Harneys Corporate Recovery Services Guides to The Insolvency Act 2003 - Part 4.

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Harneys Corporate Recovery Services Guides to The Insolvency Act 2003 - Part 4.

GUIDE 8: MALPRACTICE & DISQUALIFICATION ORDERS 8.1 Introduction

Parts IX and X of the Insolvency Act introduce a new regime in BVI law for dealing with delinquent directors and others involved with a company that goes into liquidation. Part IX, headed Malpractice, will allow a liquidator to recover assets of the insolvent company or recoup its losses under three statutory provisions: section 254 (Summary remedy against delinquent officers and others), section 255 (Fraudulent Trading), and section 256 (Insolvent Trading). These provisions are modelled on the Misfeasance, Fraudulent Trading and Wrongful Trading provisions found in 212, 213 and 214 of the UK Insolvency Act 1986 respectively.

Part X of the Act will introduce a new regime for disqualifying directors, insolvency practitioners and others concerned in the running and management of companies, where they have been involved with an insolvent company. The provisions allow for the court to make a Disqualification Order for a maximum of 10 years or for the delinquent person to give a Disqualification Undertaking to the Official Receiver, and they are closely modelled on the UK Company Directors Disqualification Act 1986 as amended by the UK Insolvency Act 2000.

8.2 Part IX: Malpractice - general points

The Malpractice provisions have certain common features that should be noted at the outset for they will greatly narrow the scope of their application. First, the provisions will only apply if the company goes into insolvent liquidation.

They cannot be invoked if the company goes into any other insolvency regime e.g. administration or administrative receivership, and only a Liquidator has the power to make applications to court under these provisions.

Second, insolvent liquidation has a very narrow meaning for the purposes of these provisions: it is confined to the balance sheet test i.e. that the company's assets are insufficie...

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