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Conyers’ Client Wins Right to Challenge Funds Liquidation – September 2011

Conyers Dill & Pearman has achieved a notable victory on behalf of its client Spectrum Galaxy Fund Limited in the Court of Appeal of the Eastern Caribbean.

In a judgment delivered on 27th September 2011, the Court of Appeal of the Eastern Caribbean Supreme Court gave the green light for Spectrum Galaxy Fund Limited to appeal out of time against the order of Justice Edward Bannister sitting in the Commercial Court in July 2010. The appeal will address the issue of whether an assignee of redemption proceeds can participate in the BVI liquidation process.

The question of whether BVI law permits a redeemed shareholder to participate in the liquidation process (and in particular, whether they have locus standi to bring an application to appoint a liquidator) had been a difficult one recently in BVI.

In Western Union International v. Reserve International Liquidity Fund Limited, a first instance decision (also of Justice Bannister), the Court held that being a creditor on the basis of being a redeemed member was no bar to bringing an application to appoint a liquidator. This decision caused shockwaves given that it appeared contrary to the literal terms of Section 197 of the Insolvency Act 2003. It was followed at first instance in Westford Special Situations Fund Limited v. Barfield Nominees et al (per Justice Bannister, also). Both Western Union and Westford went on appeal to the Court of Appeal.

When the Spectrum matter was heard, neither of these appeals had been considered, and therefore as matters stood, a redeemed creditor did have locus. However, it was clear that the issue was potentially subject to significant change. Sensibly, Spectrum did not risk the cost of an appeal against so uncertain a background, but rather awaited clarification from the Court of Appeal. That came in March 2011 when the Court delivered its judgment in Westford (the appeal in Western Union had earlier been compromised without hearing). The Court held unanimously that a redeeming creditor does not have locus standi, returning the position to what had been considered by many to be the pre-Western Union position.

Upon receiving this clarity, Spectrum sought permission to appeal out of time. In delivering the judgment of the Court (which also comprised the Chief Justice and Mitchell JA), Justice of Appeal Pereira considered that the prejudice to Spectrum if its appeal could not be heard outweighed that of the Respondent, since if its arguments prevailed it would wrongly be maintained in liquidation. Moreover, there were good reasons for the delay, namely the uncertainty in the law and the desire to await appellate guidance. Accordingly, an extension of time was granted. It is expected that the appeal, which raises the novel question of the rights of an assignee of redemption proceeds, will be heard in January 2012.

Richard Evans, partner in the British Virgin Islands office of Conyers Dill & Pearman acted as lead advocate for Spectrum assisted by associate Jerry Samuel. Stephen Moverley Smith QC at XXIV Old Buildings acted for Xena, the Respondent.

 


Richard G. Evans
Partner

British Virgin Islands   +1 284 852 1115


Jerry D. Samuel
Partner

British Virgin Islands   +1 284 852 1116


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