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Oct 2

Freezing orders, delay and proprietary injunctions: key lessons from Alliance Petrochemical v Mazzagatti Background The WWFO application The applicable principles The impact of delay API's three new grounds: all rejected The proprietary injunction A BVI

The English Commercial Court has confirmed that delay in seeking a freezing order and proprietary injunction can be fatal to the application. In Alliance Petrochemical Investment (Singapore) Pte Ltd v Mazzagatti , the Court refused API's application for a worldwide freezing order (WWFO) and a proprietary injunction after Alliance Petrochemical Investment (Singapore) Pte Ltd (API) waited approximately 17 months to apply and did not produce new evidence of dissipation. The judgment arose from allegations that at least €143 million had been misappropriated from API, a Singapore-incorporated petrochemical company, and its subsidiary, Alliance Petrochemicals Trading LLC (APT). API alleged that its former CEO, Mr Mazzagatti, and his associate, Mr Dixit, misappropriated at least €143,808,798.66 from API and APT. It said the money was diverted through customer payments, profits routed through Napag IT Limited, and direct withdrawals from API and APT's bank accounts. API alleged that a substantial portion of the misappropriated funds financed the acquisition of RockRose Energy plc by Viaro Energy Limited, a company indirectly 96.4 per cent owned by Mr Mazzagatti. API also alleged that Viaro Energy relied on forged loan facility documents, purportedly from two Abu Dhabi individuals for £250 million each (the Abu Dhabi Loan Facilities), to present the acquisition as having legitimate financing. The court refused API's application for a WWFO, which sought to restrain assets up to €160 million. API had established serious issues to be tried. The decisive question was whether there was a real risk of unjustified dissipation of assets. The test for a freezing injunction is well established. The applicant must show: 1. a good arguable case/serious issue to be tried; 2. a real risk, judged objectively, that a future judgment would not be met because of an unjustified dissipation of assets; and 3. that it would be just and convenient to grant the order. The court also noted, citing Holyoake v Candy, that such orders "have the nuclear effect of prohibiting the affected party from dealing with his assets". The court's refusal turned principally on delay. API first requested freezing undertakings from the Defendants in a letter dated 8 August 2024, the day after the Claim Form was issued. The Defendants declined to provide the undertakings, characterising API's claimed risk of dissipation as "risible". Approximately 17 months later, API issued its WWFO application in January 2026. During that period, API's principal allegations of fraud and forgery had not materially changed. Drawing on the principles in Madoff Securities International Ltd v Raven, the court acknowledged that delay alone is not dispositive but held that it can be "a powerful consideration". Critically, the court required API to demonstrate new evidence of dissipation risk that had emerged since the delay. API relied on three developments to justify the timing of its application: Viaro Investment Limited's financial vulnerability: API's expert suggested that Viaro Investment, Viaro Energy and RockRose were financially vulnerable. The court found that API's case "conflates assets belonging to the Defendants, on the one hand, and assets belonging to the Viaro Group, on the other" and that transactions by the companies did not amount to dissipation by Mr Mazzagatti personally. The TAQA Court of Appeal decision: The court held that this did not suggest a propensity to strip assets, noting that the first instance findings favourable to Mr Mazzagatti "have not been disturbed by the Court of Appeal". Excessive remuneration: Whilst acknowledging that the Defendants' salaries were "undoubtedly extremely generous" (Mr Mazzagatti received £68.4 million and Mr Dixit £20.1 million between 2022 and 2024), the court found that Mr Mazzagatti's remuneration was contractually linked to a fixed percentage of EBITDA, fully disclosed in company accounts, and made in the ordinary course of business. ...
Jul 2

Duties and obligations of a director of a Cayman Islands fund Who are the directors of a Fund? Should I agree to act as a director of a Fund? What are the powers and authority of the directors of a Fund? What are a Fund director's duties? CIMA rule and

