Litigation Funding In British Virgin Islands Liquidations: Practical Guidance For Liquidators

• Published date: 08 June 2023
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, Insolvency/Bankruptcy/Re-structuring, Corporate and Company Law, Insolvency/Bankruptcy, Contracts and Commercial Law, Trials & Appeals & Compensation
• Law Firm: Ogier
• Author: Mr Shane Quinn and Justin Davis

Currently, the British Virgin Islands has no legislative framework for regulating third party litigation funding. Until recently, the absence of such a framework led many to believe that the rules against maintenance and champerty still operated so as in practice to prevent litigants from raising funds from third parties to prosecute or to defend claims. In Crumpler v Exential Investments Inc (BVIHC(COM) 2020/0081; 29 September 2020) Jack J clarified that third party funding arrangements were enforceable in the BVI.

While precedent in this area is limited, it appears that not all litigation funding will necessarily be permitted. There is no longer any statutory impediment to third party litigation funding, but the court still appears to have a residual responsibility for preventing the self-interested encouragement of lawsuits. Accordingly, litigation funding must be responsible, which is to say that it must not cede control of the prosecution of a cause of action to the funder, and the funder must be able to fund adverse costs to the amount it is funding the action itself. (See Leremeieva v Estera Corporate Services (BVI) Ltd (BVIHCM 2017/0118; 4 April 2019).)

In the context of a liquidation, whether it is solvent or insolvent, a liquidator may need to consider sourcing funding for litigation. This article looks at the options liquidators have in such situations, how those options are to be considered in view of liquidators' duties under BVI law, and what practical steps a liquidator can take to protect their position.

Fiduciary Duties

Liquidators are unique creatures of statute. They are in many ways like a trustee for the body of creditors (though no property vests in them). They are officers of the court where they are appointed under the Insolvency Act, 2003 but not so when appointed under the Business Companies Act, 2004. Both Business Companies Act and Insolvency Act liquidators are agents of the company, even though a liquidator controls their principal. Despite the difficulty in categorising liquidators, it is well established that they owe fiduciary duties to the company and to the body of creditors. In the context of a liquidation, a liquidator's fiduciary duties, whether as a Business Companies Act or Insolvency Act liquidator, include the duty to act in good faith and reasonably, and in the best interests of the company and the company's creditors as a whole.

Duty of care to creditors

A liquidator is expected to exercise their own independent judgment and to use their knowledge and experience in making commercial and administrative decisions. However, if a liquidator decides to sell an asset of the company in liquidation, they owe a duty of care in relation to the timing and valuation of the transaction.

In Brewer v Iqbal [2019] BCC 746, the English High Court found an administrator to have been in breach of his duty of care by failing to take specialist advice from a person within the relevant (and highly specialised) industry in which the company operated, by:

• failing to obtain a proper valuation of the company's assets before their sale
• failing to bring those assets to market through appropriate advertising

Liquidators have wide discretion in exercising their powers, but Brewer is a strong reminder that the discretion afforded to liquidators is not limitless. Professional advice is not always necessary, but there will be circumstances where a failure to obtain such advice vitiates the liquidator's decision-making process.

Realising a cause of action

It would be a mistake to assume that all BVI liquidations operate in the same way. There are a number of ways in which a liquidator may be appointed over a company, and under different pieces of legislation. A liquidation might even transition...