Receivership applications are becoming increasingly popular in the BVI. They can be a powerful tool in seeking to protect assets on an interim basis pending the determination of litigation, or thereafter in the enforcement of judgments. While the BVI Court has shown that it is prepared to grant a receivership order in a broad range of circumstances, such a remedy is viewed as draconian and it is important to keep in mind the limits within which such applications are likely to be successful and where it may be better to seek alternatives, such as a freezing order (at least in the first instance). In this note, we provide a brief overview of the rules governing receivership in the BVI and a summary of the key jurisprudence determining when the Court will find that such an appointment is appropriate.

What is a receiver?

In the BVI, a receiver can be appointed under a security document (beyond the scope of this note), or by the Court. In the context of litigation, their role is primarily to get in or to “receive” assets which are the subject of the proceedings and either to hold these until the case has been decided or to “aid in the equitable execution of a judgment”. It is important to note that receivership is not a collective process, unlike insolvency (although see below in relation to the breadth of a receiver’s duties, including, potentially, to the creditors of a company).

Receivership is primarily governed by Part 51 of the Eastern Caribbean Supreme Court Civil Procedure Rules (the “CPR”), s. 24 of the Eastern Caribbean Supreme Court (Virgin Islands) Act (Cap 80) and Part IV of the BVI Insolvency Act, 2003 (as amended) (the “Act”), together with Part VI of the Insolvency Rules 2005 (as amended) (the “IR”).

Rule 51.2(1) of the CPR provides that an application for the appointment of a receiver must be supported by affidavit evidence. Rule. 51.3 further provides that “in deciding whether to appoint a receiver to recover a judgment debt, the Court must have regard to the (a) amount likely to be obtained by the receiver; (b) amount of the judgment debt; and (c) probable cost of appointing and remunerating”. Generally, a receiver is required to provide security in the form of a guarantee, although the Court may dispense with this requirement (r.51.4).

Section 114 of the Act sets out a list of persons who are proscribed from acting as a receiver. This includes a “body corporate”, a person who within the last two years has been “a shareholder in or member of the company or a related company” and/or “a person who, in an insolvency proceeding, would not be eligible to act as an insolvency practitioner in respect of the company pursuant to section 482(2)”. Aside from the prohibitions in that section and the IR, a receiver is not required to have any particular qualifications, although it is often advisable that an applicant seek to appoint an experienced officeholder. We have strong relationships with professionals in the Territory and we would be happy to make introductions, as needed. Joint appointments are common and often beneficial in complex or cross-border cases. The Act and IR provide for the notice that is required to be given by receivers following their appointment, as well as the rules governing their resignation or removal.

The powers of a receiver

Pursuant to s.127 of the Act, a receiver has the powers conferred on them by the document or Court order appointing him or her.  Section 127(2) further provides that:

“Unless the charge or other instrument under which, or Court order by which, he or she was appointed expressly provides otherwise, a receiver may—

(a) demand and recover, by action or otherwise, income of the assets in respect of which he or she was appointed;

(b) issue receipts for income recovered;

(c) manage, insure, repair and maintain the assets in respect of which he or she was appointed; and

(d) exercise, on behalf of the company, a right to inspect books or documents that relate to the assets in respect of which he or she was appointed in the possession or under the control of a person other than the company.”

CPR r. 51.6 also provides that a “receiver’s powers operate to the exclusion of the powers of the judgment debtor for the duration of the receiver’s appointment”

The duties of a receiver

These are set out in s. 128 of the Act, which provides that “the primary duty of a receiver is to - (a) exercise his or her powers for a proper purpose; and (b) in a manner he or she believes, on reasonable grounds, to be in the best interests of the person in whose interests he or she was appointed”. Section 128(2) goes on to provide a limited list of those persons in whose interests the receiver is to have “reasonable regard” in exercising their duties insofar as it is consistent with the primary duty above. Importantly this includes “the company” and “the creditors of the company”.

Where a receiver is appointed over a company, they act as an agent of that entity and not of the applicant who has applied for their appointment. Pursuant to s.130, a receiver is personally liable for any contract that they have entered into in the performance of their functions, together with certain other liabilities, including any contract of employment that they have adopted within 14 days’ of their appointment (see s130(4)). However, a receiver will generally be entitled to an indemnity out of the proceeds of the assets over which they have been appointed (s.130(5)).

Pursuant to s. 134(2) a “receiver appointed by the Court or in accordance with any other enactment is entitled to be paid such remuneration as the Court may order or the other enactment may provide for”. This is normally applied for by the receiver and assessed by the Court (s.134 (3)-(7) and CPR rule 51.5). A receiver is required to file accounts within 12 months of their appointment and every 6 months thereafter, and any such other period determined by the Court (s.136 and CPR r.51.7).

