Cross-border insolvency: examination of former officers and directors in the BVI and Cayman

In today’s global financial environment, it is becoming increasingly common for liquidators to have to look beyond their home jurisdictions to identify, secure and ultimately realise a company's assets. 

One of the most powerful, but often overlooked, investigative tools in any office holder's armoury is the ability to apply to the court to examine a former director or officer of a company in liquidation, who has demonstrated a reluctance to cooperate.  

As section 236 of the UK Insolvency Act 1986 has limited extra-territorial effect, office holders operating in a global context will likely be comforted by the fact that the BVI and Cayman Islands have shown a consistent readiness to support foreign office holders and provide ancillary relief to help identify and protect local assets and enable cross-border cooperation. Although neither the Cayman Islands or BVI have adopted the UNCITRAL Model Law on cross-border insolvency, both have regimes which provide for the recognition of, and assistance to, foreign office holders.  

Recognition of and assistance to foreign office holders 

The Cayman Court's approach  

In the Cayman Islands, sections 240 to 242 of Part XVII of the Companies Act (which deals with international cooperation), as supplemented by the Foreign Bankruptcy Proceedings (International Cooperation) Rules 2018, provide a statutory regime for the recognition and provision of assistance to foreign office holders. In order to fall within the ambit of Part XVII, the debtor must be:  

1. a foreign corporation or other foreign legal entity, and 
2. subject to a foreign bankruptcy proceeding in its country of incorporation or establishment, being proceedings for the purpose of reorganising or rehabilitating an insolvent debtor (the debtor must be insolvent)

Under this statutory regime, a foreign representative (defined as a trustee, liquidator or other official appointed in respect of the debtor) can apply for various ancillary orders to a foreign bankruptcy proceeding. These include orders: 

• recognising the foreign representative's right to act in the Cayman Islands 
• restraining or staying any proceedings against the debtor 
• requiring the turnover of the property belonging to a debtor 
• requiring a person who has information relating to the business or affairs of the debtors to attend for examination or produce documents  

The Cayman Court's power to make ancillary orders is discretionary and, in the exercise of that discretion, the Court will be guided by matters ensuring the "economic and expeditious administration of the debtor's estate" consistent with:  

• the just treatment of all creditors 
• protecting local creditors from undue prejudice or inconvenience in the foreign bankruptcy proceeding 
• preventing fraudulent or preferential transfers 
• respecting local priority rules in distributions 
• upholding valid security interests 
• refusing to enforce foreign revenue or penal claims, and 
• observing judicial comity  

In cases falling outside of the Part XVII, often where a foreign office holder has been appointed in a non-place of incorporation, the Grand Court of the Cayman Islands will apply the common law principle of modified universalism as articulated in the Privy Council decision of Singularis Holdings Ltd v Price-waterhouseCoopers [2014] UKPC 36 to recognise and assist foreign insolvency proceedings. 

The BVI Court's approach 

The position in the BVI is somewhat different in that its recognition and assistance regimes are treated differently. With respect to recognition, although Part XVIII of the BVI Insolvency Act contains the UNCITRAL Model Law, providing for the recognition of foreign office holders, it is not in force and is unlikely to be in the foreseeable future. As a result, the UNCITRAL model law is not yet adopted in the BVI so any recognition of a foreign office holder in the BVI must be through the common law.  

With respect to assistance, Part XIX of the BVI Insolvency Act, which is in force, provides a comprehensive code for the BVI Court to provide assistance to foreign office holders – but only those from certain designated jurisdictions – in specified types of insolvency proceedings. Prior to 18 September 2024, the list of designated jurisdictions for the purposes of Part XIX of the BVI Insolvency Act was limited to nine countries: Australia, Canada, Finland, Hong Kong, Japan, New Zealand, Jersey, the UK and the US. In a significant development, this list was expanded in September 2024 to include a further 24 counties, including other offshore jurisdictions.  

