Insolvency litigators get clarity on important point of law

| February 7, 2014 | 0 Comments
Richard Field

A recent case heard before the Royal Court in Guernsey has provided clear guidance on the application of the principle of modified universalism to insolvency matters in Guernsey.

The case of EFG Private Bank (Channel Islands) Ltd v BC Capital Group SA (In Liquidation) & Ors, will have significant consequences for cross-border insolvencies which have a Guernsey element. It sets out for the first time the principles which the Royal Court should consider when assessing the nature and extent of the court’s obligation to provide “active assistance” to foreign insolvency proceedings.

Interpleader proceedings were issued in March 2013 by EFG in respect of assets held in accounts in Guernsey on behalf of a number of hedge funds which were incorporated in the British Virgin Islands (and in Anguilla in one case). The funds are in liquidation with two BVI insolvency practitioners appointed as joint liquidators.

Carey Olsen litigation senior associate, Richard Field, said the principal issue faced by the Deputy Bailiff, centred around the nature and extent of any duty the Royal Court may owe in terms of providing assistance to those conducting foreign insolvency proceedings.

He said: “The principle of universalism in insolvency matters provides that there should be a sole liquidation receiving worldwide recognition and assistance from courts and office holders based in other jurisdictions.”

The joint liquidators argued that, when applied in the current context, the principle of universalism would mean that the BVI and Anguilla courts should be allowed to determine any dispute as to ownership of the assets and their eventual distribution and that the interpleader proceedings in Guernsey should therefore be stayed. In effect, the Royal Court would be giving active assistance to the foreign liquidations by enabling those Courts to determine these questions.

The Deputy Bailiff agreed with the joint liquidators in stating that the principle had application in Guernsey and set out a range of guidance for assessing the nature and scope of the court’s ability to provide active assistance to a foreign insolvency.

Advocate Field said: “There has never been clear guidance in this area previously so this decision will be of significant help to foreign office holders. In appropriate cases they can seek the assistance of the Royal Court with a view to avoiding becoming embroiled in liquidation in a number of different jurisdictions.

“Having these principles recognised in Guernsey is a helpful step forward for those facing similar situations in the future, particularly at a time when conflicts between competing office holders in different jurisdictions are increasing.”

The Deputy Bailiff distinguished the present case from other cases involving the principle of universalism, deciding that the question of ownership is a step outside the insolvency process itself (and therefore involves mainstream civil litigation rather than insolvency-related litigation).

“Nevertheless the key issue of guidance in this area has now been addressed,” Advocate Field said.

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Category: Finance & Business, Legal

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