Identifying and Protecting Assets in the British Virgin Islands: The Options Available to Victims of Fraud

A   BVI-registered   company   must   maintain   certain corporate  information  at  the  office  of   its  registered agent including the Memorandum and Articles, the registers of shareholders and  directors,  and  copies  of all notices and filings by  the  company  in  the  previous ten years. Less frequently, the registered  agent  will hold minutes of any shareholders’ or directors’ meetings and copies of shareholder resolutions or may maintain “know-your-client” anti-money laundering documentation. This can reveal the identities of the company’s ultimate beneficial owners.

Norwich Pharmacal orders can also be made against the company’s bankers, although it is much more difficult to obtain an order against a law firm as, under BVI law, communications between lawyer and client are protected by professional privilege.

While each case is based on its own facts, the test established in Norwich Pharmacal requires that the applicant shows the following:

1. a wrong must have been carried out, or arguably carried out, by an ultimate wrongdoer;
2. there must be a need for an order to enable an action to be brought against the ultimate wrongdoer, usually to identify them. It must be just and convenient to make the order and usually the Court will want to be satisfied that there is no other practical way of obtaining the information ; and,
3. the person against whom the order is sought must:
   1. be mixed up in so as to have facilitated the wrongdoing; and,
   2. be likely to be able to provide the information necessary for the wrongdoer to be sued.

The leading case in the BVI, known as Fiona, emphasises that the applicant cannot use the procedure to seek information which would otherwise become available during disclosure. Therefore, the court will not permit an application where the applicant already knows the identity of the wrongdoer or the location of assets and seeks to bolster his position with information to aid a later point in proceedings. The court needs to be shown that “no other procedure will achieve the ends of  justice” application is not a fishing exercise.

Seeking disclosure to trace funds: Bankers Trust v Shapira orders

Where an applicant is making a proprietary claim over particular assets and can show that a party has innocently become involved with the disposal of those assets, and is therefore likely to have information revealing what happened to the assets, the BVI court has equitable jurisdiction to grant relief to enable the assets to be traced, which arises from the English case of Bankers Trust v Shapira.

Under this authority, the court is prepared to grant an interlocutory order requiring the disclosure of all information which would assist in locating the assets. The applicant must show:

1. strong evidence of fraud;
2. a good ground for thinking the money is the plaintiff’s money; and,
3. a need for urgent action.

The court is willing to grant wide-reaching orders but there must be an evident link between the disclosure sought and the locating and preservation of assets.

A Bankers Trust order is often sought alongside a Norwich Pharmacal order.

Seeking to prevent the dissipation of assets: freezing injunctions

The BVI court has statutory jurisdiction to grant a freezing order where it appears to the court to be just or convenient. Orders may be unconditional or comprise such terms and conditions as the court thinks just. Importantly in the context of the BVI, the court’s powers extend to freezing assets that are located outside the jurisdiction.

An applicant will need to show that the relief sought is in the balance of convenience and the following tests must be met:

1. a good arguable case against the respondent;
2. that the refusal of an injunction would involve a real risk that a judgment or award in favour of the plaintiffs would remain unsatisfied; and,
3. that it is just and convenient for the injunction to be granted.

Prior to 2010, freezing injunctions in the BVI were only available as ancillary relief, which required a substantive cause of action against the respondent. However, the court has recently found that it is within its discretion to grant  “stand  alone”  freezing  injunctions  against  BVI defendants over assets within the jurisdiction not only in aid of BVI proceedings but also in aid of proceedings before foreign courts. Known as Black Swan  orders, such relief has been clarified as being limited to situations where a money judgment could be brought to the jurisdiction and would not extend to other kinds of foreign relief. This is appropriate in the context of the BVI and other offshore jurisdictions where a wrongdoer may have established vehicles to transfer money internationally to specifically make it difficult to trace.

The standard form freezing injunction contains important terms requiring the respondent to provide information about the current location of its assets, which can be utilised to seek an order disclosing both assets which are the subject of the freezing injunction and assets which may be subject to such an order. An order requiring a respondent to disclose information regarding their worldwide assets may therefore prove to be the most crucial component of a freezing injunction.

Seeking liquidation and interim relief: the Insolvency Act, 2003

In circumstances in which a company is being used for fraudulent activities, the BVI courts have a discretionary jurisdiction  to  place  the  company  into  liquidation  and appoint liquidators on grounds that it is just and equitable to do so. The applicant can attain creditor status by showing he has a claim against the company which would be admissible in the liquidation; it is not enough for an application to be brought only on the basis of investigating the company.

Utilising the court’s discretion to appoint provisional liquidators to pursue wrongdoers operating through a BVI company can be a highly effective means of investigating fraud while preventing the dissipation of assets. The court will appoint provisional liquidators on such terms as it considers fit and these can include effective and extensive powers to investigate and preserve any assets. Any ability to liquidate or distribute those assets will be limited. Unlike the UK, there is no time limit prescribed in the BVI stipulating how long provisional liquidators can remain in office. This option often provides a quicker and less costly fraud busting solution than a writs action.

A victim of fraud should  seek  professional  advice  at the earliest opportunity. In all of the processes detailed above, the court will give credence to applications which have the best chance of success. In circumstances of fraud, the best chance of success is an action taken without delay.