In the recent decision of Greig William Alexander Mitchell & Ors v Sheikh Mohamed Bin Issa Al Jaber & Ors  EWHC 364 (Ch), the English High Court was required to consider the question of what duties (if any) a director owes to a BVI company post-liquidation; in particular in light of section 175(1)(b) of the BVI Insolvency Act 2003 (hereinafter, the Act) which expressly provides that upon liquidation “the directors and other officers of the company remain in office, but they cease to have any powers, functions or duties other than those required or permitted under [Part VI of the Act 1] or authorised by the liquidator”.
The decision arose out of an application by the liquidators of a BVI company (hereafter, the Company) and appears to be the first time that this issue has been addressed by a Court in any jurisdiction (at least in a published judgment).
A copy of the Mitchell decision can be found here.
The Relevant Legal Issues
While the facts of the Mitchell case are complex, for the purposes of this article it is sufficient to say that the English Court was concerned with, among others, two legal issues, namely:
- whether or not Sheikh Mohamed Bin Issa Al Jaber and his daughter, Masal Mohamed Al Jaber, who both remained in office as directors of the Company, owed any duties to the Company after it had gone into insolvent liquidation (in light of s.175); and
- If they did, whether certain steps taken by them after the Company’s liquidation, in particular the transfer of shares in the Company’s subsidiary (hereafter, the Shares), constituted a breach of those duties.
Before turning to the Court’s analysis and conclusions on each of those issues, there are several important caveats that should be noted. First, in respect of (i) it was common ground between the relevant BVI law experts that there were no relevant BVI or English authorities to draw upon (in fact the position under the English Insolvency Act 1976 is materially different to the position under the Act, since a director’s appointment is automatically terminated upon compulsory liquidation). Second, and as touched upon already, in reaching its conclusions the English Court was almost entirely reliant upon the views expressed by the BVI law experts that had been called by the parties. Finally, as an English High Court decision it remains to be seen whether the BVI Courts will ultimately follow the reasoning adopted by the English Court.
The English Court’s Determination of the Relevant Issues
On the issue of whether or not a director owes duties to a BVI company post-liquidation, the liquidators argued that the general duties of a director (as codified in sections 120-124 of the BVI Companies Act 2004) continue to apply after a company has gone into liquidation, on the basis that that was “required” for the purposes of Part VI of the Act. That argument was rejected by the English Court. Instead, the Court accepted the Defendants’ argument that the duties in ss.120-124 are expressed as applying only when a director is “exercising his powers or performing his duties”, and therefore could not apply when a director’s powers and duties had been expressly removed by s.175.
However, the Court did accept that where a director has been appointed and retains company assets in his or her possession or control post-liquidation, then he or she may owe a duty of fiduciary stewardship to the company in relation to those specific assets. However, it found that that duty would be very limited, and would comprise no more than an obligation not to deal adversely with the relevant property.
According to the English Court, the obligation of fiduciary stewardship was “rooted firmly in the original assumption of responsibility by a director, as fiduciary steward, for company property”, and was required in order to ensure that a director could be held to account if he or she exercised control over the company’s property and/or engaged in any unauthorised dealings with it. If they did, then director could be required to account to the company as a constructive trustee and/or to pay the company equitable compensation.
The Court nevertheless cautioned that whether or not the duty exists in any particular case would depend upon the facts of that case and the relationship between the relevant parties.
As well as considering the fiduciary duty of stewardship, the Court also considered several other potential duties and either rejected them, or found that they did not apply on the facts of the case before it.
For example, the Court rejected the suggestion that a director of a BVI company owes a duty to the company to disclose his own wrongdoing after the date of the company’s liquidation. The Court also rejected the suggestion that there was any wider more general duty of disclosure on a BVI director. The Court also dismissed the liquidators’ submission that a BVI director is under a general duty to “deliver up” company property to a liquidator (although the Court did accept that if the director is liable to account as a constructive trustee, then in those specific circumstances an immediate obligation to restore the estate would arise). Finally, although the Court considered that a duty to account might arise between a director and a BVI company (where the director is under a duty of stewardship), the court determined that the liquidators had failed to prove that such a duty arose on the facts of the case before it.
Finally, it is worth noting that the Court expressly rejected the Sheikh’s defence that he had not exercised control over the Shares because he had ceased to have any powers as a director of the Company after it had gone into liquidation (and any subsequent actions – in completing the share transfer forms – had been limited to exercising his powers as a director of the subsidiary). Instead, the Court found that by holding himself out as having authority and power to sign the share transfer forms on behalf of the Company – which had enabled the Sheikh to cause their registration – the Sheikh had “taken control” of the Shares.
In light of its findings, the Court ordered the Sheikh (and the entity that had received the Shares) to pay the Company (jointly and severally) c.€67 million by way of equitable compensation.
It remains to be seen whether or not the BVI Court will ultimately follow the Mitchell decision (or even expand upon it), but in the meantime it is likely to be a useful guide to determining the potential scope of a BVI director’s duties (and conceivable liabilities) post-liquidation.
1 Part VI of the BVI Insolvency Act 2003 deals with the matters pertaining to compulsory liquidation.