Order Restored: Court Hands Down Key Judgment On BVI Hedge Fund Insolvencies

Introduction

The Court of Appeal of the Eastern Caribbean Supreme Court on Monday, 11 March handed down an important ruling on the question of where investors stand in the "waterfall" of distributions in the liquidation of investment funds under British Virgin Islands law. It affirms the widely held industry view that debts owed to past members for redemption proceeds provide them with deferred creditor status and thus they rank behind external creditors of the company, but their claims have priority over the interests of existing members in the liquidation of a BVI company.

The decision brings certainty to the position and will be welcomed by investors, particularly those with secondary market positions, as well as by insolvency practitioners who may now proceed to make distributions with clarity.