Asset tracing in the British Virgin Islands

Introduction

A company incorporated in the British Virgin Islands is required to maintain certain records at the office of its registered agent (eg, its memorandum and articles of association, register of directors, register of members, minutes of members’ and directors’ meetings and copies of resolutions). However, there is no public right to inspect such records. Indeed, confidentiality of corporate documents and information is a key attraction of incorporating a company in the British Virgin Islands. BVI companies are not generally required to maintain or file statutory accounts, or meet any particular set of international accounting standards. Under Section 98 of the BVI Business Companies Act 2004, a company must maintain only records “sufficient to show and explain the company’s transactions” and which “will, at any time, enable the financial position of the company to be determined with reasonable accuracy”. There is no requirement for any accounts or financial records to be subject to independent audit.

In light of this, what means are available to a party in the British Virgin Islands seeking to recover property – or proceeds of property – which have been misappropriated, where the identity of the wrongdoer or the whereabouts of the misappropriated property is unknown?

Public sources

Publicly available sources may help a party to identify and track a company’s assets. A company search can be conducted at the BVI Registry of Corporate Affairs, although it will likely reveal limited information. A BVI company is required to file only its memorandum and articles of association, together with any amendments to these documents; it is not required to file its register of directors, members or charges or an annual return. A company may elect to file one or more of these registers and, if it does, it will be obliged to continue filing such documents until it gives formal notice to the registry. However, companies rarely undertake such voluntary filing.

Information regarding entities that are regulated by the Financial Services Commission is available on the commission website. These include banks and fiduciary services companies, insurers and insurance brokers, accountants, lawyers, insolvency practitioners, mutual funds and registered agents.

A court search will determine whether a company is a party to any pending litigation in the British Virgin Islands and whether any past judgment may shed light on the company’s assets. In addition, the Department of Land Registry can provide details regarding the owners of BVI land or real estate. However, the applicant for such information must be able to identify the location or owner of the land. Further, the Ship Registry can provide certain information regarding vessels that are registered under a BVI flag.

‘Tracing’

‘Tracing’ consists of a series of rules developed by equity to deal with situations where assets have been misappropriated and either the defendant cannot compensate or monetary compensation is inadequate.

In the English case of Foskett v McKeown [2001] 1 AC 102, the House of Lords distinguished the concepts of following and tracing: ‘following’ is the process of following the same asset as it moves from hand to hand, whereas ‘tracing’ is the process of identifying a new asset as a substitute for the old. Where one asset is exchanged for another, a claimant can elect whether to follow the original asset into the hands of the new owner or trace its value into the new asset in the hands of the same owner. Tracing identifies the traceable proceeds of the claimant’s property. It enables the claimant to substitute the traceable proceeds of the original asset as the subject matter of its claim.

The value of tracing is that the identification of property as the misappropriated property opens the way for a proprietary claim. The benefit of asserting a proprietary claim (as opposed to a personal claim) is that it gives the claimant the right to recover a particular asset; this right has priority and will defeat the claims of other creditors on the defendant’s bankruptcy. The proprietary nature of the remedy also allows the claimant to claim any increase in the value of the property which is being traced. Conversely, a personal remedy merely gives the claimant the right to recover money equivalent to the value of the property, so any judgment awarded will be ranked as an unsecured debt and will probably not be satisfied on the defendant’s bankruptcy.

Generally, the remedies available in the British Virgin Islands to parties whose assets have been misappropriated are broadly similar to those available in England. Some tools available for tracing assets include Norwich Pharmacal orders, Bankers Trust orders, Anton Pillar orders, injunctions and the appointment of receivers. These interim relief orders are mostly carried out by way of ex parteapplications.

Obtaining information

Norwich Pharmacal orders
Disclosure orders constitute a powerful weapon for the tracking down and recovery of assets. There is no provision for pre-action disclosure in the Civil Procedure Rules and as such, resort is often made to Norwich Pharmacal relief. This was first granted in the British Virgin Islands in The Canada Trust Company v Century Holdings Ltd (1998/99) 1 ITELR 56. Since then, Norwich Pharmacal orders have been granted on many occasions. They are available before action against third parties which have become involved in or facilitated wrongdoing by the intended defendant, however innocent their involvement may be. The information sought must be relevant and necessary for the claimant to pursue its case. These orders are relevant in the British Virgin Islands and are often used to obtain information from registered agents relating to the companies which they administer. The Court of Appeal has held that the mere provision of basic registered agent services is sufficient involvement to impose on the registered agent a duty to disclose information which could assist the claimant in discovering the true wrongdoers.(1) Evidence of involvement in the actual wrongdoing is not necessary.

Bankers Trust orders
A Bankers Trust order is a remedy available against third parties in circumstances where a prima facie case of fraud or breach of trust has been made out and the information is required to recover, trace or preserve assets that are the subject of a proprietary claim. This remedy requires a third party (usually a bank) to provide information which might ordinarily be protected by the duty of confidentiality. Bankers Trust orders are similar to Norwich Pharmacal orders, except that:

• there is no requirement to prove any involvement in the alleged wrongdoing by the defendant; and
• the remedy is available only where the claimant is tracing assets that it claims are its property, but have been taken by the defendant. They are not available where the claimant has no proprietary interest in the relevant assets.

