By Alistair Abbott, partner.
Liquidators have various powers conferred on them by section 186 of the Insolvency Act 2003. However, that section also provides that the court may provide that certain powers be exercised only with the court’s sanction. The practice of the BVI Commercial Court, when appointing liquidators, is to impose such a requirement as regards some powers, such as the power to bring and defend legal proceedings. This practice brings BVI liquidations into line with the practice in England, where it has long been a requirement in compulsory liquidations that liquidators seek the sanction of the court (or, where applicable, the liquidation committee) in order to bring or defend proceedings. Indeed, the requirement in England is imposed by statute and not at the discretion of the court.
It is an occasional misconception amongst defendants to proceedings brought by liquidators that they should be concerned with whether the liquidator has obtained sanction for the proceedings. In England, it was established over a hundred years ago that the statutory reference to sanction of the court “does not confer on third parties any right to object to the proceedings brought by the liquidator in the name of a company, on the ground that no such sanction has been obtained” (Dublin City Distillery v Doherty [1914] AC 823, at 859-860 per Lord Parker of Waddington; Dublin City was technically an Irish appeal, but the decision was applied by the English Court of Appeal in C Lindley v BG Plating Ltd (11 April 1989, 89 Westlaw 1720371).
The same also applies to the equivalent provision in relation to trustees in bankruptcy: In re a Debtor (No. 26A of 1975) [1985] 1 WLR 6 (citing another 1914 decision, In re Branson, ex parte the Trustee [1914] 2 KB 701), where Scott J held (at 9-10) that “[t]he purpose . . . is to protect the bankrupt’s estate. A trustee who does one or other of the acts for which permission is required . . . without first obtaining the requisite sanction cannot, subject to the question of a retrospective sanction, to which I will return later in this judgment, cast upon the estate his costs incurred in so doing. The purpose of the section is not, however, to protect third parties and the absence of any requisite sanction does not confer a defence on third parties.” Accordingly, the absence of sanction merely affects the question of whether the liquidator can recover the costs of the proceedings from the estate (In re London Metallurgical Company [1987] 2 Ch 262).
Until this year, there appeared to be no BVI authority on the point. Indeed, there is still no reported decision, but in the course of a sealed appeal to the Eastern Caribbean Court of Appeal, arising from BVI liquidation proceedings, a single Justice of Appeal referred to the above English decisions with approval in an interlocutory judgment. He therefore rejected the argument that the liquidator in question had no standing to bring proceedings against the applicant. Although it remains to be seen whether the full court will address this point when the final judgment on the appeal is given (the judgment is pending), this is nevertheless a welcome indication that the approach in the BVI is the same as that in England.
