British Virgin Islands Financial Services Commission v Meridian Income Bond Ltd

• Jurisdiction: British Virgin Islands
• Judge: RAWLINS, J
• Judgment Date: 15 March 2004
• Neutral Citation: VG 2004 HC 5
• Docket Number: CLAIM No. BVIHCV2003/0203
• Court: High Court (British Virgin Islands)
• Date: 15 March 2004

IN THE HIGH COURT OF JUSTICE

CLAIM No. BVIHCV2003/0203

IN THE MATTER OF THE INTERNATIONAL BUSINESS COMPANIES ACT, CAP. 291

AND

IN THE MATTER OF THE MUTUAL FUNDS ACT, 1996

AND

IN THE MATTER OF THE FINANCIAL SERVICES COMMISSION ACT, 2001

AND

IN THE MATTER OF THE COMPANIES ACT, CAP. 285

AND

IN THE MATTER OF MERIDIAN INCOME BOND LIMITED

BETWEEN

The British Virgin Islands Financial Services Commission

Petitioner/Applicant

and

Meridian Income Bond Limited

Respondent

Appearances:

Ms. Jacqueline Wilson and Mrs. Jo-Ann Williams-Roberts for the Petitioner/Applicant

Mr. Paul Webster, QC, with him Ms. Vanessa King for the Respondent

KEYWORDS

Civil procedure — Protection order made on the application of the Financial Services Commission — Direction issued to wind up a Fund under the Companies Act — Preliminary objection — Whether the Court has jurisdiction to wind up the Fund under the Companies Act — Whether the Commission has standing to apply for a winding up order — Section 39 of the Financial Services Commission Act, No. 12 of 2001 of the Laws of the British Virgin Islands — Sections 115, 117 and 119 of the Companies Act, Cap. 285 of the Revised Laws of the British Virgin Islands, 1991.

RAWLINS, J

1 This Judgment seeks to resolve a preliminary issue that learned Counsel for the respondent (‘the Fund’), Mr. Paul Webster, QC, raised when an application for leave to wind up the respondent came for hearing. Mr. Webster submitted that this Court has no jurisdiction to grant leave to the applicant (‘the Commission’) to wind up the Fund. He said that the Commission has no locus standi or standing to apply to wind up a company under the provisions of the Companies Act, Cap. 285 of the Revised Laws of the British Virgin Islands, 1991.

2 The Commission had earlier applied for and was granted a protection order under section 39 of the Financial Services Commission Act, No. 12 of 2001 (‘the 2001 Act’). That protection order directed, inter alia, that the Fund should be wound up under the Companies Act. The Commission has insisted that section 39(2)(c) of the 2001 Act empowers it to apply to wind up the Fund under the Companies Act.

3 Essentially, the preliminary objection and the submissions that were made raised 2 questions. The first was whether, by section 39(2)(c) of the 2001 Act, the Legislature intended to confer jurisdiction upon the Court to wind up a regulated person in the position of the Fund under the Companies Act. The second question was, on the assumption that the Legislature intended to confer such jurisdiction, did it in fact succeed in doing so on the interpretation of the relevant provisions. These issues will be considered against a brief background.

The Background

4 The Fund was incorporated in this Territory in December 1997 under the International Business Companies Act, Cap. 291 of the Revised Laws of the British Virgin Islands, 1991. It was registered as a public mutual fund under the Mutual Funds Act, No. 6 of 1996 on certain conditions. The conditions provide for the upper limit of its net asset value and include conditions for audits on terms specified by the Registrar of Mutual Funds.

5 The Commission was established in 2002 as a body corporate. It was given regulatory functions over the financial services sector, including mutual funds. The Registrar of Mutual Funds was responsible for the supervision of these funds before the 2001 Act came into force.

6 The Commission applied for the protection order on 10 ^th December 2003 against the Fund pursuant to section 39(1) and (2) of the 2001 Act. The application stated the basic grounds. It stated that the Commission was about to revoke the Fund's certificate of registration because it (the Commission) thought that the Fund was carrying on business in a manner that was detrimental to the interest of investors in the Fund. In also stated that the Fund's performance did not permit it to meet its guaranteed returns to its investors. This created an increasing gap between the value of the Fund's assets and its capital base. The result was that the Fund had a shortfall of some US$2,337,567.00 as at October 2003.

