The Court of Appeal of the Eastern Caribbean Supreme Court, on an appeal from the BVI Commercial Court, recently discussed the present state of the law on recognition and assistance, in the context of a cross-border bankruptcy: Net International Property Limited v Adv. Eitan Erez (BVIHCMAP2020/0010, 22 February 2021) per Webster JA [Ag.] (with whom Chief Justice Pereira DBE and Ellis JA [Ag.] agreed).
In broad summary, the respondent had been appointed as the trustee of the bankrupt’s estate by the District Court in Israel and his appointment was confirmed on appeal to the Supreme Court. On the respondent trustee’s application for recognition at common law and assistance in the form of Orders that would enable him to take control of the bankrupt’s estate in the BVI which the Israeli courts had found to comprise bearer shares in the appellant company, the trial judge in the BVI recognised his appointment and made various orders to assist him, including the registration of the respondent trustee as shareholder of a company incorporated in the BVI (i.e. the appellant company). The appellant company appealed against these orders.
While a number of questions arose in the ECSC Court of Appeal’s judgment, we would focus on the question of recognition and assistance, notwithstanding the insightful discussion elsewhere in the judgment on, inter alia, the res judicata doctrine.
Recognition vs. Assistance
The first relevant aspect of the ECSC Court of Appeal’s judgment is the distinction between recognition and assistance.
At paras. 19-20, the Court emphasised that there exists at least a theoretical distinction. Specifically, while “[R]ecognition is the formal act of the local court recognizing or treating the foreign office holder as having status in the BVI in accordance with his or her appointment by the foreign court…[A]ssistance goes further”. Assistance therefore accords the recognised foreign office holder with rights and powers to deal with the assets of the bankrupt/insolvent estate in the recognising court’s jurisdiction.
That said, there might be some tension as to the precise demarcation between the two concepts. However, it may well be unnecessary to grapple with this, as it suffices to “bear in mind that recognition does not necessarily include assistance” (para. 21). Indeed, as we shall see, while the ECSC Court of Appeal was prepared to uphold the trial judge’s orders recognising the respondent trustee, the Court was not prepared to grant the additional orders seeking to provide the assistance sought.
What of the common law power of recognition in the BVI?
At para. 27, Webster JA [Ag.] recounted the well-established principles on the interplay between common law rights and statutes. Specifically the learned Judge explained that an “established common law right such as the principle of recognition cannot be abrogated by statute unless the intention is clear from the wording of the statute, or by necessary implication of the words used in the statute”.
Insofar as the common law power to recognise is concerned, the Court (at para. 28) was satisfied that Part XVIII of the BVI Insolvency Act 2003 provided a comprehensive statutory scheme for the recognition of office holders. However, this part of the Insolvency Act has not come into effect and in the absence of an effective Part XVIII, the common law right of recognition has not (yet) been abrogated. It therefore “survives in the BVI” (para. 28).
On the facts of the case, having been satisfied that the bankrupt had submitted to the jurisdiction in Israel, the Court accepted that it was a proper case for recognition, “but only in the narrow sense of giving him the status of recognition in the BVI” (para. 32).
Is the common law power to assist abrogated/limited by the Insolvency Act 2003?
The logical next question then becomes whether the power to grant assistance survives under the common law, or whether it has been abrogated and replaced by the relevant statutory scheme found in Part XIX of the Insolvency Act. The significance of this question is as follows.
Part XIX, which provides a procedure by which a foreign office holder can apply for assistance, defines the proper applicant as “a person or body…authorized in a foreign proceeding to administer the re-organisation or the liquidation of the debtor’s property or affairs or to act as a representative of the foreign proceeding”.
A “relevant foreign country” is, in turn, defined as “country, territory or jurisdiction designated by the Commission as a relevant foreign country for the purposes of this Part” (the shorthand is somewhat unfortunate given, for instance, the designation of Hong Kong which of course is part of the People’s Republic of China; see para. 43).
Having regard to the principles on the statutory abrogation of common law powers as discussed above, the Court was satisfied that Part XIX was intended to “provide a complete code for foreign representatives to apply to the BVI courts for assistance in cross-border insolvency matters such that foreign representatives from non-scheduled countries are unable to obtain assistance” (para. 41).
Hence, given that Israel is not one of the countries that have been designated under Part XIX, the respondent trustee is simply not entitled to apply for assistance under BVI’s regime (see paras. 42, 49-50). Webster JA [Ag.] found the result to be regrettable, as it “does not further the principle of modified universalism and the movement of the courts towards greater co-operation in cross border insolvency matters” (para. 50). But the learned Judge accepted that this was a matter which the Legislature had addressed as a matter of public policy. As such, it was not open to the Court to make the orders sought which would undermine this policy.
Accordingly, the appeal was capable of being determined on this basis alone (see para. 51).
The subject of recognition and assistance has received significant attention in recent years. This follows from, in particular, the Privy Council’s seminal decision in Singularis Holdings Limited v PricewaterhouseCoopers  UKPC 597 discussing the common law power to recognise and assist foreign office holders in cross-border insolvencies. In Hong Kong, the Court has developed an insightful practice of recognition and assistance. See, for instance, the recent decisions in Re China Huiyuan Juice Group Limited  HKCFI 2940, Re FDG Electric Vehicles Limited  HKCFI 2931, Re Moody Technology Holdings Ltd  2 HKRLD 187, and Re Hsin Chong Group Holdings Limited  HKCFI 805.
However, as explained by the learned Companies Judge in Joint Official Liquidators of A Co v. B  4 HKRLD 374 at §11, “Hong Kong is not a party to the UNCITRAL Model Law on cross-border insolvency and at the time of writing there is no prospect of it becoming so in the near future. Hong Kong’s insolvency legislation contains no provisions dealing with cross-border insolvency. However, at common law the court has power to recognise and grant assistance to foreign insolvency proceedings”.
It would therefore appear that the predicament faced by the respondent trustee in Net International is unlikely to arise in Hong Kong for the near future. However, the decision does provide an insightful discussion on the interplay between the common law power of recognition/assistance and the relevant statutory provisions. This no doubt provides a helpful vision as to how things might transpire, if and when Hong Kong does introduce a statutory regime of recognition/assistance.