This guide provides an overview of the powers, duties and obligations of a director of an exempted company incorporated under the Companies Act of the Cayman Islands (Companies Act) which is registered with the Cayman Islands Monetary Authority (CIMA) as a fund (Fund). This guide is limited to those Funds registered with CIMA under section 4(3) or 4(4)(a) of the Mutual Funds Act (a Mutual Fund) and those Funds registered with CIMA under the Private Funds Act (a Private Fund) as well as the law and practice of the Cayman Islands. Other duties, obligations and potential liabilities may also arise under the laws of other jurisdictions. There is no precise definition of a 'director' under Cayman Islands law. The directors of a Fund may be individuals or corporate bodies and they are the persons with ultimate responsibility for the management and conduct of the Fund's affairs. The first directors of a Fund (whether described as 'executive' or 'non-executive') are typically appointed by the initial subscribers to the Fund or otherwise in accordance with the articles of association of the Fund (Articles). The register of directors maintained by the Fund will be prima facie evidence of the identity of the directors from time to time. A person undertaking the activities of a director without being formally appointed may be found to be acting as a 'de facto director'. Also, if the duly appointed directors of a Fund are found to be acting in accordance with the directions or instructions of another person then that person may be found to be acting as a 'shadow director'. A person is not deemed to be a shadow director however by reason only that the directors act on advice given by such person in a professional capacity, so that an investment adviser of a Fund making recommendations to the directors as to the purchase or sale of investments should not usually constitute a shadow director. Executive directors, non-executive directors, shadow directors and de facto directors are all subject to the duties and obligations set out in this guide. When deciding whether or not to act as a director of a Fund, the following points should be considered: Who will be the other directors of the Fund? Will your fellow directors have the ability to work with you to properly coordinate the proper oversight and management of the Fund? Any other interests you may have in the overall structure of the Fund and its advisers or service providers. If you are a connected person (for example, a principal of the Fund's investment manager) you may want to consider either not sitting on the board of the Fund or making sure that you are in a minority position. These measures will reduce the potential for conflicts of interest to arise which could increase the risk of your actions later being challenged by the investors of the Fund as not being in accordance with your duties to the Fund. The expectations of the Fund's key investors. They may be comfortable with a board of directors comprised of connected persons or they may require the Fund to have one or more directors independent of the Fund's investment manager. This is something that you may wish to discuss further with the Fund's representatives and the Fund's current or proposed key investors before agreeing to accept any appointment as a director. You need to have sufficient and relevant knowledge and experience to discharge your duties as a director. It is up to you to acquire and maintain sufficient knowledge to enable you to carry out your role. You should use the Fund's professional advisers to provide advice on any areas or transactions of which you are unsure. In particular, you should ensure that you are able to properly read and understand the financial information relating to the Fund, including its financial statements. If there is anything that you do not understand, then you should promptly obtain professional advice. Whether the Fund has in place, or will be obtaining, any directors and officers ...
06/22/2021

BVI Shareholder Remedies

Partner William Peake returns with another episode of Take 10, joined by Counsel Francesca Gibbons and Associate Joshua Shuardson-Hipkin to discuss BVI shareholder remedies and the role that our London based disputes team plays to ensure 24-hour client service. Key Takeaways Clients should always consider timely corporate advice in establishing a BVI company, which can help protect against future disputes.A first port of call is exploring if disputes can be resolved quickly through non-litigation routes, e.g share buy- out post independent share valuation.The BVI Courts are extremely experienced at dealing with heavy-weight international litigation, including unfair prejudice claims, breach of directors’ duties claims, fraud disputes and injunctions.There are many BVI common law concepts which onshore lawyers will be familiar with, but some critical differences, which is where we can add value.
10/15/2020

