NEW GROUND BROKEN WITH “SOFT TOUCH” PROVISIONAL LIQUIDATIONS IN THE BVI

The options open to Companies seeking to restructure their debts while continuing as a going concern depend upon the jurisdiction in which they operate and their place of incorporation. Some jurisdictions provide for debtor in possession, or administration procedures designed expressly to address this issue. But other jurisdictions have no equivalent procedures in their statutory armoury.

In such cases companies and their advisors have had to deploy a different remedy – the presentation of a winding up petition and the appointment of provisional liquidators with limited powers. This has become known as a “soft touch” provisional liquidation. Depending upon the local legislation and the extent of the powers given to the provisional liquidators this can mimic, to a greater or lesser extent, a debtor in possession or administration. Soft touch provisional liquidators have previously been appointed in Cayman and Bermuda but had not to date been deployed in the BVI.

The Constellation companies are a major oil and gas exploration group operating in and out of Brazil. Liquidity issues caused by mounting debt and a slump in the oil price prompted an application for a judicial reorganisation in Brazil and consequential Chapter 15 proceedings in New York. However, neither of those proceedings would prevent creditors taking action against six of the group companies registered in the BVI.

On 19th December 2018 Adderley J in the BVI Commercial Court appointed provisional liquidators with limited powers on the applications of the companies themselves. The purpose of the appointments was to facilitate the Brazilian judicial reorganisation. Adderley J was satisfied that the applications did not involve the recognition of foreign insolvency proceedings (which could have been problematic under BVI law). These were wholly domestic applications albeit in support of a substantial cross-border restructuring.

David Chivers QC made the successful application on behalf of the Companies.

Barristers
David Chivers QC