Bank of America N.A. v Pacific Andes Enterprises (BVI) Limited

Confidential restructuring proposals not admissible as evidence in support of adjournment of a winding up application

Corporate insolvency – British Virgin Islands – winding up applications – adjournments – restructuring – confidentiality clubs

The applicant bank sought an order for the liquidation of three BVI companies, all of which were part of a much larger international corporate structure, the Pacific Andes Group. The Group was under financial pressure and several entities were the subject of insolvency proceedings in various jurisdictions, including Chapter 11 proceedings in the US Bankruptcy Court.

The BVI companies sought an adjournment of the bank’s applications until after a certain stage in proceedings in the US Bankruptcy Court in relation to other Group companies had been reached in order to allow restructuring proposals to be presented. The BVI court considered two issues: first, whether the BVI companies could put confidential material before the court without disclosing it to anyone other than the BVI advocates for the creditors; and second whether there were any grounds for adjourning the Bank’s applications pending the restructuring of the Group in other jurisdictions.

The confidential material related to the Group’s planned reorganisation. The BVI companies contended that its early disclosure to creditors would impede a successful restructuring. The companies sought undertakings from the creditors’ counsel not to disclose the contents of this evidence to their clients, which were not given. The Companies then asked the judge to look at the confidential material on the basis that it had been unreasonable for the creditors to refuse to give undertakings. The court rejected the submission that this was comparable to confidentiality clubs at the disclosure stage of litigation. In the absence of any proper evidence of irremediable harm being caused by the material’s disclosure, the court would not admit the material into evidence save for in the usual way.

In respect of the application for an adjournment by two of the BVI companies, the court noted that there was no challenge to the ground of the bank’s application, nor was there any evidence of a reasonable prospect of payment of the debt in full within a reasonable time. Whilst this would usually entitle an applicant to a winding-up order, the class nature of the remedy meant that if some creditors oppose an order being made “the landscape completely changes,” and where there is a majority view this will be given weight by the court, although mere superiority in value of debt is not enough. In this case there was a creditor of one of the BVI companies within the Group structure who opposed the making of winding up orders. The court held that there was no general proposition, principle or presumption that where there is a restructuring an adjournment would be allowed for that purpose.

Finding the applicant and supporting creditors’ desire for a winding up order to be reasonable, and there being no opposing creditors in relation to one of the companies, the court made the winding up orders.

Courts will be very slow to admit into evidence material that a party seeks to exclude from inspection by other parties in the absence of clear evidence of the irremediable harm that such disclosure would cause. This is unlikely to apply to commercially-sensitive restructuring proposals, especially since proposals to reorganise an international group of companies cannot, alone, justify an application to adjourn a winding up application supported on prima facie reasonable grounds by a clear majority of creditors.