When will the BVI Court appoint a receiver?

The guiding principles were set out in Norgulf Holdings Limited v Michael Wilson and Partners (Civil Appeal No 8 of 2007) at first instance (from which the Court of Appeal did not depart) It was held that:

(a)  The main object for the appointment of a receiver is to safeguard or preserve property for the benefit of those who are entitled to it; and

(b)  There are two classes of cases in which a Court may appoint receivers:

      i.    where the applicant already has an existing right (in which case the appointment is normally made as a matter of course as soon as the applicant’s right is established and there is no need to assert any danger to property); and

      ii.    where a receiver is appointed to preserve property to ensure its proper management pending litigation to decide the rights of the parties (here the applicant needs to allege and prove some peril to the property).

However, the Court of Appeal disagreed with the High Court’s interpretation of the threshold test that applied in respect of interim receiverships  and held that following the dicta of Mustill, J in the English High Court in Ninemia Maritime Corporation v Trave GmbH (The Niedersachsen) [1983] 1 WLR 1412 an applicant had to show that they had a “good arguable case” which was “one which is more than capable of serious argument, but not one which the judge considers would have a better than 50 per cent chance of success”. It found that it was therefore necessary to satisfy a “three-fold” test, namely that; (i) there is property to be preserved; (ii) there is sufficient evidence to show that there is a serious issue to be tried or a good arguable case and (iii) the claim or application is not frivolous or vexatious.  The Court of Appeal agreed with the submission “that the threshold test to justify the appointment of a receiver should be at least equal to that which is required for obtaining a freezing injunction, or even a higher threshold.”  As Rawlins, JA remarked at para [27] “the appointment of a receiver is more intrusive, more expensive, and less reversible than the grant of an injunction (…) When a receiver is appointed a defendant no longer has control of the assets of the company to continue its operations as a commercial concern. The business could sustain irreparable damage by publicity that the receivership may bring.”

The Court of Appeal subsequently confirmed that receivership applications should only be made in cases where it is “just and convenient” to do so and where other interim remedies, such as a freezing order, would not provide the protection required. See, for example,  Industrial Bank Finance Limited Leasing Co Ltd v Xing Libin  (BVIHC (COM) 0032 of 2018) and Alexandra Vinogradova v (1) Elena Vinogradova, (2) Sergey Vinogradova (BVIHCMAP 2018/052.  In the later case, the Court of Appeal ”pointed out the court's reluctance to appoint a receiver when the grant of a freezing injunction would give the claimant sufficient protection. We referred to the judgment of Rawlins JA in the Norgulf case which sets out the court's position on this issue. We would add that this principle applies with full force when the respondent is a trading company, and to a lesser extent when the respondent is a holding company. However, the basic principle is and continues to be that an order for the appointment of a receiver is a draconian measure that should not be granted when a freezing injunction would provide the claimant with adequate protection.”

However, the jurisprudence in the area suggests a failure to comply with a freezing order including its attendant disclosure obligations may be a ground to apply for the appointment of receivers.  In JTrust Asia PTE Ltd v Mitsuji Konoshita and APF Group Co Ltd (In Receivership)  (BVIHCMAP2018/0047, BVIHCMAP2018/0020) the Court of Appeal held that a “[f]ailure to comply with the disclosure obligation in a freezing order is a significant factor in determining whether it is just and convenient to appoint a receiver.  Invariably, where there is continuous failure to comply with a disclosure obligation, a court would appoint a receiver to search, identify, secure and preserve the assets.”  

Similarly, in Koshigi Limited and Svoboda Corporation v Donna Union Foundation (BVIHCMAP2018/0043) the Court of Appeal held that the breach of obligations in a freezing order would justify the appointment of receivers. In that case, the Court held that the inability of the receivers to vote to shares in the relevant companies without leave pursuant to the terms appointing them was an important safeguard in curtailing the effect of the receivership.

In conclusion, while the Court is willing to appoint receivers in relatively broad circumstances,  applicants should take care to ensure they are able to show  a good arguable case and that other remedies, such as a freezing order, would not provide adequate protection. It may be possible to keep such initial remedies under review and to make an application at a later stage, if appropriate.

CANDEY is a boutique international  litigation law firm with offices in London, New York, Vienna and the BVI. It has extensive experience of acting for both applicants, officeholders and respondents in receivership applications. If you have any questions or require any advice please do not hesitate to contact David Harby in our BVI office.

Note: This is a general summary of an evolving field of law, and is made available for general discussion purposes only between CANDEY and its clients and prospective clients. This memorandum does not constitute legal advice and must not be relied on as such. It should also not be cited as legal or academic authority.