Partner Tameka Davis and Associate Allana-J Joseph shared their insights with the readers of CDR Magazine on an important decision of the Eastern Caribbean Supreme Court, Court of Appeal (sitting in the Territory of the Virgin Islands).
According to the authors: “The case, Net International Property Limited v. Adv Eitan Erez, is a pivotal decision because it is the first and only decision by the appellant court which comprehensively examines the distinction between the common law power of both recognition and assistance, and the extent to which the British Virgin Islands (BVI) Insolvency Act has, or crucially has not, eroded either power.”
On 22 February 2021, the Eastern Caribbean Supreme Court, Court of Appeal (sitting in the Territory of the Virgin Islands) delivered an important decision on the scope of the court’s jurisdiction to recognise and grant assistance to a foreign office holder at common law in the BVI, explains Tameka Davis of Conyers.
The case, Net International Property Limited v. Adv Eitan Erez, is a pivotal decision because it is the first and only decision by the appellant court which comprehensively examines the distinction between the common law power of both recognition and assistance, and the extent to which the British Virgin Islands (BVI) Insolvency Act has, or crucially has not, eroded either power. This article will explore the impact and implications of that decision.
The respondent to the appeal Mr Eitan Erez, was appointed as trustee in bankruptcy over the affairs of Rachel Sofer, a debtor and Israeli national by the Tel Aviv District Court in Israel. There was also a series of other related proceedings in Israel over the course of many years, culminating in a finding by the Israel Supreme Court on 31 October 2018 that the debtor was the moving force and controller of Net International Company (the appellant), a company incorporated in the BVI. Relying on the finding by the Israel Supreme Court, Mr Erez applied to the BVI Commercial Court by Fixed Date Claim Form, pursuant to the court’s common law powers of recognition, to be recognised as the trustee in bankruptcy over the assets of the debtor located in the BVI (including necessarily her interest in the appellant) and for ancillary orders related to such.
On 9 June 2020, the Honourable Mr Justice Adrian Jack summarily determined the application and granted the relief sought. The trial judge ordered that the trustee be recognised as trustee of the assets of Mrs Sofer, be registered as shareholder of Net International Company and that the current registered agent of the company rectify the register of members to reflect the new shareholding in the name of Mr Erez.
The appellant appealed.
The Issues on Appeal
There were several issues arising from the appeal; relevant for the purpose of this article, however, are the following:
First, is there a real distinction in law between ‘recognition’ and the ‘grant of assistance’ at common law? Second, did the common law power of recognition survive the enactment of Part XIX, in particular section 466, of the BVI Insolvency Act?Third, did the common law power relating to the grant of assistance survive the act?
In summary, the Court of Appeal held that there was a distinction at common law between the court’s power to recognise a foreign office holder and the grant of assistance to that foreign official. The court also held that while the enactment of Part XIX of the BVI Insolvency Act did not abrogate the power of recognition, it did do away with the power to grant assistance. Further, since that power could only be exercised to assist foreign office holders from countries designated by the legislature, of which Israel did not form a part, the respondent, while he could be recognized as trustee in bankruptcy in the wide sense, could not be granted assistance under section 466 of the Act.
In concluding that recognition did not necessarily include assistance and thus that recognition and assistance were different concepts, albeit related and traditionally used conterminously, the court relied on dicta in Re African Farms Ltd , Rubin and Another v Eurofinance Sa and Others  and in an unreported regional case Globe-X Management Limited and Others v Clifford Johnson and Another (Anguilla) (delivered 23 May 2005). In essence, the court held that recognition was the “formal act of the local court recognising or treating the foreign office holding as having status in the BVI in accordance with his or her appointment by the foreign court”, assistance on the other hand was described as going further, because, if granted, it would allow the foreign holder to deal with the assets in the BVI. As the court put it, “recognition” gave the foreign office holder “status” while assistance gave that holder “power” in the BVI.
As it relates to the court’s power to grant recognition at common law, the court took the view that there was nothing in the language of Part XIX of the act which showed that the legislature, whether expressly or by necessary implication, intended to abrogate the common law power of recognition. In coming to this view, the court said that a common law right could only be abrogated by statute if the statute in question provided a comprehensive scheme which replaced the existing common law right. After construing Part XIX of the act, it was plain that this part did not provide for such a scheme, thus there could be no abrogation. That said, the Court did find that it was the previous Part XVIII of the Act which was the intended statutory regime, but since it had not been in force and so long as that remained the case, recognition would remain a part of the common law of the BVI.
However, applying the same logic, the court took a different view on whether the common law power to grant assistance survived the enactment of Part XIX. There the court held that under Part XIX of the act the legislature did intend to do away with the court’s more narrow power to grant assistance because, contrary to the position vis-à-vis the court’s power of recognition, that part did provide a complete code for foreign representatives to seek the BVI Court’s power of assistance and that assistance was only limited to those designated countries. As an important point of detail, it is worth pointing out that in the BVI, as matters stand, there are only nine designated countries: Australia, Canada, Finland, Hong Kong, Japan, Jersey, New Zealand, United Kingdom and the United States.
The Implications for the BVI
The decision in Net International is undoubtedly a comprehensive and a long overdue analysis of the BVI court’s power of recognition and assistance at common law. The clarification that this decision offers is to be celebrated. Before it, in Re C (a bankrupt) 2013, a lower court decision of the BVI Commercial Division, the then learned judge said that when Part XIX and Part VIII were read together they were intended to be restrictive of the class of persons who may be the object of the court’s recognition and assistance. By the dicta in Net International, the restriction will only apply to those persons seeking assistance, not recognition, under the common law. Therefore, although it was found that assistance could only be granted pursuant to section 466 of the act, recognition under the common law will continue to exist in the BVI until and unless Part VIII is brought into force and consequently the common law is abrogated.
Although the decision is to be celebrated, that unfortunately is not the end of the matter. There remains room for improvement and questions remain. The more obvious improvement is a legislative one; a move to expand the countries which should be designated under section 466 of the act is long overdue. The nine countries which are currently on the list of designated countries were designated by the Financial Services Commission over 15 years ago on 23 August 2005. In light of the BVI’s continued role as one of the largest incorporation jurisdictions, jurisdictional developments in cross-border insolvencies and restructuring, and a general policy shift towards cooperation between courts this list is ripe for revisiting. If the BVI is to remain a stalwart in the financial and legal services industry, this must be prioritised.
Finally, the question which remains is this: once a foreign office holder is recognized in the BVI, and thus treated as if he were a BVI appointed trustee in bankruptcy or liquidator, with the status which this attracts, will he be able to exercise that status without assistance? This is yet to be answered, but the view of this author is that he can, because a BVI appointed trustee in bankruptcy or liquidator could exercise that status without assistance.
This article was first published in CDR Magazine.