The leading authority on the interplay of the dual regime of recognition and assistance in the BVI is the Eastern Caribbean Court of Appeal decision of Net International Property Ltd v Adv Eitan Erez (BVIHCMAP 2019/0010, 20 September 2021). In this judgment, the Eastern Caribbean Court of Appeal confirmed that recognition at common law remains available to foreign representatives from any jurisdiction, giving them standing before the BVI Court. However, the Eastern Caribbean Court of Appeal also held that Part XIX of the Insolvency Act provides a complete framework for assistance and therefore substantive assistance (including the power to examine former officers of a BVI company) can only be granted under Part XIX to representatives appointed in designated countries.  

In accordance with section 467 of the BVI Insolvency Act, the relief available to foreign office holders who fall within the ambit of Part XIX is wide and includes: 

• the delivery up of property 
• the appointment of an interim receiver over the debtor's property 
• the examination of any person who could be examined in a BVI insolvency proceeding 

The BVI Court's discretion as to whether to provide assistance is similarly guided by what will best ensure the economic and expeditious administration of the foreign proceeding, consistent with the:  

• just treatment of all claimants 
• protection of local creditors 
• prevention of preferential or fraudulent transfers 
• the local rules on priority of distributions, and 
• judicial comity  

With the exception that no order shall be made that is contrary to the public policy of the BVI. 

Examination of officers and production of documents 

Upon entering an insolvent liquidation, liquidators need to move quickly to identify, locate and take control of the company's assets.  

In practice, this is often achieved by the liquidators working with the former officers of the company to understand how the company was operated - particularly in the months leading up to the liquidation - and to urgently identify and take control of the assets. However, in situations where the former officers refuse to engage with the liquidators, an important (and perhaps critical) factor will be the level of assistance a liquidator will receive from a foreign court.   

With respect to both the Cayman Islands and the BVI, one important tool available to liquidators is the ability to seek an order requiring a person who has relevant information about the company to attend an examination.  

This tool can be used extremely effectively to enable an office holder to fulfil his or her functions, including to: 

• obtain accurate information about the company's assets, liabilities, creditors and dealings 
• identify and recover assets 
• investigate the causes of the company's failure  

The courts of the Cayman Islands and the BVI have demonstrated that they are willing to provide assistance to foreign office holders by making local orders for examination in support of the foreign insolvency in appropriate cases. However, there are differences in how each jurisdiction deploys the power. 

For example, in the Cayman Islands, an order for examination can be made against a "relevant person" who has taken part in the promotion or management of the company.  A distinction has been drawn in the Cayman Islands between "insiders" and "externals": 

• "Insiders" – for example, former directors or officers, against whom an order for examination can be made 
• "Externals" – for example, former auditors or lawyers  

Recent Cayman case law has also confirmed that the power is aimed at assisting liquidators to undertake their statutory functions. It is not intended to be a tool to allow a liquidator to obtain disclosure from a foreign third party in order to obtain a special advantage over their opponents in litigation.  

By contrast, in the BVI an order for examination in support of a foreign insolvency proceeding can be sought against a former director or officer but also extends to a broad group of persons. This group includes, a receiver, accountant or auditor of the company, or someone employed by the company during the relevant time.   

How Ogier can help 

A foreign office holder's power to examine a former director or officer is a powerful, yet often overlooked, tool. This is particularly true in cases of suspected misconduct, where written interrogatories or document production will not suffice. However, the differences in approach between jurisdictions, including how the power may be exercised, underscores the need to obtain local advice from experienced practitioners.  

For further information or advice on the procedure for obtaining assistance in support of a foreign insolvency, including local orders for examination, in the Cayman Islands and / or BVI, reach out to our expert Restructuring and Insolvency team. 

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Disclaimer

This client briefing has been prepared for clients and professional associates of Ogier. The information and expressions of opinion which it contains are not intended to be a comprehensive study or to provide legal advice and should not be treated as a substitute for specific advice concerning individual situations.

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