Metalloyd Ltd Applicant v Burwill Resources Ltd Respondent

• Jurisdiction: British Virgin Islands
• Judge: HARIPRASHAD-CHARLES J
• Judgment Date: 17 July 2006
• Neutral Citation: VG 2006 HC 8,[2006] ECSC J0717-3
• Court: High Court (British Virgin Islands)
• Docket Number: Claim No. BVIHCV2006/0083
• Date: 17 July 2006

[2006] ECSC J0717-3

THE EASTERN CARIBBEAN SUPREME COURT

IN THE HIGH COURT OF JUSTICE

(CIVIL)

Claim No. BVIHCV2006/0083

In the Matter of the Insolvency Act 2003

And in the Matter of Burwill Resources Limited

Between:

Metalloyd Ltd

Applicant

and

Burwill Resources Limited

Respondent

Appearances:

Mr. Richard Evans with him Ms. Dawn Smith for the Applicant

Mr. Christopher Young with him Ms. Keisha Durham for the Respondent

HARIPRASHAD-CHARLES J

1 The primary issue in this application is whether a liquidator should be appointed over Burwill Resources Limited on the ground that the Company is insolvent pursuant to section 162 of the Insolvency Act 2003 ("the Act").

The parties

2 The Applicant, Metalloyd Limited ("Metalloyd') is a company incorporated in accordance with the laws of England and Wales and carries on business as a trader of steel products and raw materials in the Asia Region.

3 The Respondent, Burwill Resources Limited ("Burwill") was incorporated under the provisions of the International Business Companies Act, Cap. 291 on 2 February 1999 and has its registered office at P.O. Box 957, Office Incorporation Centre, Road Town, Tortola, British Virgin Islands. The authorized share capital of Burwill is $50,000 made up of one class and one series of shares divided into 50,000 shares of US$1.00 par value each. Burwill is also a trader of steel products and raw materials in the Asia region.

4 During 2003 and 2004, Metalloyd and Burwill entered into various contracts for the supply of minerals and steel. Disputes arose between the parties over certain of the contracts in 2003 and they agreed to settle these disputes by entering into a settlement agreement dated 30 May 2003 ("the Settlement Agreement"). 1

5 The relevant terms of the Settlement Agreement are as follows:

"Whereas the buyer [the Company] agrees to settle the following amount through the contract no. BW/RJG 029CM (MS0402) covering 1,153,359 MT MV 'OB' by means of:

• - Letter of Credit: USD 370/MT to be opened on/before 15 June 2003

• - Commission: USD50/MT to be offered on/before 15 June 2003

• - Balance: USD82/MT to be settled by new business on/ before 31 May 2004.

6 The parties are at loggerheads with respect to the third limb of this Agreement.

7 It is Metalloyd's case that Burwill performed only two of its three obligations under the Settlement Agreement. The third, an obligation to pay a balance of $94,578.39 remains outstanding. As a consequence, it served a statutory demand in the prescribed form dated 10 June 2005 on Burwill. Burwill has not applied to set aside the statutory demand. Metalloyd's case is that the law is strict: Burwill had fourteen days within which to apply to set aside the statutory demand and failed to do so. It is therefore too late in the day for Burwill to seek to dispute the alleged debt.

8 Metalloyd next submitted that in the event that the Court does not dispose of the case on that issue, there is no genuine disputed debt and Burwill's case stands or falls upon a question of construction in respect of the one obligation of the Settlement Agreement. Metalloyd also asserted that the alleged cross-claim is the subject of (confidential) arbitration proceedings and reference to it in Mr. Chiu's affidavit is improper.

9 Conversely, Burwill is of the view that it is not in breach of the Settlement Agreement as it did in fact fulfil the third limb of the Settlement Agreement. Burwill alleges that its perception of the parties' understanding at the time they entered into the Settlement Agreement was that the third limb of the agreement was no more than a gesture of goodwill pursuant to which the balance of USD82/MT would be written off by way of it providing new business of an unspecified value to Metalloyd. Therefore, there is no judgment debt and even if there is (which is denied), the debt is disputed on substantial grounds and there is a genuine and serious cross claim which exceeds the amount of the alleged debt.

10 It is a fact that Burwill has not applied to set aside the statutory demand. As a result, on 20 March 2006, Metalloyd filed an originating application seeking the appointment of a liquidator over Burwill.