7 The Commission stated that from its investigation of the Fund, it was unlikely that the Fund could meet redemptions in 2004 and 2005 if the investors called in their investments in the Fund. The Commission further stated that it had given the Fund opportunities to present a plan for its continued survival, but it had not presented a workable plan. The Commission was of the view that the Fund could not sustain a 100% redemption rate without new capital or without achieving a level of growth that is unlikely and unrealistic. Considering the vital pointers, the Commission concluded that the Fund was likely to collapse before long-term investors received full capital redemptions.

8 The application also stated that substantial sums were due to be paid by the Fund tor redemptions between 10 ^th and 12 ^th December 2003 and subsequently, and the Fund was likely to collapse immediately if it were permitted to meet these calls. The Commission prayed for the protection order on the ground that it was necessary in order to prevent the dissipation of the assets of the Fund.

9 In summary, the Commission's application was premised upon its (the Commission's) concern that if the Fund continued to meet redemptions and interest payments to short term investors, this would erode the capital base of the Fund substantially. The Commission feared that this would have occasioned the immediate collapse of the Fund. It was in these premises that the protection order was issued on 12 ^th December 2003 on a hearing without notice.

The orders against the Fund

10 The protection order directed the Fund to suspend redemptions forthwith. It also prohibited the Fund from paying any outstanding or future management fees. As indicated earlier, it directed that the Fund should be wound up under the Companies Act. It fixed the 12 ^th January 2004 as the returnable date, and gave liberty to the respondent to apply to discharge the protection order on at least 3 days notice to the Commission.

11 This order was varied on 19 ^th January 2003. This variation order restrained the Fund from dealing with, disposing of or transferring any of its assets whether within or outside of the Territory. On 15 ^th January 2004, the Commission applied in this action for the appointment of joint provisional liquidators over the Fund. The Commission subsequently filed the petition to wind up the Fund. It was numbered Claim No. BVIHCV2004/0009, when it should have been filed in Claim No. BVIHCV2003/0203. It was not intended that an altogether new action should be instituted. Rather, it was thought that the filing of the petition arose from and in the first action in which the protection order was made. In the circumstances, I granted leave to the Commission to discontinue the petition with a view to having a petition filed in Claim No. BVIHCV2003/0203, if the decision on this preliminary objection warrants it. The Commission duly discontinued Claim BVIHCV2004/0009 on 9 ^th February 2004. Now the issues.

Did the Legislature intend to confer jurisdiction?

12 Section 39(1) of the 2001 Act empowers the Commission to apply for a protection order if it has or is about to revoke the licence or certificate of a regulated person under section 38 of the 2001 Act. The Fund is a regulated person under the Act. The Commission stated in its application for the protection order that it was about to revoke the Fund's certificate of registration.

13 Section 39(2) of the 2001 Act provides for some of the directions that the Court may issue on an application for a protection order. It will be helpful to reproduce it fully. It states:

‘39(2) On an application made under subsection (1), the Court may make such order as it considers necessary to protect or preserve the business or property of the regulated person, or the interests of its cliente, investors, creditors or the public, including

• (a) an order preventing the regulated person or any other person from transferring, disposing of or otherwise dealing with property belonging to him or in his custody or control;

• (b) an order appointing an administrator to take over and manage the financial services business then carried on by the regulated person or carried on by him immediately before the revocation or suspension of the licence or certificate, as the case may be;

• (c) in the case of a company, an order that the regulated person be wound up by the Court or be subject to the supervision of the Court under the Companies Act; and

• (d) an order granting the Commission a search warrant.’

14 At first blush, the preliminary objection appeared to be unfounded given the provisions of section 39(1)(c) of the 2001 Act. Its clear words permit the Court to direct that a company in the circumstances of the Fund should be wound up by or be subject to the supervision of the Court under the Companies Act. The provision permits the Court to give this direction as one of the means by which it could preserve the business or property of the Fund when it grants a protection order. This is what this Court did on the application of the Commission for a protection order in this case. The Commission then formally applied under section 115(e) of the Companies Act to wind up the Fund. This sub-section provides that a company may be wound up under the Act whenever the Court is of the opinion that it is just and equitable that the company should be wound up.

15 Mr. Webster has however insisted that sections 39(1) and 39(2)(c) of the 2001 Act cannot in their present terms empower the Court to issue an order, which, in effect, occasions the commencement of fresh proceedings under a different Act, to wit, the Companies Act. He submitted that, in the first place, if the...