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Many businesses are currently experiencing unprecedented pressure on their cash flow as a result of the COVID-19 pandemic and the governmental restrictions which are being implemented around the world. It is very important therefore that directors of British Virgin Islands (BVI) companies which may be approaching insolvency take steps to evaluate the position of the company with a view to avoiding personal liability. A director can be personally liable if such director fails to take appropriate steps to commence formal liquidation where there is no reasonable prospect of the company avoiding insolvent liquidation.
A company will be insolvent under BVI law if any of the following apply:
Determining whether a company is unable to pay its debts as they fall due can be a grey area and so directors need to consider the issues below as soon as they become aware of prospective financial difficulties. The relevant duties apply to all directors, including shadow directors if any.
The fundamental question directors should consider, both when financial difficulties first become apparent and on an ongoing basis until the financial difficulties are resolved, is whether there are reasonable prospects that the company will avoid insolvent liquidation. If the answer is that there are no such reasonable prospects, the directors should take appropriate steps to appoint an insolvency practitioner to act as liquidator of the company as soon as reasonably practicable.
A director may be held personally liable if, on the application of a liquidator, a court decides that the director knew or ought to have concluded prior to commencing formal liquidation that there was no reasonable prospect that the company would avoid going into insolvent liquidation.
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Insolvent Trading – British Virgin Islands Companies