The evidence

11 Metalloyd relies upon the two affidavits of Mr. Neil Darren Fitzpatrick and the affidavit of Mr. Muralidharan Gopalakrishan. They were both present with Mr. Dicky Yu, former Managing Director of Burwill when the terms of the Settlement Agreement were agreed upon during a meeting at Burwill's office in Hong Kong on 30 May 2003. Mr. Chan Hung Chiu, upon whose affidavit Burwill relies, was not present at the meeting. In addition, it is not apparent when he became the Deputy General Manager of Burwill. He offered no evidence in this regard.

12 The evidence of these witnesses will be examined fully later on in the judgment. It is however suitable at this point in time to explore the legislative regime.

The Legislative regime: the reform of the Insolvency Act

13 On 12 May 2003, the Legislature of the Virgin Islands enacted the new Insolvency Act 2003 (the "Act"). This Act and the Insolvency (Amendment and Consequential Provisions) Act were proclaimed in force as of 16 August 2004. The Insolvency Act was intended to reform (emphasis added) the law relating to the insolvency of companies and foreign companies, limited partnerships, partnerships and individuals and to provide, in particular, for a mechanism for insolvent persons to enter into arrangements with their creditors, an administration procedure for companies, the receivership of companies and foreign companies, the liquidation of companies, foreign companies, limited partnership and partnerships, the making of bankruptcy orders against individuals, the licensing and regulation of insolvency practitioners, the penalization and redress of wrongdoing associated with insolvent persons, the disqualification of directors, the avoidance of certain transactions, cross border insolvency issues and other matters connected therewith. 2

14 The Act is revolutionary and innovatory in nature. It transformed the whole notion of how companies and foreign companies, limited partnerships, partnerships and individuals behave in this highly commercial-litigious jurisdiction. In its advancement, the Act took a quantum leap and even surpassed that of its mother country legislation 3 which it closely followed for many decades. Succinctly put, the Act was avant-garde. It empowers the Court to deal with insolvency matters in a timely and expeditious manner. It places strict time period within which certain things have to be done, for example, section 168 requires that an application to appoint liquidators be determined within 6 months. If it is not, and the period is not prospectively extended, the application is deemed dismissed. 4

Salient statutory provisions and their effects

15 A consideration of the applicable principles should begin with section 159 of the Insolvency Act which deals with the powers to appoint liquidator. Section 159 (1) (a) makes provision

that the Court may appoint an eligible insolvency practitioner as liquidator of a company, on an application under section 162. Section 162 states as follows:

"(1) The Court may, on application by a person specified in subsection (2), appoint a liquidator of a company under section 159 (1) if

• (a) the company is insolvent;

• (b) the Court is of the opinion that it is just and equitable that a liquidator should be appointed; or

• (c) the Court is of the opinion that it is in the public interest for a liquidator to be appointed."

16 In this case, Metalloyd relies on ground (a) that Burwill is insolvent.

17 The Interpretation section, that is, section 2 of the Act provides that insolvent, (a) in relation to a company or a foreign company, has the meaning specified in section 8 (1) and (b) in relation to an individual, has the meaning specified in section 8 (2).

18 Section 8 (1) defines the word "insolvent" as meaning:

"A company or a foreign company is insolvent if

• (a) it fails to comply with the requirements of a statutory demand that has not been set aside under section 157;

• (b) execution or other process issued on a judgment, decree or order of a Virgin Islands court in favour of a creditor of the company is returned wholly or partly unsatisfied; or

• (c) it is proved to the satisfaction of the Court that

  • i. the value of the company's liabilities exceeds its assets; or

  • ii. the company is unable to pay its debts as they fall due."

19 Mr. Richard Evans, Learned Counsel for Metalloyd submitted that the language of section 8 (1) is determinative and prescriptive: a company is insolvent if any of the conditions in subsection (a) to (c) is fulfilled. He submitted that, remarkably, the section is not a deeming provision, less still one that creates any form of presumption.

20 The statutory scheme in this jurisdiction can be contrasted with the UK Insolvency Act, 1986 ("the UK Act"). The parallel provisions under the UK Act differ materially as to their detail. Section 122 (1) (f) of the UK Act provides that "A company may be wound up by the court if …(f) the company is unable to pay its debts."

21 The definition of "inability to pay debts" is contained in section 123 which states:

"A company is deemed unable to pay its debts -

• (a) if a creditor (by assignment or otherwise) to whom the company is indebted in a sum exceeding £750 then due has served on the company, by leaving it at the company's registered office, a written demand (in the prescribed form) requiring the company to pay the sum so due and the company has for three weeks thereafter neglected to pay the sum or to secure or compound for it to the reasonable satisfaction of the creditor.

• (b) ………………………….."

22 Mr. Evans submitted that the clear difference between the UK Act and our Act is material. Our Act has...