Knowledge

In this case, the BVI Court of Appeal (the "Court") held that there was no genuine dispute in respect of a statutory demand and reaffirmed the strict standards for fresh evidence and security for costs.

The case concerned an appeal by Geminis Investors Limited ("Geminis") against Goods Technology Starting International Limited ("GTS") and G-Force International Co Ltd ("G-Force") regarding a statutory demand and substantive proceedings related to nine short-term notes in the sum of US$6.2 million issued to GTS and G-Force between 31 December 2019 and 31 May 2020 (the "Notes"). The Notes were governed by New York law.

On 23 December 2021, GTS served a statutory demand on Geminis, but without having first served a default notice. By this time, the Notes had matured. Geminis subsequently applied to set aside the statutory demand, arguing that the debt was not due and that rights of set off existed. Geminis additionally argued that they had elected to settle the debt via asset settlement, i.e. the transfer of fund shares.

First instance judgment

In the Commercial Division of the High Court (the "Commercial Court"), Geminis' application was dismissed. The primary arguments before the Commercial Court revolved around whether Geminis had a substantial dispute over the existence of the debt, which would justify setting aside the statutory demand. GTS and G-Force maintained that Geminis could not invoke the asset settlement provisions in the Notes because the Notes had matured, and no default notice had been issued. Geminis argued in response that its proposal to settle the debt with shares in an investment fund constituted compliance with the asset settlement terms.

However, the Commercial Court held that the proposed asset settlement did not fulfil the necessary conditions, as Geminis had failed to demonstrate any actual transfer or allocation of assets to GTS or G-Force to substantiate its argument, which was essential for invoking the asset settlement. Additionally, Geminis owed a shortfall that was in excess of the statutory limit for insolvency (i.e. less than US$2,000).

The Commercial Court noted that the maturity of the Notes meant that Geminis was obliged to pay the debt, and the absence of a default notice did not negate this obligation. Geminis' claims regarding further payments were also deemed insufficient without evidence to support them. There was, therefore, no substantial dispute regarding the debt owed.

Appeal and legal issues

The main issue before the Court on appeal was whether Geminis had been entitled to invoke the asset settlement provisions in the Notes to claim that the debt had been extinguished and, therefore, whether there existed a substantial dispute regarding the existence of the debt, or a part of the debt sufficient to reduce the undisputed amount to below the statutory threshold. Geminis also sought leave to adduce a fresh expert report on New York law, which had not been relied upon at first instance.

Court's analysis

The Court held that Geminis had not raised an authentic or genuine dispute and accepted GTS and G-Force's construction of the asset settlement provisions in the Notes. The Court emphasised that Geminis had failed to establish:

• that the asset settlement provisions  had been validly invoked;
• that a valid default notice had been served; and
• that any settlement would not leave, or had not left, a residual balance above the statutory threshold.

As to the application to adduce fresh evidence, the Court reaffirmed and applied the test in Ladd v Marshall [1954] 1 WLR 1489, noting that a refusal to set aside a statutory demand was a final and not an interlocutory order. The Court held that Geminis had failed the first limb of the test, as it had not shown that the expert report could not have been obtained earlier with reasonable diligence.

Conclusion

The Court dismissed Geminis appeal, confirming the Commercial Court's judgment that there was no substantial dispute regarding the debt owed.

Key takeaways

This ruling emphasises the importance of invoking contractual rights properly and adhering to contractual provisions (such as notice, timing and calculation), as well as the need for clarity in communications concerning defaults and settlements. In addition, the Court's ruling reaffirms the position that a debtor must show more than speculative argument in challenging a statutory demand, and must demonstrate a real, arguable challenge to the debt in question. Finally, because a refusal to set aside a statutory demand is treated as final in the BVI, the standard principles on fresh evidence are applicable even in an insolvency context.

This case underlines the preparedness of the BVI courts to take a robust line in relation to alleged disputes, and to decisively construe contractual provisions as part of a winding up application despite the summary nature of the jurisdiction.