The BVI perspective on unrecognised foreign judgments and arbitral awards in the context of liquidation proceedings

Jennifer Jenkins and Vadims Bovtramovics acted in the recent case of JJW Hotels & Resorts Holding Inc v Rhodes & Another BVIHC (COM) 2025/0296. The BVI High Court (Commercial Division) (the Court) held that unrecognised foreign judgments and awards, which are not based on an underlying contractual obligation, (i) do not constitute debt capable of founding a statutory demand; and (ii) cannot be relied upon to show that a company is insolvent within the meaning of section 8(1)(c) of the BVI Insolvency Act.

The statutory corporate insolvency regime in the BVI

Section 162 of the Insolvency Act 2003, Revised Edition 2020 (the Act), provides that the liquidation proceedings may be commenced by the Court appointing a liquidator at the behest of a creditor if ‘the company is insolvent’. Section 8(1) of the Act sets out the grounds upon which a company is considered to be ‘insolvent’.

The first ground involves a company’s failure to comply with a statutory demand. Once the statutory demand is served, the debtor has 21 days after the date of service to pay the debt upon which the demand is founded. The debtor may also make an application to set aside the statutory demand (eg when the debt is disputed) within 14 days of the date of its service. If the debtor does not make that set aside application, and does not pay the debt within these timescales, it will be presumed to be insolvent under section 8(1)(a) of the Act and the creditor may then bring liquidation proceedings on that basis.

Alternatively, insolvency may be established where there is an unsatisfied judgment of the BVI Court under section 8(1)(b) of the Act; where the value of the company’s liabilities exceeds its assets (‘balance sheet insolvent’) under section 8(1)(c)(i) of the Act; or where it is unable to pay its debts as they fall due (‘cash flow insolvent’) under section 8(1)(c)(ii) of the Act.

The tension between Vendort and Drelle

The decision in Rhodes considered the following significant questions concerning the interrelationship between BVI insolvency law and private international law as to whether an unrecognised foreign judgment or arbitral award can:

• properly found a statutory demand?
• form the basis of a finding that a debtor company is insolvent as it is ‘unable to pay its debts as they fall due’?

These questions were posed in the context of the facts set out below.

Pursuant to a statutory demand, the liquidators of the Guernsey company JJW Limited (the Liquidators) sought payment from the BVI company, JJW Hotels & Resorts Holding Inc (JJW Inc), of a debt, which arose from adverse costs orders made in two sets of Guernsey proceedings. Pursuant to section 156 of the Act, JJW Inc made an application to set aside the statutory demand.

In seeking to set aside the statutory demand, JJW Inc argued that a statutory demand may not be properly founded upon a foreign judgment which has not been recognised in the BVI, because it does not constitute a ‘debt that is due and payable at the time of the demand‘ within the meaning of section 155 of the Act. In support of that proposition, it relied upon the decision of the English Court of Appeal in Servis-Terminal LLC v Drelle [2025] EWCA Civ 62, where it was held that a foreign judgment which had not been recognised in England could not found bankruptcy proceedings.

The Liquidators, on the other hand, relied upon the decision of the Privy Council in Vendort Traders Inc v Evrostroy Grupp LLC [2016] UKPC 15, for the proposition that the recognition of a foreign judgment or arbitral award is not a prerequisite to the foundation of a statutory demand because the service of a statutory demand (and even subsequent winding up proceedings) does not constitute ‘enforcement proceedings’. The Liquidators argued that the conclusions reached in Drelle and Vendort are diametrically opposed and, as a result, the Court must apply Vendort, which is a binding authority in the BVI.

In response to that, JJW Inc argued that the facts in Vendort were distinguishable from both Rhodes and Drelle. It argued that Vendort concerned an arbitral award confirming a pre-existing contractual obligation, whereas Rhodes concerned costs orders arising solely from the exercise of foreign judicial authority and in that respect its facts were more similar to Drelle, where the Russian judgment was founded on a provision of the Russian Civil Code. JJW Inc also argued that there was a substantial dispute as to whether Guernsey costs orders were capable of recognition in the BVI at common law, and that on that basis the Court was required to set aside the statutory demand under section 157(1)(a) of the Act.

In the alternative, the Liquidators argued that Guernsey costs orders may be relied on in seeking to establish that JJW Inc was insolvent within the meaning of section 8(1)(c)(ii) of the Act on the grounds that it was ‘unable to pay its debts as they fall due’. The Liquidators argued that although Guernsey costs orders were capable of satisfying the applicable legal test for recognition in the BVI, the recognition order was not a necessary precondition for granting the declaration.

Decision

The Court found that the decisions in Drelle and Vendort are not inconsistent. Crucially, the Court distinguished two situations – one involving a foreign judgment based on a ‘pre-existing debt’ (eg a contractual debt), which does not require prior recognition in the BVI before the statutory demand can be founded on it, and the other involving a foreign judgment which is not based on any underlying obligation giving rise to a debt independently, which does require prior recognition in the BVI before the statutory demand can be founded on it.

As the Guernsey costs orders were not based on a pre-existing debt, the Court set aside the statutory demand. The Court also concluded that without prior recognition Guernsey costs orders could not be relied on in seeking to establish that JJW Inc was insolvent pursuant to section 8(1)(c)(ii) of the Act (cash flow insolvent).

Although the Court recognised that Drelle has attracted academic criticism, it took the view that a question as to whether it was correctly decided is a matter for the Supreme Court of the United Kingdom.

Conclusion

Rhodes provides important guidance for creditors and debtors alike. For the time being, in order to avoid the risk of a statutory demand based on an unrecognised foreign judgment or arbitral award being set aside, before serving it, it is necessary to consider whether there is a pre-existing debt. If there is not, it is necessary to obtain a recognition order. The same consideration applies to reliance on a foreign judgment or arbitral award in seeking to establish that a company is insolvent within the meaning of section 8(1)(c) of the Act.

The Supreme Court of the United Kingdom has granted permission to appeal the decision of the Court of Appeal in Drelle. The appeal is listed to be heard in June 2026. If the Supreme Court reverses the decision of the Court of Appeal in Drelle, that could have significant implications for the position in the BVI, considering that Rhodes is substantially premised on the reasoning in Drelle. Watch this space!