In BVI, Section 25 of the Limitation
Act allows for six years from the date
of discovery or when such fraud or
mistake ought to have been discovered,
based on a test of reasonable diligence.
There are similar limitations in Cayman.
No such tolerance is permitted under
U.S. bankruptcy law. As such, claims
arising from a Ponzi scheme may have
a limited clawback period if the fraud
has been running for years before it
is discovered, as is often the case.
This, however, must be weighed against
the fact that a U.S. bankruptcy trustee
has two years from the date of his
appointment in which to file a claim.
An offshore liquidator has no such
tolling period. To the extent the offshore
liquidator needs to investigate a claim
and take steps to file it, he does not have
the luxury of time and may need to file
a protective writ to protect the claim.
There could be a very real advantage in
relying on the tolling provisions of the
English-based offshore limitation laws
to open the door to claims significantly
in excess of equivalent causes of
continued from page 16 action onshore. This determination
is heavily fact-dependent, but the
difference could be exponentially
greater than the difference between
the cost of running a more traditionally
funded offshore litigation and a
cash flow friendly onshore model.
Chapter 15 of the U.S. Bankruptcy
Code has proven to be a useful
tool for a liquidator in a number of
respects, including pursuing clawback
claims. The benefit of a stay on any
actions, the two-year tolling period,
and the discovery process based on
Rule 2004 of the Federal Rules of
Bankruptcy Procedure can all assist
in determining the beneficial owners
that may need to be pursued.
Chapter 15 allows foreign
representatives to benefit from the
U.S. bankruptcy trustee’s two-year toll.
However, if only discovery is needed,
it may be faster and less costly to apply
under 28 U.S.C. § 1782(a), which provides
for discovery for foreign proceedings
and is available outside of Chapter 15.
Is There Even an Insolvency Law?
In a rather surprising development in
late 2011, the Eastern Caribbean Court
of Appeal handed down a judgment
in Veda Doyle. 4 Of the nine states that
comprise the Eastern Caribbean judicial
circuit, perhaps five of them deal with
international work, heavily skewed,
of course, to the dominant offshore
corporate center of the BVI. However,
Anguilla, St. Kitts, Nevis, and Antigua
all deal with some international work.
In such a market, insolvency or
bankruptcy law is needed to accomplish
such work and address the cross
border nature of the work. Except for
the BVI, these states have no specific
insolvency legislation beyond the most
basic of provisions usually enshrined
in their company’s legislation.
Each state, however, has always reverted
to a provision of its respective Supreme
Court Acts that allowed, as they saw it,
for the law of England to be imported
into local law if the local law did not
address an issue. There is evidence this
power was somewhat loosely adopted
over many years, but it was clearly
in need of some closer scrutiny.
In Veda, the Court of Appeal clearly
defined the parameters of the
importation provision. In short, the
importation can occur when there is
a need for English procedural law, not
substantive law. The result of such
a finding is that whereas before, the
provisions of voidable transactions
or set aside actions could be lifted
from the English Insolvency Act of
1986, for example, that no longer
is permissible. Insolvency-related
offenses are simply not provided for
in companies’ legislation and, as such,
there is now considerable confusion as
to whether there even exists a judicially
sound basis for considering clawback
actions in the insolvency context.
It is readily apparent to these other
offshore jurisdictions that this is a
problem, and considerable efforts are
being brought to bear for legislative
reform in each. Until that happens,
however, there remains the very
practical difficulty of securing a
sound legislative infrastructure for
such bankruptcy matters to provide
predictability and reassurance to
liquidators seeking to recover assets
and taking other steps to further
their cross border interests.
All in all, the world of cross border
offshore bankruptcy law remains
a minefield through which careful
navigation can reap considerable
Carl Marks Student
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