Steven Goran Stevanovich v Marcus Wide and Mark McDonald

• Jurisdiction: British Virgin Islands
• Judge: Baptiste JA
• Judgment Date: 07 March 2022
• Neutral Citation: VG 2022 CA 5
• Docket Number: BVIHCMAP2019/0004
• Court: Court of Appeal (British Virgin Islands)

THE EASTERN CARIBBEAN COURT OF APPEAL

IN THE COURT OF APPEAL

Before:

The Hon. Mr. Davidson Kelvin Baptiste Justice of Appeal

The Hon. Mr. Paul Webster Justice of Appeal [Ag.]

The Hon. Mde. Vicki-Ann Ellis Justice of Appeal [Ag.]

BVIHCMAP2019/0004

Between:

Steven Goran Stevanovich

Appellant

and

Marcus Wide and Mark McDonald

(as Joint Liquidators of Barrington Capital Group Limited) (In Liquidation)

Respondents

Appearances:

Mr. Stephen Moverley Smith, QC with him, Mr. Fraser Mitchell for the Appellant

Mr. Tom Smith, QC with him, Ms. Eleanor Morgan for the Respondents

Commercial appeal — Interlocutory appeal — Insolvency — Application to set aside the order of the joint liquidators — Sections 210 and 273 of the Insolvency Act, 2003 — — Locus standi — Meaning of ‘person aggrieved’ in section 273 — Legitimate interest — Perversity test — Whether the judge erred in not granting the application to set aside the joint liquidators' decision or direct that a section 210 application be made

The appellant, Mr. Steven Goran Stevanovich (“Stevanovich”), was the sole director of Barrington Capital Group Limited (“the Company”). The Company operated as an investment fund that lent money to various businesses; between 2001 and 2006 it loaned monies to a group of companies in the United States of America referred to as the Petters Group Inc. (“Petters Group”), which was controlled by Mr. Tom Petters. The loans were documented in what has been called ‘the Master Loan Agreement’.

In 2009, Stevanovich placed the Company into solvent liquidation. He then resigned as the Company's sole director and was replaced by a company who would act as an independent director to handle the formalities of the dissolution. Between August 2010 and January 2011, the Company's certificate of recognition was cancelled; the Company's liquidation plan was approved; the Company's assumed sole asset was distributed to its shareholders; a liquidator was appointed; a certificate of completion filed; and the Company was dissolved.

In June 2009, Mr. Tom Petters was charged in the US with mail fraud, money laundering and conspiracy following a discovery that he had been carrying on a massive Ponzi scheme through the Petters Group. A trustee in bankruptcy (“the Trustee”) was subsequently appointed to the Petters Group under Chapter 11 of the United States Bankruptcy Code and, by October 2010, the Trustee issued a complaint in a United States Bankruptcy Court seeking to avoid payments which had been made by the Petters Group, including those made to the Company. Stevanovich and the Company were named as defendants to those proceedings. The Company did not defend the US complaint and, in April 2015, default judgment was entered against the Company.

On 16 ^th April 2013, the Trustee applied to the High Court in the Territory of the Virgin Islands (“BVI”) to restore the Company into liquidation under the provisions of the BVI Business Companies Act, 2004. The application was approved, and the Company was reinstated on the register. The respondents, Marcus Wide and Mark McDonald, were named joint liquidators. The Trustee submitted a claim in the liquidation of the Company seeking payment of the sum claimed against it in the US proceedings. The respondents admitted the Trustee's claim in liquidation and in October 2016 commenced proceedings against Stevanovich in the BVI under sections 254 and 255 of the Insolvency Act, 2003 (the “Insolvency Act”) for misfeasance and fraudulent trading. Stevanovich subsequently applied to the court pursuant to section 273 of the Insolvency Act and/or the inherent jurisdiction of the court to set aside the joint liquidators' decision to admit the claim, or alternatively that the joint liquidators be directed to apply to the court under section 210(2) of the Insolvency Act to expunge the claim. The learned judge, dismissed Stevanovich's application, finding that Stevanovich had no locus standi to seek to set aside the joint liquidator's decision under section 273.

Stevanovich appealed the decision, challenging the learned judge's findings on locus standi. He also challenges the judge's conclusion that, even if he had standing, the decision could only be overturned if it was completely absurd or unreasonable. He also contended that the judge erred by not considering whether to set aside or reverse the liquidators' decision, or to direct a section 210 application.

