The Judicial Committee of the Privy Council has handed down judgment in UBS AG New York and others v Fairfield Sentry Ltd (In Liquidation) and others (British Virgin Islands)  UKPC 20;  5 WLUK 296 ('UBS v Sentry'), on whether section 249 of the Insolvency Act 2003 (British Virgin Islands) confers an exclusive jurisdiction on the BVI High Court to provide restorative remedies following avoidance of a corporate antecedent voidable transaction, such that liquidators ought to be precluded from seeking the assistance of a foreign court.
The dispute in USB v Sentry arose in respect to certain ‘feeder’ fund companies linked to the Bernie Madoff multi-billion dollar Ponzi scheme fraud, one of which was called Fairfield Sentry Limited (‘Sentry’).
An application had been made by UBS, a counterparty to certain impugned voidable antecedent transactions (redemption of shares based on inaccurate valuations), in the BVI High Court, for an anti-suit injunction, to restrain the liquidators of Sentry (‘the Liquidators’) from proceeding with their claims before the US Bankruptcy Court in New York (the foreign court), under section 249 of the British Virgin Islands' Insolvency Act 2003. The BVI High Court refused to grant an anti-suit injunction and the Eastern Caribbean Supreme Court upheld that decision. On a further appeal to the Privy Council, Lord Hodge giving the advice of the Board, identified the central question, at paragraph 12, as turning on a:
‘…question of statutory interpretation. It is whether section 249 of the [Insolvency Act] 2003 either expressly or by necessary implication confers an exclusive jurisdiction on the High Court so as to preclude foreign courts, which assist in a BVI liquidation, from exercising such powers.’
The Board answered this question in the negative. Lord Hodge said:
‘The section is a provision in the domestic insolvency law of the BVI. It, read with section 2, identifies the court within the BVI which is to exercise the statutory powers which it confers. It gives jurisdiction to the High Court…It contains no express prohibition on a foreign court from exercising those powers at the request of a BVI office holder and no such prohibition arises by necessary implication. In short, the section does not address the matter of the powers of a foreign court; one would not expect it to do so. On the contrary, it is a question for each foreign court from which a BVI office holder seeks assistance to determine whether it can use the statutory tools which BVI insolvency legislation has conferred on the BVI court.’ (paragraph 13)
Lord Hodge drew support for this construction from Part XIX of the Insolvency Act 2003, which ‘…relates to orders which the BVI court may make in aid of foreign proceedings’ (paragraph 13). Lord Hodge said, in paragraph 13:
‘The existence of this domestic regime to assist a foreign insolvency proceeding strongly militates against any implication of exclusivity in section 249. No issue of a lack of comity arises….the BVI legislature must have been expecting foreign courts to be able to apply BVI insolvency law.’
It was correct, as UBS submitted, that:
‘…in exercising powers under section 249 of the [Insolvency Act] 2003 a foreign court would not be vindicating property rights which a BVI company had prior to its winding up. It would be responding to an application by the liquidators for that court to exercise a discretionary power in the BVI's statutory insolvency scheme to adjust concluded transactions in the interests of the company's creditors as a whole.’
Further, that there was also:
‘…a possibility that different foreign courts may exercise the discretion so conferred in different and not necessarily consistent ways…’
However, the Board found, at paragraph 16, that those considerations did not ‘…militate against the Board's conclusion that section 249 does not prohibit a foreign court from exercising the powers which it confers.’
Lord Hodge, giving the advice of the Board, made an additional point - that the application for an anti-suit injunction against the Liquidators’ had been misconceived. I was noted, at paragraph 6, that the Liquidators were appointed by the BVI High Court and were ‘…officers of the High Court (section 184(1) of the [Insolvency Act 2003]) and are subject to the direction of that court. ‘
Lord Hodge said, at paragraphs 17, 19 and 20, that:
‘First, the liquidators have raised the proceedings in the United States with the authority of the High Court. They are officers of the High Court. If there were grounds for preventing the liquidators from proceeding with the US claims, the High Court would not need to grant an injunction but could revoke its permission for the proceedings to continue. The High Court has not done so....
Secondly, it is now a question for the US courts whether they should apply BVI law as the liquidators request…it is arguable that the US court could competently apply BVI law under US rules of private international law…
It is for the US court to interpret chapter 15 of the US Bankruptcy Code and to apply the rules of its private international law...
Thirdly, absent a prohibition in section 249 on a foreign court from using the powers which it conferred, there is no question of vexatious or oppressive litigation, such as might justify the grant of an injunction.’
The Board advised that the appeal, against a decision of the Court of Appeal of the Eastern Caribbean Supreme Court (Pereira CJ and Blenman and Thom JJA) to dismiss an appeal against the decision of Barry Leon J (as he then was) in the BVI High Court, should be dismissed.
In English Law, the main provisions on corporate antecedent voidable transactions are to be found in the Insolvency Act 1986, in particular, section 238 transactions at an undervalue and section 239 unlawful preferences. These are worded differently to section 249 of the Insolvency Act 2003 (British Virgin Islands), limiting the extent to which UBS v Sentry will be a persuasive authority as to how an English Court should approach a similar issue. However, as to an English court receiving a request to assist a foreign insolvency proceeding, the Board observed, at paragraph 15, that:
'...it is not uncommon for the courts in one country to apply the insolvency laws of another when giving assistance to the latter country. In the United Kingdom section 426(5) of the Insolvency Act 1986, like section 467(5) of the [Insolvency Act] 2003, gives the court authority to apply the insolvency law of the jurisdiction of the court which is requesting assistance. Thus, in England v Smith  Ch 419, the Court of Appeal of England and Wales applied the insolvency law and practice of the requesting Australian court, and not the practice of the English courts, in dealing with an application to examine an accountant who had been involved in the audit of the accounts of the insolvent Australian company. It held that the requesting court had exercised its discretion under section 596B of the Australian Corporations Law in seeking the examination and that the English court should not perform that task again unless it was shown that the requesting court had been ignorant of some material fact or subsequent events had undermined the justification for the order of the requesting court (paras 22-28 per Morritt LJ). ... it is an example of an English court adopting Australian practice rather than domestic practice in its decision-making in assisting in a cross-border insolvency...'
Further, the Board expressly summarised the antecedent voidable transaction post-avoidance restorative power, as empowering the court to devise a '...suitable remedy to achieve restitution'. The Board observed, at paragraph 11, that:
'Section 249 gives the court a discretion, once it has set aside the voidable transaction, to make such order as it thinks fit to restore the position of the company. This provision, like those in the modern statutory insolvency regimes of several common law countries, has empowered the court to devise a suitable remedy to achieve restitution rather than merely annulling the transaction and leaving the consequences of that annulment to the operation of the general law...'
This is a welcome clarification as to jurisprudential principles lying behind this restorative power, as found in many common law countries' insolvency regimes.
SIMON HILL © 2019
33 BEDFORD ROW
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