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.
Part VII of the Insolvency Act, 2003 (the “Act”) sets out the circumstances under which the High Court of the BVI may make an order setting aside a transaction or disposition of property in whole or in part. 1 For these purposes, a company is regarded as being insolvent if:
Under the Act transactions may be set-aside where they constitute “insolvency transactions” that are entered into during the “vulnerability period”.
It is important to determine whether a creditor falls within the definition of a connected person. Transactions with connected persons increase the vulnerability period and shift the burden of proof in determining whether a transaction is voidable. The connected person definition is broad and includes promoters of the relevant company, directors or members of the relevant company or a related company, a related company, a company with common directors, a partner, nominee or relation of a connected person and certain trustees and beneficiaries. The definition of related companies includes subsidiaries, holding companies and those entities under common control.
To continue reading full articles in PDF format:
Voidable Transactions – BVI Companies
1 For completeness, The Conveyancing and Law of Property Ordinance 1961 provides a separate basis for setting-aside a transaction: any conveyance of property made with the intention of defrauding creditors is voidable at the option of any person prejudiced by it. It is not necessary that the company was insolvent at the time the property is conveyed. This is not considered further in this note.
2 The balance sheet insolvency is specifically excluded for the purposes of the voidable transactions regime, although balance sheet insolvency must to some extent be taken into account in considering cash flow insolvency.
3 Where a liquidator was appointed by the members of a company, the onset of insolvency is the date of such appointment.