HFW wins landmark BVI appeal clarifying directors’ duties in insolvency

Global law firm HFW has secured a significant win for its clients in the long-running litigation of Byers & Richardson (as Joint Liquidators of Pioneer Freight Futures Company Limited) v Chen Ningning, with the Eastern Caribbean Court of Appeal delivering a landmark judgment that provides clear guidance on directors’ duties to creditors of insolvent companies.

The Court of Appeal overturned the trial judge’s finding that the payments made by Pioneer Freight Futures Company Limited (PFF) to Zenato Investments Ltd were “balance sheet neutral” and therefore not compensable. Instead, the Court held that depletion of assets available to creditors constitutes a loss to the company, even if the net asset position remains unchanged.

This decision reinforces the principle that directors become stewards of a company’s assets for the benefit of its creditors once insolvency is imminent. It also confirms that balance sheet neutrality is not a defence to breach of fiduciary duty and that equitable remedies remain available even where statutory remedies under the BVI Insolvency Act 2003 are not.

The ruling also ensures that directors will be held accountable should their actions prejudice creditors of insolvent BVI companies, turning the Court’s focus from the question of whether the director personally benefitted from their breach of duty to the impact of the transaction on the company’s creditors.

The judgment is expected to be persuasive in other common law jurisdictions, including England & Wales, Australia, Hong Kong and Singapore, and marks a significant development in insolvency law.

HFW’s global team was led by Partner Scott Cruickshank (BVI) and included Senior Associate James Henson (Hong Kong), Consultant Noel Campbell (Hong Kong) and Partner Rick Brown (London).

Tom Smith KC from South Square Chambers and Ben Griffiths from Erskine Chambers were instructed by HFW to represent Byers and Richardson in the proceedings.

Scott Cruickshank, Partner, HFW:

“We’re proud to have secured this important result for the PFF Liquidators. The Court of Appeal’s decision brings much-needed clarity to directors’ duties in insolvency and reinforces the principle that creditors’ interests must be protected. This is a significant win for both our clients and for insolvency law across common law jurisdictions.”

HFW has acted for clients in offshore jurisdictions for more than 20 years and, in 2022, opened its BVI office to meet the demand of HFW’s international client base, in particular to act on high value, complex, cross-border disputes. Led by Partner Scott Cruickshank, the BVI-based team appears regularly before the BVI Commercial and High Courts and the Eastern Caribbean Court of Appeal and they work closely with HFW’s offshore teams in London, Hong Kong and Shanghai and with our onshore lawyers across the firm’s global network of 21 offices.