly aligned its analysis with the Sequana trajectory.
Secondly, Stanford v HSBC was a Quincecare claim against a bank, where the Supreme Court found no recoverable loss when a wrongful payment discharged an equal liability of an insolvent company. The Court of Appeal distinguished that reasoning in the director‑duty context. The loss lies not in the net position of the corporate balance sheet but in the depletion of the estate available for pari passu distribution. That principled divergence prevents directors from sheltering behind net‑neutrality at the very moment creditor protection is supposed to bite. The difference in context (bank duties to customers versus directors’ fiduciary obligations in insolvency) does the heavy lifting.
For boards and general counsel, the message is concrete. When cash is tight and liabilities press, the company’s minutes should show when management knew or ought to have known that insolvency was present or probable, and how creditor interests were weighed in any decision to repay debts outside the ordinary course. If a pay‑down is unavoidable to preserve going‑concern value for the body of creditors, record the commercial rationale, alternatives considered, and any independent legal and financial advice taken. Where conflicts exist, consider recusals or special committees. What Byers v Chen teaches is that the court will examine contemporaneous documents for evidence that creditor interests (not shareholder expediency or relationship banking) were at the centre of decision‑making.
For litigators and insolvency officeholders, pleadings and evidence should be trained on knowledge and depletion. Identify when the duty became engaged, reconstruct the cash position and creditor schedule at the time of the impugned payments, and show how the general body of creditors was worse off as a result. Do not be deterred by “no net loss” arguments. The Court has now said in terms that depletion of the distributable pool is a loss to the company, and that equitable compensation with subrogation is an available and appropriate remedy. At the same time, remember the dual tracks. Statutory avoidance claims where available, and common‑law fiduciary claims where the code does not reach or where equitable relief better matches the harm.
There is one final procedural note. Conditional leave to appeal to the Privy Council has been granted. If the appeal proceeds, the Board will have an opportunity to speak to the quantum and remedial architecture in a creditor‑duty case post‑Sequana. For now, Byers v Chen stands as the leading BVI authority that transforms creditor‑duty rhetoric into a practical, enforceable discipline on boards operating in the twilight zone.