Held: dismissing the appeal and awarding costs to the respondents to be assessed if not agreed within 21 days, that:

• 1. A person aggrieved by an act, omission or decision of an office holder within the meaning of section 273 of the Insolvency Act may apply to the court to confirm, reverse or modify the act, omission or decision of the office holder. The applicant must show that they have sufficient interest to make the application in that they are: (i) a person qualified to make the application; and (ii) a proper person to make the application in the sense that they have a legitimate interest in the relief sought. In this case, Stevanovich did not seek relief in his capacity of a former sole director but as a defendant to proceedings brought against him for contribution to the claims which were admitted in the US Court. There was therefore no connection established between his previous directorship of the Company and the section 273 relief sought before the judge. In the premises, he is neither a creditor, contributory nor a debtor to the company in liquidation. Accordingly, in the circumstances, the learned judge did not err in finding that Stevanovich lacked sufficient standing to seek section 273 relief.

  Section 273 of the Insolvency Act, No. 5 of 2003, Laws of the Virgin Islands applied; Deloitte & Touche AG v Christopher D Johnson and another [2000] 1 BCLC 485 applied; ABN AMRO Fund Services (Isle of Man) 24 Nominees Limited formerly Fortis (Isle of Man) Nominees Limited and Others v The Kenneth Krys et al BVIHCMAP2016/0011 – BVIHCMAP2016/0015, BVIHCMAP2016/0023 – BVIHCMAP2016/0028 (delivered 20th November 2017, unreported) applied; Kevin Gerald Stanford v Stephen John Akers et al BVIHCMAP2017/0019 (delivered 12th July 2018, unreported) applied.

• 2. The test for setting aside an act, omission or decision of an office holder under section 273 is one of perversity. Absent cases involving fraud and bad faith, the court will not interfere with the decision of a liquidator/office holder unless the decision is so perverse that no reasonable liquidator, properly advised, could have taken it. In this case, the question raised by the section 273 application was whether the liquidators were correct to admit the Trustee's claim on the basis that the Trustee's claim, made on the footing of the US default judgment, was enforceable against the Company. Such an evaluation did not involve an exercise of a discretion as to the realisation of assets in satisfaction of the debts of the company's creditors or any similar commercial or administrative function as generally within the unique province of the liquidator. Accordingly, and as the learned judge concluded, the perversity test would not apply to a review of the liquidators' decision to admit the Trustee's claims.

  Re Edennote Ltd [1996] 2 BCLC 389 applied; Mitchell and another v Buckingham International plc (In Liq.) and others [1998] 2 BCLC 369 applied; Mahomed and another v Morris and others [2000] 2 BCLC 536 applied; Adams and others v Cape Industries plc and another [1990] 1 Ch 433 applied.

• 3. Section 210(2) of the Insolvency Act gives the court specific powers upon the application of a liquidator or where the liquidator declines to make an application, a creditor, to expunge or amend an admitted claim in liquidation if it is satisfied that the claim should not have been admitted or should be reduced. Section 210 is a tool which a liquidator or, exceptionally, a creditor may seek judicial intervention in the context of a liquidation. The making of an application under section 210(2) is within the province of the liquidator or a creditor where the liquidator is not minded to make the application. It is not for the court to direct that such an application be made, but for those so empowered by the statute to make that application to address their own concerns and protect their own interests. As Stevanovich is neither a liquidator nor creditor and the respondents' consistent defence of their decision to admit the Trustee's claims is that they do not, at this stage, desire to make a section 210 application, therefore section 210 is not engaged.

  Section 210 of the Insolvency Act, No. 5 of 2003, Laws of the Virgin Islands applied.

Baptiste JA

1 This is an interlocutory appeal from a decision of Wallbank J [Ag.] dated 5 ^th December 2018, by which the learned judge refused to grant an application by the appellant, Steven Goran Stevanovich, for alternative relief under sections 273 and 210 of the Insolvency Act, 2003 1 (“ Insolvency Act”), in relation to the decision of the joint liquidators of Barrington Capital Group Limited to admit claims in the company's liquidation.

2 The background to the appeal is comprised largely of uncontested facts which were very well detailed in the learned judge's judgment. I have summarised the most relevant aspects of that background below.

Background

3 Steven Goran Stevanovich (“Stevanovich”) is the former sole director of Barrington Capital Group Limited (“the Company”) which was incorporated in the Territory of the Virgin Islands, originally under the name Capital Strategies Fund Limited, and carried on business as an investment fund. A part of the Company's business was to make various types of investments and to offer interest accruing loans to various companies. From 2001 to 2006, the Company loaned monies to a group of companies in the United States of America (‘US’) referred to as the Petters Group Inc., which was controlled...