Knowledge

In this case the BVI Commercial Court (the "Court") reaffirmed the requirements to be met on an application to remove joint liquidators.

Bybit Fintech Limited, incorporated in the BVI in 2018, ran the cryptocurrency exchange Bybit. The business was later transferred to Bybit Seychelles (allegedly without proper consideration, raising concerns of asset stripping). The company was struck off in 2021, restored to the register, and put into liquidation in September 2024, with Messrs Edwards and Lynch of Alvarez & Marsal ("A&M") appointed as liquidators on the application of Mr Hwang.

Mr Hwang claimed approximately US$735 million as a creditor in the liquidation. Another creditor, "Creditor IV", claimed 47.68 BTC and 1,305.96 ETH. Both claims were under investigation as at the date of the hearing before the Court.

In January 2025, Mr Hwang applied under section 187 of the BVI Insolvency Act, 2003 (the "Insolvency Act") to remove the joint liquidators on the following grounds:

• that the liquidators had failed to call an initial creditors’ meeting (as required by section 179 of the Insolvency Act).
•  that the liquidators had a conflict of interest, on the basis that A&M’s involvement in the FTX restructuring allegedly conflicted with Bybit’s liquidation;
• that the liquidators had failed to preserve assets and there had been a delay in securing assets transferred to Bybit Seychelles; and
• finally, that there had been a loss of confidence and the creditors no longer trusted the liquidators.

Initially, both known creditors supported removal, however, Creditor IV later reversed her stance, supporting the liquidators after receiving updates from them and advice from new BVI counsel.

In considering the application, the Court noted the test for removal under section 187 of the Insolvency Act, which allows removal of a liquidator if:

• the liquidator is ineligible, breaches duties, fails to comply with orders; or
• the liquidator's conduct falls below a reasonably competent standard, there is a conflict, or some other reason exists.

The Court applied a three-stage test (from Chu Kong v Ocean Sino Ltd (in liquidation) VG 2021 HC 080), namely:

• stage one: whether the applicant has standing to bring an application to remove a liquidator;
•  stage two: whether "due cause" exists; and
• stage three: whether the court should exercise its discretion to remove a liquidator.

Giving judgment, Justice Mithani held that liquidators must maintain neutrality in removal applications. While a liquidator was perfectly entitled to defend allegations against them, they were not entitled to lobby creditors in a bid to gain their support.

The Court held that, on the issue of standing, Mr Hwang had clear standing as a creditor, even though parts of his claim were disputed. As to ground one (the failure to call a creditors’ meeting), the Court held that the liquidators had delayed unreasonably in calling a meeting and that their notice under s.183 of the Insolvency Act was unsatisfactory. Further, the Court held that the liquidators had only convened a meeting after repeated requests from Mr Hwang, which was a failure on their part.

As to ground two (the conflict of interest), the Court noted that, on his appointment, Mr Edwards had assured the Court that there was "no real conflict". However, subsequent disclosures about A&M’s involvement with FTX had raised doubts about this. Justice Mithani held the conflict issue was not resolved at appointment and must be properly assessed.

Concerning ground three (failure to preserve assets), the Court held that the liquidators had delayed in pursuing Bybit Seychelles for misappropriated assets and in seeking freezing orders. Further, the court found that communication with the creditors had been inadequate. This fell below expected standards.

Finally, as to ground four (loss of confidence), Justice Mithani noted that at the time of filing of the application, both creditors had supported removal. Even though Creditor IV later changed her position, the Court found her change of stance dubious, stating that the change of position was “unconvincing", and held that confidence had substantially been lost by Mr Hwang, the majority creditor.

Justice Mithani criticised the liquidators for taking an adversarial stance on the application instead of remaining neutral, failing to provide timely updates or transparency, and withholding communications between their counsel and Creditor IV’s counsel.

Conclusion

The Court held that the grounds for removal were established as there were serious concerns about neutrality, asset protection, conflicts, and creditor confidence. The application to remove the liquidators was granted and replacement liquidators were appointed. Justice Mithani stressed that removal was in the best interests of creditors and the integrity of the liquidation, and was not based on any improper motive by Mr Hwang.

Key takeaways

This case illustrates that:

• liquidators must maintain neutrality in removal applications and that even perceived conflicts of interest can justify removal;
• creditor confidence is crucial and, where it is reasonably lost, the courts may intervene; and
• transparency and timely communication with creditors are essential to proper liquidation conduct.