Insolvency Disputes: The Effect Of Failing To Challenge A Statutory Demand

• Published date: 13 May 2020
• Author: Mr Andrew Willins and Terence Wong
• Subject Matter: Litigation, Mediation & Arbitration, Insolvency/Bankruptcy/Re-structuring, Insolvency/Bankruptcy, Arbitration & Dispute Resolution, Trials & Appeals & Compensation
• Law Firm: Appleby

What are the repercussions, if any, of a respondent's failure to challenge a statutory demand in respect to its ability to oppose a subsequent winding up petition?

This question has arisen in the BVI Courts in the past and has resulted in a number of conflicting authorities. The issue was recently considered again by the Commercial Court in Everbright Sun Hung Kai Company Limited v Walton Enterprises Limited BVIHC (COM) 2020/0022, a winding up petition which was conducted remotely by video link on 31 March 2020, in which Terence Wong of Appleby acted for the successful respondent.

Before turning to the decision in Walton, it is helpful to note the key authorities that are relevant to this issue.

The starting point is section 8(1)(a) of the Insolvency Act 2003 (the Act) which provides a statutory presumption of insolvency:

"8(1) A company or a foreign company is insolvent if -

• It fails to comply with the requirements of a statutory demand that has not been set aside under section 157;

On a strict interpretation, the provision appears to be absolute. However, the Eastern Caribbean Court of Appeal found otherwise in Trade and Commerce Bank v. Island Point Properties SA HCVAP 2009/12. That decision emphasises the wide scope of the BVI Court's discretionary powers to either grant an order to appoint a liquidator, dismiss the application, or make any other direction or order it deems appropriate. This discretion is fortified by section 167 of the Act.

Specifically, Trade and Commerce considered the interaction between the discretion of the Court expressly conferred by s.167, and the s.8(1)(a) presumption of insolvency; ultimately, it found that s.167 prevails. The judgment confirms the BVI Court's power to review the underlying statutory demand and that the discretion is available where the respondent has failed to bring an application to set aside the statutory demand within the prescribed 14 day period, notwithstanding s.8(1)(a).

Trade and Commerce further identifies that in cases where the respondent opposes the underlying statutory demand, albeit unsuccessfully, the principle of estoppel may prevent it from defending a winding up petition on the same grounds. However, Trade and Commerce does not explore the type of estoppel that is engaged in such circumstances.

This brings us to the leading authority on estoppel from the UK Supreme Court, Virgin Atlantic Airways Ltd v. Zodiac Seats UK Ltd [2013] UKSC 46, [2013] 3 WLR 299. Whilst Virgin Atlantic was not an...