The right of a secured party to appoint an administrative receiver over the assets and undertaking of a BVI company without recourse to the courts is a quick and simple procedure to initiate for any person whose security is backed by a floating charge, enabling a rapid response to a default.
Administrative receivership in the BVI is broadly reflective of the position in England which, in turn, dates back to the nineteenth century when floating charges were first created. It is worth noting at this stage that only a BVI-licenced insolvency practitioner can act as an administrative receiver and that an individual that is not resident in the BVI cannot act as an administrative receiver unless he or she does so jointly with a BVI-resident and licenced insolvency practitioner, and only if he or she is an "overseas insolvency practitioner": an individual that has sufficient qualification and experience to act as an administrative receiver and that fulfils other conditions listed in the BVI Insolvency Act, 2003.
The essence of an administrative receivership in the BVI is to allow the holder of a floating charge to appoint a person, an administrative receiver, over the whole of the company's business and assets in order to realise them for the benefit of that secured creditor. Any remaining surplus is accounted for to the company after realising the company's assets under the security. Preferential creditors must be paid as to capital and interest out of the assets before the floating charge holder that appointed the administrative receiver and any other floating charge holder (provided the company is not in liquidation).
The administrative receiver will enjoy very wide powers in the enforcement of the security, and the charge holder will have the ability to block the appointment of an administrator (if the administration provisions set out in the Insolvency Act are brought into force in the future). The Insolvency Act confirms that only one administrative receiver can be appointed at any one time (which clarifies the uncertain position on this point that remains today in England).
As in England, administrative receivership is not a collective procedure and the holder of a floating charge can commence it at any time the contract with the company allows. An administrative receiver owes a duty of care to his or her appointer, but only limited statutory legal obligations to others.
That does not mean that the administrative receiver can ignore the interests of the company or the unsecured creditors. The Insolvency Act provides specific instances when the administrative receiver owes a duty to them, and is required to notify the company and the creditors of its report, and also to call a meeting of creditors. These are, however, ancillary to the primary duty to ensure that the secured debt is repaid.
A creditor that wishes to take advantage of an administrative receivership must ensure that the charging document contains a valid floating charge under BVI law. The scope of appointment is a matter of contract between the company and the secured creditor and the administrative receiver must be appointed over "the whole, or substantially the whole" of the business, undertaking and assets of the company, otherwise it will not be treated as an administrative receiver.
The floating charge holder's strong position in an administrative receivership procedure is reinforced by the unique relationship of the agency with the BVI company. While the receiver is deemed to be an agent of the company, which traditionally connotes a relationship of singular loyalty, its primary duty is to the floating charge holder whose interests will be given priority, in some cases to the detriment of the company. The nature of the statutory relationship of agency between the receiver and the company renders the company liable for certain wrongful acts committed by the receiver while it is pursuing the interests of the floating charge holder.
The BVI court has only a limited role to play in administrative receiverships. The court can, however: appoint an administrative receiver; permit it to dispose of property over which there is a security interest taking priority over that of the person who appointed it; and only the court can remove the receiver from office. It also has the power to review and fix an administrative receiver's remuneration.
The Insolvency Act also provides the court with wide power to give directions, on application, on any matters arising in connection with the performance of the functions of the administrative receiver. The court can give such directions as it considers appropriate, make orders declaring the rights of any persons before it (which will be very useful if there are any priority disputes over the company's assets) or make such orders it considers just.