In Bankers Trust v Shapira [1980] 1 WLR 1274, the order was granted in relation to bank records and was ancillary to the applicant’s right to trace the missing moneys. The applicant had no right against the bank itself.

To succeed in an application for Bankers Trust relief, there must be strong evidence of fraud. The applicant must demonstrate that:

• there are good grounds for thinking that the money in question is its money; and
• urgent action is needed (eg, because of the risk of dissipation of assets).

The court will balance the intrusion into the privacy of the defendant against the potential detriment to the applicant if the information is not provided. Once a suitable case is demonstrated, the court is willing to grant wide orders.

Gagging orders
BVI courts have an inherent jurisdiction to grant gagging orders to restrain a defendant against which an ex parte disclosure order has been made from communicating with the intended defendant regarding the disclosure order. This relief is generally granted in conjunction with Norwich Pharmacal and Bankers Trust orders. Breach of a gagging order can result in contempt proceedings.

BVI Evidence Act
Section 135(7) of the Evidence Act 2006 provides that on the application of any party to legal or administrative proceedings, the court may grant the party freedom to inspect and take copies of any entries in the records of any financial institution for the purposes of the proceedings. Such application is usually ancillary to a Norwich Pharmacal or Bankers Trust order.

Anton Pillar orders
Anton Pillar orders are effectively search orders and may be granted by the court before substantive proceedings are issued. Such relief would allow persons to enter the defendant’s premises to search for and remove property and preserve it as evidence pending trial.

Application for an Anton Pillar order is made ex parte. Due to the extreme nature of the remedy, such an order is granted only where absolutely necessary and the court will ensure that the order contains sufficient safeguards to protect the person on which it will be served (eg, the appointment of independent lawyers to supervise the search and specify its limits).

Letters of request
BVI courts have the power to grant relief pursuant to a letter of request from a foreign court in furtherance of civil proceedings, with a view to taking or obtaining evidence in the British Virgin Islands in aid of those proceedings.

Securing assets and proceeds

Mareva injunctions
BVI courts have the power to grant an interim injunction to preserve assets (a Mareva injunction). This enables the claimant to secure the assets to prevent them from being dissipated, pending the outcome of substantive proceedings. The application for such an order may be made ex parte at the same time as the filing of a claim form – or beforehand, if the applicant undertakes to file the claim as soon as possible.

To succeed in an application for a Mareva injunction, the applicant must demonstrate that:

• there is a good arguable case against the defendant or intended defendant;
• the refusal of an injunction would involve a real risk that a judgment or award in favour of the applicant would go unsatisfied; and
• it is just and convenient for the injunction to be granted.

The English Court of Appeal has held that, as a general principle, a Mareva injunction should not interfere with the ordinary course of business of the defendant.(2) It is not intended to give the claimant security in advance of judgment, but merely to prevent the defendant from defeating the claimant’s chances of recovery by dissipating or hiding assets. In determining whether it is just and convenient to grant the injunction, the court will consider factors such as:

• the conduct of the claimant;
• the rights of any third party which may be affected; and
• the potential hardship to the defendant.

When a freezing injunction is granted, the court almost always requires the applicant to give a cross-undertaking in damages. This is intended to compensate the defendant if it is later found that the interim relief should not have been granted and the injunction has caused loss to the defendant. Such an undertaking is enforced by an inquiry into what loss the defendant has suffered as a result of the injunction.

Black Swan orders
The BVI court has jurisdiction to grant standalone injunctions in support of foreign proceedings. This approach was taken in Black Swan Investment ISA v Harvest View Limited BVIHC (Com) 2009/399 and subsequently approved by the Court of Appeal in Yukos CIS Investments Limited v Yukos Hydrocarbons Investments Limited HCVAP 2010/028. It is therefore a helpful tool in support of proceedings which have been or will be instigated in a foreign jurisdiction. For relief to be granted, the BVI court must have in personam jurisdiction over the defendant; however, before granting this type of relief, the court must be satisfied that it is necessary in the circumstances and that the relief sought in the main proceedings before the foreign court will lead to a judgment that is enforceable in the British Virgin Islands.

Appointment of receivers
Under Section 24 of the West Indies Associated States Supreme Court (Virgin Islands) Act, BVI courts have the power to appoint receivers on an interim basis to secure and protect relevant property on behalf of the party applying to appoint them. A receiver essentially ‘holds the ring’ and preserves the assets pending trial. In order to obtain such relief, the applicant must satisfy the court that the circumstances justifying a freezing order exist and that the additional protections afforded by a receivership order and any potential prejudice to the defendant can be justified. A receivership can also be granted to supplement the powers of a freezing injunction if it can be shown that the injunction is not providing adequate protection on its own.

Endnotes

(1) JSC BTA Bank v Fidelity Corporate Services Limited, HCVAP 2010/035.

(2) Polly Peck International v Nadir, [1992] 4 All ER 769.

Авторы: Ian Mann, Andrew Thorp

Источник: http://www.internationallawoffice.com/Newsletters/Detail.aspx?g=d6f846c1-ca10-4973-9072-af0d4eb1d62a&utm_source=ILO+Newsletter&utm_medium=email&utm_campaign=Offshore+Services+Newsletter&utm_content=Newsletter+2015-07-09