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This article considers the Antiguan liquidators’ attempts to extend the reach of their powers and do broader justice between victims of a Ponzi scheme, by reference to section 204 of Antigua’s International Business Corporations Act. The advice of the Board was that this attempt was impermissible. Acceding to the application would have amounted to an unprincipled and uncertain overreach of equity, in excess of the statutory duties and powers of the liquidator. It would also have been contrary to the pari passu principle. Written by Samuel Parsons, barrister at Guildhall Chambers.
In the matter of Stanford International Bank Ltd (In Liquidation) (Acting by and through its Joint Liquidators Mark McDonald and Hugh Dickson) (Antigua and Barbuda)  UKPC 45
The decision is only of direct relevance to practitioners in Antigua and Barbuda. The decision may also be of interest to Canadian practitioners, given the similarities of the wording of Antigua’s International Business Corporations Act, s 204 and the equivalent Canadian legislation (section 241 of the Canada Business Corporations Act RSC 1985) which includes a similarly broad range of potential ‘complainants’ within its ambit.
Of more interest to practitioners in England and Wales is the wedge that has been driven between (i) the pre-insolvency protections that exist for the benefit of shareholders (see section 994 of the Companies Act 2006 (CA 2006)), and (ii) the protection given to creditors post-insolvency, which is provided for by the pari passu principle (see section 107 of the Insolvency Act 1986) and the statutory tools that liquidators are equipped with for augmenting the estate (such as preference and misfeasance actions).
Stanford illustrates the modern tendency of the courts towards interpretation of the statutory insolvency code as a complete code. Moreover, the judgment of Lord Briggs JSC can be read alongside the repeated judicial limiting of the equitable rule in ex parte James and the Supreme Court’s decision in Re Lehman Brothers International (Europe) (in administration) and others  UKSC 38, which restricted the ability of creditors to assert a right to sums allegedly becoming due after the cut-off date. However arbitrary the cut-off date may seem, it remains an integral part of the insolvency scheme. Attempts to circumvent it are unlikely to be successful.
Stanford International Bank (SIB) operated as a Ponzi scheme. As with any Ponzi scheme, later contributors effectively paid off the ‘investments’ of earlier contributors. The ‘investors’ in this case entered into a creditor-debtor relationship with SIB.
Creditors were paid off at different times and in different amounts, giving rise to an apparent unfairness when the scheme collapsed. Some were paid off in full (category 1), some were paid in part (category 2), and some were not paid at all (category 3). The dust settled, and category 2 and 3 creditors were entitled only to prove in the liquidation. Category 1 creditors were the clear ‘winners’, and category 3 creditors were the clear ‘losers’.
The liquidators made an application for directions, ostensibly on the basis that they sought to correct the imbalances between the categories of creditors and the effect of the ‘trees lying where they fall’ (see para ). The liquidators sought to claw back payments made to category 1 creditors, and adjust the proofs of category 2 creditors, so as to take into account payments received prior to the cut-off date.
The liquidators relied on Antigua’s International Business Corporations Act, s 204, which has much in common with the English CA 2006, s 994. However, unlike the English provision, Antigua’s International Business Corporations Act, s 204 extends the protection against unfairly prejudicial behaviour to a non-exclusive category of ‘complainants’.
The Board decided, by a majority, that Antigua’s International Business Corporations Act, s 204 could not apply to an Antiguan international business corporation. The Board unanimously agreed that the liquidators’ powers could not, in any event, be extended to apply to sums already paid to category 1 creditors (the ‘claw back’ claims) or to allow readjustment of the proofs of category 2 creditors by reference to the sums received pre-liquidation.
The key parts of Lord Briggs’ decision are paras , –, and . They state as follows:
the liquidator must take the applicable insolvency scheme as he finds it, and it is his duty to apply it. It is ‘simply not the liquidator’s job to seek to achieve some other outcome which he may perceive to be more equitable than that which is prescribed by the applicable insolvency scheme’. The liquidator’s powers are granted—and limited by—statute
nothing in Antigua’s International Business Corporations Act, s 204 compels a conclusion that it is intended to operate in an insolvent liquidation. The better view is that it is consistent with pre-liquidation situations only. It would be ‘fundamentally inappropriate’ for them to be used where a company is in liquidation
the liquidators’ application was an attempt to ‘transform their powers… contrary to the applicable insolvency scheme’ and ‘to rearrange the distribution of assets… otherwise than on a pari passu basis’
there is no basis for departing from the statutory scheme in any individual case, and the invocation of an equitable discretionary power would ‘represent an invasion… into the business and banking sphere which is both unprincipled and unconstrained by any clear or proper limits’
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