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29 April 2016
The receiver arguably represents the most powerful weapon in the armoury available for asset tracing in the British Virgin Islands. As BVI companies are often used as holding vehicles, using a receiver to take control of the corporate structure and move 'downstream' to the assets is a particularly potent strategy. Recent developments in case law have made this remedy more widely available.
A court may appoint a receiver where it is just and convenient to do so. Typically, the application is made where it can be shown that the relevant assets are in jeopardy and the appointment is necessary on an interim basis in order to secure and protect them. As explained in JSC BTA Bank v Ablyazov:(1)
"If, therefore, a freezing does not, of itself, provide adequate protection to a claimant because there is a measurable risk that a defendant may use the structure by which he holds his assets to deal with those assets in breach of a freezing order, then a receivership order will normally be justified".
The receiver therefore 'holds the ring' and preserves the assets pending trial.
Seeking appointment of a receiver has also become increasingly attractive, since the courts have shown more willingness to appoint receivers in a variety of situations. For example, a creditor may seek appointment of a receiver in aid of executable execution of a judgment. Receivers can also be appointed in cases of claims for misappropriation of assets, bribes, joint ventures or competing businesses. Receivers may be appointed over shares, limited liability partnership interests, bank accounts, contractual rights or rights reserved under a trust or beneficiary entitlement.
With careful drafting, an applicant can ensure that an order appointing a receiver also vests power for the disputed asset to rest with the receiver. The advantage of having shares vested in the receiver is the ability for those to be voted and for the corporate structure to be controlled. This way, assets beyond the British Virgin Islands can often be accessed and secured without the additional (and often alien) concept of receiver recognition.
A receiver can be appointed to aid with equitable execution of a judgment. This tool becomes very helpful where the debtor holds assets through a number of corporate entities. The applicant needs to satisfy the court that the usual methods of enforcement are insufficient. It is clear from case law that the court views the remedy of appointing a receiver as flexible. This is advantageous to creditors. For example, in a recent case the court permitted the appointment of a receiver over a settlor's power of revocation of a trust; the receiver could thus exercise the powers of the settlor over the trust. It is therefore helpful that the court will consider the overriding demands of justice. Where there is a risk of dissipation, it is possible to front-load the appointment to allow the receiver to protect the value of the assets (including those further down the corporate structure) pending execution.
The concept of a receiver having an investigative function is recognised in common law jurisdictions, and BVI courts may be receptive to such an appointment. From the case law available, the court will need evidence that the creditor's rights of recovery are in serious jeopardy. The receiver's function would be to investigate the affairs of the debtor or review transactions which may include the affairs and transactions of non-parties. Receivers appointed for investigative purposes are likely to have limitations on their power to seize or freeze assets.
For further information on this topic please contact Marcia McFarlane or Andrew Thorp at Harney Westwood & Riegels by telephone (+1 284 494 2233) or email (email@example.com or firstname.lastname@example.org). The Harney Westwood & Riegels website can be accessed at www.harneys.com.
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