“Chabra” relief in the BVI – freezing the assets of a person who is not a substantive accused – asset management

A chabra disposal is a powerful weapon that can greatly increase the amount of assets an applicant can fence off. Here Jeremy Lightfoot, Richard Brown and Catie Wang from Carey Olsen examine how the demands on chabra relief have evolved recently.

A chabra injunction is an injunction over the property of a person against whom the applicant has no direct cause of action. 1 It is a powerful weapon that can greatly enhance the amount of assets an applicant can fence off.

The requirements for chabra aid have evolved over the years and can be the subject of debate. However, they have recently been cleared and refined in the British Virgin Islands (BVI).

The current position is that the following elements must be established in order to obtain Chabra relief in the BVI: 2

  1. There must be substantial proceedings against the main defendant (reason for filing a lawsuit or CAD) in the BVI.
  2. The court must have issued a freeze order against the CAD or be in the process of issuing it.
  3. There must be good reason to believe that assets held by a third party may be subject to an execution process to meet any judgment, or that a third party is holding assets as a mere trustee, agent, or nominee of the CAD.
  4. It must be proven that the property of the third party is threatened with loss.
  5. The Tribunal has the ability to join the third party as an Unofficial Defendant (NCAD) or has affiliated with the third party. and
  6. It is just and convenient for the Court to make such an injunction

Two of these requirements should be further considered in light of recent developments.

The requirement of a substantive procedure against the CAD in the BVI

Until the recent decision of the Court of Appeal in the Broad Idea International Limited v. Convoy Collateral Limited case, the BVI courts had three free-standing freeze rulings against third parties (often BVI companies) in support of foreign court proceedings, so-called “Black Swan” rulings, according to the applicants the decision in the Black Swan Investment ISA v Harvest View Limited et al. had been available for at least 10 years.4 In Broad Idea, however, the appeals court overturned Black Swan’s decision and concluded that such relief could only be granted in support of the substantive proceedings in the BVI.

This has led to difficulties for applicants who seek relief from the BVI to support foreign proceedings. This difficulty was illustrated in the Commercial Bank of Dubai at 18 Elvaston Place Ltd and in another case5. In this case, a substantive procedure was initiated against the CAD in Dubai. The CAD was not resident in a BVI, but it was alleged that two BVI companies owned assets for the CAD that would be suitable for an eventual appraisal of the CAD. The Claimant initially received an injunction against the NCADs in the BVI without filing a separate motion against the CAD in the BVI. The injunction was issued days before the appeal court’s decision in Broad Idea. On the day the restraining order against Black Swan was returned, the NCADs (one of which was represented by Carey Olsen) successfully argued that the restraining order should be overturned. The Court found that despite the decision in Broad Idea, there may be an injunction against the NCAD BVI companies if it is possible to initiate substantive litigation in the BVI against the CAD based on the same underlying claim that was being pursued Dubai. However, there was no jurisdiction on which such a claim could be served on the CAD. As a result, the injunction was lifted.

Realize your wealth: the ‘money box’

The courts have tended to be somewhat confused about the criteria necessary for relief against an NCAD, even when the jurisdiction issues mentioned above are not involved. The classic test consists of whether the assets held by third parties are accessible to an execution process in order to satisfy a possible assessment of the CAD. The courts have also referred to the “Money Box” Business Test, which assesses whether the NCAD Company, on behalf of the CAD, is a nominee of assets so that they are amenable to enforcement.

In Broad Idea, the appeals court adopted a restrictive interpretation of the piggy bank test, emphasizing the important principle that a company’s assets are neither legally nor economically owned by its shareholders, suggesting that in many cases the enforcement test is not passed Cases except when the corporate veil can be pierced.

In a more recent decision, however, the BVI Commercial Court proposed a somewhat more plaintiff-friendly approach6. In this case, the BVI court examined whether companies to which a defendant had transferred assets fell within the scope of the piggy bank test. The judge made the following findings:

“The prejudice phase raises the question of whether an asset brought into the company against which Chabra relief is sought falls into the broad category of assets that are subject to a freeze order in the standard English trading form. ” and as a result, the correct approach has been to “preventively freeze assets in the debtor’s power and control, and then argue over their availability for later execution”. He continued: “Any company in which a suspected
[judgment] The debtor may identify assets at the prejudice stage as the subject of designation as a Chabra defendant. “7

This ruling shows that, despite the stricter approach the appeals court approved to chabra relief in Broad Idea, the BVI court is still ready to grant relief if a defendant appears to have used offshore structures to save their assets Bring reach.

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Recent cases have shown that chabra relief in the BVI continues to be available despite the obvious limitations imposed by the decision in Broad Idea. However, applicants need to think more carefully about the jurisdiction arguments and the “moneybox” test.

Footnotes

1. TSB Private Bank International SA in Chabra [1992]
1 WLR 231.

2. Broad Idea International Limited v Convoy Collateral Limited, BVICMAP 2019/0026, May 29, 2020, section 55.

3. Ibid.

4. Black Swan Investment ISA v Harvest View Limited et al., BVIHCV 2009/399, March 23, 2010.

5. BVIHC (COM) 2020/0070, June 16, 2020.

6. Great Panorama International Ltd v Qin Hui et al., BVIHC (COM) 2019/0180 (Jack J, August 13, 2020)

7. In paragraphs 43 and 44

An original version of this article was published in the Asia Business Law Journal in December 2020.

The content of this article is intended to provide general guidance on the subject. A professional should be consulted about your particular circumstances.

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