EASTERN CARIBBEAN SUPREME COURT
TERRITORY OF THE VIRGIN ISLANDS
IN THE COURT OF APPEAL
On appeal from the Commercial Division
SPECTRUM GALAXY FUND LTD.
XENA INVESTMENTS LTD.
The Hon. Mde. Janice M. Pereira Justice of Appeal
The Hon. Mr. Geoffrey Belle Justice of Appeal [Ag.]
The Hon. Mr. Gerard St. C. Farara, QC Justice of Appeal [Ag.]
Mr. Richard Evans, with him Mr. Jerry Samuel for the Appellant
Mr. Stephen Moverley Smith, QC, with him Ms. Keisha Durham for
2012: April 17;
Civil appeal – Insolvency Act, 2003 – Whether assignee of redemption proceeds can attain
the character of a creditor with locus standi to seek liquidation of a company
Redemption proceeds were assigned to Xena Investments Ltd. by Pentagon Select Ltd.
which entity, through its agent Somers Dublin Ltd., subscribed for a number of shares in
Spectrum Galaxy Fund Ltd. Somers, on behalf of Select, gave notice of its intention to
redeem all of its shares held in the Fund. Subsequently on 1
May 2009, Select assigned
the redemption shares, receivables and all related rights to Xena. On that basis, Xena
claimed to be a creditor of Spectrum in respect of redemption proceeds in the sum of
Xena applied for and was granted an order appointing joint liquidators over Spectrum.
Spectrum appealed on the basis that Xena, as an assignee of redemption proceeds has
no locus standi to seek liquidation of Spectrum. 2
Held: allowing the appeal and discharging the order dated 27
July 2010 appointing joint
1. A claim for redemption proceeds is precluded by virtue of section 197 of the
Insolvency Act (“the Act”) from being an admissible claim and is accordingly
caught by the prescription contained in section 12(c) of the Act. The
assignment of the redemption proceeds to Xena does not thereby convert the
claim for redemption proceeds which is a non-admissible claim under section
197 of the Act into an admissible claim by virtue of the assignment.
Consequently, Xena’s claim as an assignee of the redemption proceeds would
be a non-admissible claim in the liquidation.
Sections 9, 12 and 197 of the Insolvency Act, 2003 applied; Westford Special
Situations Fund Ltd. v Barfield Nominees Limited et al Territory of the Virgin
Islands HCVAP 2010/014 (delivered 28
March 2011) followed.
2. Xena’s claim not being an admissible claim in the liquidation cannot therefore
confer on Xena the character of a creditor with locus standi to apply for the
appointment of liquidators over Spectrum.
REASONS FOR DECISION
 PEREIRA JA: This is a judgment of the Court. The appeal in this matter was
heard on 17
April 2012. The Court allowed the appeal and the Order of the
learned trial judge appointing joint liquidators over the appellant company (“the
Fund”) was discharged,
with written reasons to follow. We now do so.
 The Fund is a private limited liability fund which was incorporated in the Virgin
Islands on 21
December 1995. An entity by the name of Somers Dublin Ltd.
(“Somers” – acting as agent for another entity called Pentagon Select Ltd.
(“Select”)) subscribed at various times for a number of shares in the Fund.
Somers (on behalf of Select) gave notice of its intention to redeem all of its shares
held in the Fund. That notice was effective as of 30
June 2008. Consequent on
the global financial crisis that began in 2008, a forbearance agreement was
entered into by and among the Fund and Select on 19
December 2008 whereby
A Certificate setting out the result of the appeal was approved by the Court 19
April 2012. 3
Select agreed not to demand immediate repayment of the redemption proceeds to
which it was entitled for a period of two years. That period has now expired.
 By a Deed of Assignment dated 1
May 2009 (“the Assignment”) Select assigned
“the Redemption Shares, Receivables and all Related Rights”
to the respondent
(“Xena”) a company incorporated in the Cayman Islands. The Assignment was
said to be governed by BVI law.
 On 6
July 2010, Xena filed an Originating Application seeking the appointment of
joint liquidators over the Fund. No statutory demand had been served on the
Fund. Xena claimed to be a creditor of the Fund in respect of the “Redemption
Proceeds” in the sum of $21,404,471.02.
 On 27
July 2010, the Application for the appointment of joint liquidators was
granted. At that time the state of the law was as pronounced by the court below
following its prior decision in Western Union International v Reserve
International Liquidity Fund Ltd3
in which it was held that a redeeming
shareholder was a creditor with locus standi under the Insolvency Act, 2003
(“the Act”) to seek the appointment of a liquidator in respect of unpaid redemption
 The occasion was given to this Court for the first time, in Westford Special
Situations Fund Ltd. v Barfield Nominees Limited et al
to consider the
question whether a redeeming shareholder claiming redemption proceeds had
locus standi under the Act to seek the appointment of a liquidator. This Court held
that on the construction of sections 2, 9 and 197 of the Act such a redeeming
shareholder has no locus standi.
Redeemed Shares were defined under the Assignment as shares having a value on 30
June 2008 of
$21,404,471.02 in the Fund held by Somers for the account of Select … in respect of which a request for
redemption has been duly accepted by the Fund for redemption as of 30
June 2008 redemption date.
British Virgin Islands Claim No. BVIHCV 2009/322 (delivered 26
January 2010). The appeal to the Court
of Appeal by Reserve was allowed by consent.
No. 5 of 2003, Laws of the Virgin Islands.
Territory of the Virgin Islands HCVAP 2010/014 (delivered 28
The present appeal
 The sole question arising on this appeal was whether an assignee of redemption
proceeds stood in a better position than the redeeming shareholder and
accordingly by virtue of the assignment attained the character of a creditor with
locus standi to seek liquidation of a company.
