Knowledge

The recent decision of the British Virgin Islands (the "BVI") Commercial Court (the "Court") in Hwang v Edwards and Lynch (as Joint Liquidators of Bybit Fintech Limited) BVIHC (Com) 2024/0303 ("Bybit"), which we previously wrote about here, may well prove to be one of the most significant insolvency-related decisions of recent years in the BVI.

Although the immediate dispute in this case concerned the removal of the liquidators of Bybit Fintech Limited ("Bybit BVI"), one of the broader questions raised by the judgment is whether BVI law continues to recognise the appointment of conflict liquidators as a legitimate mechanism for managing actual or perceived conflicts of interest. That issue is now squarely before the Eastern Caribbean Court of Appeal (the "Court of Appeal"), the appeal having been brought by the joint liquidators of Bybit BVI (the "Joint Liquidators").

Conflict liquidators

Modern insolvencies frequently involve overlapping appointments, related corporate groups, litigation funding arrangements and international restructurings. Courts in common law jurisdictions have therefore increasingly adopted a practical distinction between a conflict infecting the entire administration and a conflict affecting only a discrete issue or claim.

Where the latter type of conflict exists, courts have often considered whether a limited-purpose officeholder or conflict liquidator can be appointed to deal with the specific issue while leaving the primary officeholders in place.

The conflict alleged in Bybit

The removal application in Bybit arose against the backdrop of Alvarez & Marsal ("A&M")'s involvement in two separate insolvency-related engagements. The Joint Liquidators were members of the A&M Group. At the same time, other A&M teams were engaged in the restructuring and bankruptcy of the FTX Group.

FTX was one of the world's largest cryptocurrency exchanges before its collapse in November 2022, which led to Chapter 11 bankruptcy proceedings in the United States involving numerous FTX Group entities and substantial asset recovery efforts by the bankruptcy estate. As part of those recovery efforts, FTX commenced proceedings against Bybit Seychelles seeking the recovery of assets alleged to belong to the FTX estate.

The conflict allegation arose because Bybit Seychelles was also alleged to have been the recipient of assets and business transferred from Bybit BVI before the liquidation.

The Joint Liquidators maintained that no actual conflict existed, highlighting extensive conflicts checks, the implementation of formal information barriers, and the possibility that if a direct conflict ever arose in relation to FTX, an independent third-party "conflict liquidator" could be appointed to deal with the affected matter. Indeed, the evidence before the Court showed that A&M had contemplated the appointment of an independent conflict liquidator if FTX later submitted a proof of debt or became involved in litigation adverse to the estate. The Court however rejected those safeguards.

The Court's rejection of conflict liquidators

Arguably, the most controversial aspect of the Bybit judgment was the Court's apparent wholesale rejection of conflict liquidators as a possible solution.

The Court reasoned that the statutory duties imposed on court-appointed liquidators under the BVI Insolvency Act 2003 are joint and several and cannot readily be divided between different officeholders. The Court also viewed the existence of information barriers as supporting, rather than neutralising, the perception that a conflict existed. Justice Mithani further concluded that the proposed use of a future conflict liquidator was not an adequate (or permissible) answer to the identified conflict concerns.

The significance of this conclusion cannot be overstated. As the Notice of Appeal recognises, if upheld, it may fundamentally alter how conflicts are managed in large-scale cross-border insolvencies in the BVI.

The appeal

The first ground of the appeal in Bybit challenges Justice Mithani's conclusion that conflict liquidators are not an available solution under the BVI insolvency regime and argues that the judgment departs from both BVI and English authorities, which have historically accepted conflict appointments as a practical conflict-management tool and a means of preserving the integrity of an insolvency process while avoiding the expense and disruption of wholesale replacement.

The orthodox position in the BVI has traditionally been that the Court's supervisory jurisdiction in insolvency matters is broad and pragmatic.

In Chu Kong v Ocean Sino Ltd (in liquidation) BVIHCMAP 2021/0048, the Court of Appeal emphasised that removal applications require a fact-sensitive assessment of the interests of the liquidation as a whole. The Court of Appeal confirmed that conflict of interest may amount to sufficient cause for removal, but also stressed that it's discretion must be exercised, having regard to the practical interests of the estate, including costs, delay and the overall administration of the liquidation. Those principles tend to favour flexible solutions where available.

Likewise, the Privy Council's decisions in Deloitte & Touche AG v Johnson [1999] 1 WLR 1605 and Stevanovich v Richardson [2025] UKPC 18 reflect a practical focus on the proper functioning of the insolvency process and the protection of stakeholders who are genuinely affected by it. Against this backdrop, the significance of Bybit lies in the Court's apparent rejection of conflict liquidators and information barriers as practical solutions to perceived conflicts.

The wider common law approach

The challenge identified in Bybit is not unique to the BVI. Notably, the Notice of Appeal identifies a number of English authorities supporting this approach, including York Gas Ltd (in liquidation) [2010] EWHC 2275 (Ch), Sisu Capital Fund Ltd v Tucker [2005] EWHC 2170 (Ch), Re Angel Group Ltd & Ors [2015] EWHC 3624 (Ch), Re Comet Group Limited, Khan v Institute of Chartered Accountants in England and Wales [2018] EWHC 1378 (Ch), Re Zinc Hotels (Holdings) Ltd [2018] EWHC 1936 (Ch), Microcredit Ltd v Andrew Rosler [2021] EWHC 1627 (Ch), and, most recently (in 2025), Noal SCSp v Novalpina Capital LLP [2025] EWHC 54 (Ch).

On appeal, the Joint Liquidators argue that those authorities recognise conflict appointments as an accepted feature of modern insolvency practice and that the Court in Bybit failed to afford them appropriate weight.

In addition, there are numerous Privy Council decisions which, although they do not refer explicitly to conflict liquidators, support a pragmatic supervisory approach to insolvency administration. For example, in Deloitte & Touche AG v Johnson, the Privy Council stressed that insolvency remedies should be exercised in the interests of the liquidation and the persons entitled to participate in it. The focus was not on rigid procedural formality but on the practical interests of creditors. That decision was relied upon and discussed extensively in Bybit itself.

Likewise, the recent Privy Council decision in Stevanovich v Richardson emphasised the importance of allowing liquidators to perform their statutory functions with limited collateral interference, while remaining subject to the court's supervisory jurisdiction. That balance between independence and supervision arguably supports the availability of tailored solutions where conflicts arise only in respect of particular issues.

Why the appeal matters

The appeal raises issues that extend well beyond Bybit or cryptocurrency insolvencies. If the Court's approach is upheld, insolvency practitioners may need to conduct significantly broader conflict analyses before accepting appointments, particularly where large international firms act across multiple related engagements. Information barriers and conflict appointments (long regarded as effective conflict mitigation tools) may no longer provide sufficient protection.

Conversely, if the Court of Appeal restores the orthodox position, the decision may reaffirm that perceived conflicts can often be managed through proportionate safeguards, including the appointment of independent conflict liquidators where appropriate.

Conclusion

The significance of the Bybit judgment is not the removal of the particular liquidators involved, but the challenge the judgment poses to an established feature of modern insolvency practice, i.e. the use of conflict liquidators to manage isolated conflicts without disrupting the wider administration of an estate.

The upcoming appeal is therefore likely to be watched closely by insolvency practitioners throughout the offshore world. Whether the Court of Appeal endorses the Court's reasoning or reaffirms the traditional flexibility of the insolvency jurisdiction, the decision is likely to become a leading authority on the management of conflicts in BVI liquidations for years to come.