 Mr. Evans argued that Xena is for all real purposes in an identical position as the
redeeming shareholder in Westford in that it is a claim in respect of a member’s
entitlement to redemption proceeds and that Xena as assignee of the redemption
proceeds can obtain no better title to or interest in the subject matter of the
assignment than the assignor had. He relies on Chitty.
He says therefore that if
the member from whom Xena acquired the redemption claim did not have locus
standi to seek liquidation of the Fund, then Xena’s position could be no better.
This, he says, is correct having regard to the text of the Act as well as for policy
 With regard to the public policy considerations Mr. Evans says, in essence, that if
an assignment of redemption proceeds clothes the assignee with locus standi to
bring winding up proceedings thereby allowing redemption proceeds to be treated
on an equal footing as an outside creditors’ claim in a winding up, then all that
would be required to circumvent section 197 of the Act, (which clearly
contemplated claims to redemption proceeds being subordinated to outside
creditors’ claims), was a simple assignment by a redeeming shareholder to an
assignee who could then seek liquidation and prove in similar fashion and on an
equal footing with outside creditors. Such an approach, he says, would completely
destroy the policy considerations which must be taken to have informed the
framers of section 197 of the Act. We agree.
 But quite apart from that and more importantly, the answer lies, in the Court’s
view, in the text of the Act itself. Mr. Moverley Smith, QC on behalf of Xena, and
Chitty on Contracts (30
edn. Volume 1, Sweet & Maxwell 2008) para. 19-070. 5
who incidentally was leading counsel in Westford, suggested that the starting
point in a consideration of the provisions of the Act, is with the question: ‘who is a
creditor for the purposes of seeking a liquidation order.’ Section 2(1) of the Act
says that unless the context otherwise requires, ‘creditor’ has the meaning
specified in section 9 of the Act. Section 9 of the Act states:
“9. (1) A person is a creditor of another person (the debtor) if he has a
claim against the debtor, whether by assignment or otherwise, that is, or
would be, an admissible claim in
(a)the liquidation of the debtor…” (My emphasis.)
The Court agree with Mr. Moverley Smith that this provision makes it quite clear
that an assignee of an admissible claim is as much a creditor as the assignor. The
focus in the Court’s view must however be on the question: ‘what is an admissible
claim’. Section 11, which is subject to section 12, sets out the various types of
liabilities which are admissible claims in a liquidation. These cover generally, the
liabilities of a company at the time of commencement of the liquidation or liabilities
arising after commencement of liquidation by virtue of a prior obligation, or any
interest that may be claimed under the Act or the Rules. These are not germane
for the purposes of this discussion. Critical in the Court’s view is section 12 which
sets out what are not admissible claims in liquidation. Section 12 states:
“The following liabilities are not admissible claims in the liquidation of a
(a) an obligation arising out of a confiscation order made under
(i) the Drug Trafficking Offences Act, 1992, or
(ii) the Proceeds of Criminal Conduct Act, 1997;
(b) a liability that, under any enactment or rule of law, is of a type
that is not claimable, whether on grounds of public policy or
(c) such other liabilities or claims as may be prescribed.” (My
 Counsel for Xena accepts that section 197 of the Act amounts to a prescription in
respect of admissible claims for the purposes of section 12(c). Section 197 states: 6
“A member, and a past member, of company may not claim in the
liquidation of the company for a sum due to him in his character as a
member, whether by way of dividend, profits, redemption proceeds or
otherwise, but such sum is to be taken into account for the purposes of
the final adjustment of the rights of members and, if appropriate, past
members between themselves.” (My emphasis.)
 Counsel says that section 197 creates two cumulative requirements in order for a
claim to be precluded thereunder:
(i) Firstly, as to the identity of the person making the claim. The person
must be a member or past member. Xena being an assignee, he says,
is neither a member nor a past member. He argues that the section
could easily have included an assignee in similar manner as section 9
but does not. Thus this requirement is not satisfied.
(ii) Secondly, as to the characteristics of the claim that a person is making.
He accepts that a claim by a redeeming member to redemption
proceeds is a claim by a member for a sum due to him in his character
as a member but, says he, since the person making the claim (Xena) is
neither a member nor past member, then it is not possible for him to be
making the claim in his character as a member. Thus this requirement
is also not satisfied. His argument in short is that Xena’s claim is not
caught by section 197.
 This argument though attractive and skilfully argued is nonetheless flawed. Whilst
it is accepted that Xena is not a member of the Fund, the construction placed on
section 197 is not a proper one contextually. The Court is of the view that all that
section 197 seeks to do is to capture those type of claims which a person may
make and which arise only by virtue of that person’s membership or shareholding
in a company and goes on to describe some of those types of claims such as
claims to profits, dividends and redemption proceeds. It is descriptive of the
characteristic of the claim. The assignment of a claim having that characteristic
(and therefore a non-admissible claim) does not thereby convert it simply by virtue
of having been assigned, into a claim of a different character. The claim assigned 7
was for redemption proceeds and on assignment remained one for redemption
proceeds. Applying counsel’s two-pronged test, the second requirement of section
197 has been met with the result that Xena’s claim as an assignee of the
redemption proceeds is nonetheless caught by the prescription contained in
section 197. Xena, accordingly, does not meet the requirement of being a creditor
with standing to apply for the liquidation of the Fund in accordance with sections 2,
9, 12 and 197 of the Act. Its originating application seeking the appointment of
liquidators ought to have been dismissed.
 For these reasons the appeal was allowed and the order dated 27
appointing joint liquidators discharged. The parties were given liberty to make
submissions in respect of the liquidators’ remuneration and expenses and as to
whom should bear ultimate liability therefore.