BVI economic substance reporting FAQs

Our BVI economic substance specialists Counsel Joshua Mangeot and Director of Client Services Amy Roost address some FAQs regarding the reporting process, which are relevant to all BVI companies. Key Takeaways: The reporting deadlines for most BVI companies and other relevant entities are imminent - and in some cases have already passed. Most BVI entities must ensure reports are submitted by their registered agent (RA) before 30 December 2020 or face significant fines and penalties - and even personal liability.Deadlines have not been allowed to be extended by the EU despite COVID-19 but the regulator has issued practical guidance in this area. Please click here for our alert on this topic.Compliance is assessed by “financial period”. Entities incorporated before 1 January 2019 have a default first financial period of 30 June 2019 to 29 June 2020. Companies incorporated from 1 January 2019 onwards have a first financial period of 12 months from incorporation. After the end of the financial period, entities have six months in which to arrange reporting into the BOSS(ES) system via their RA.The ES financial period may not be the same as the entity’s tax or accounting financial year. The entity needs to review its individual non-consolidated accounts to determine its assets and sources of gross income over the financial period - this may require discussion with the entity’s accountants.Since most BVI companies were incorporated before 2019 (and may not have changed their default financial period), their first report will have to be filed by their RA before 30 December 2020. Where any relevant activity was carried on during the financial period, entities either need to claim and evidence exemption due to their tax status under the “non-resident” exemption or submit reporting information demonstrating how they had adequate BVI substance over the period.There are special regimes for pure equity holding entities (holding business) and intellectual property business - the latter regime is extremely onerous and entities with any potential IP business should seek BVI legal advice. For entirely passive holding businesses or entities without any relevant activity, compliance and reporting should be quite straightforward. Nil returns are required even where there is no relevant activity.The tax non-resident exemption can also apply to transparent/disregarded entities and certain entities subject to tax on their income from relevant activities. Care needs to be taken when dealing with territorial or sectoral tax regimes and objective evidence will need to be provided to back up a claim. There is a mechanism to apply for provisional non-resident treatment, where such evidence cannot be obtained within the 6-month reporting window. This can be complex and may need tax advice. Josh and Amy’s practical guide to BVI ES reporting is available by clicking here.
06/16/2020

Luxembourg: an Investment Funds giant

In the fourth episode of our Funds Download podcast series our host and global head of Funds and Regulatory, Philip Graham, is joined by the head of our Luxembourg Investment Funds team, Vanessa Molloy, to take a closer look at the reasons why Luxembourg is such a successful investment funds jurisdiction, and the main factors to consider if you are thinking of establishing a Luxembourg structure.
Aug 4

Continuing obligations for private and professional funds The board and officers Functionaries and other service providers Service provider Requirement Is an exemption available? Notice requirements Event triggering an obligation to notify the FSC Time

As a recognised fund, your professional or private fund is regulated by the British Virgin Islands (BVI) Financial Services Commission (the FSC). This note provides a quick reference to your professional or private fund's ongoing BVI obligations. Professional and private funds are recognised under the Securities and Investment Business Act, Revised Edition 2020 and are subject to the Mutual Funds Regulations, Revised Edition 2020. A professional or private fund must: At all times have at least two directors, at least one of whom must be an individual Appoint an appropriately qualified and independent individual as Money Laundering Reporting Officer (MLRO) for the fund who may, in practice, be a person provided by one of the functionaries to the fund (see below for more detail on anti-money laundering obligations) Appoint a Foreign Account Tax Compliance Act (FATCA) responsible officer and a principal point of contact for the BVI International Tax Authority (ITA)(see below for more detail on obligations under FATCA and CRS) A private or professional fund is required to have the following functionaries and other service providers: Manager A private or professional fund must at all times have a manager. Yes, in certain circumstances, on application to the FSC. Administrator A private or professional fund must at all times have an administrator. No exemption is available. Custodian A private or professional fund must at all times have a custodian. The custodian must be functionally independent from the manager and administrator. Yes, in certain circumstances, on application to the FSC. The most common exemptions are for feeder funds in a "master-feeder" structure and for funds whose prime broker provides the custodial services. Auditor A private or professional fund must appoint and at all times have an auditor to audit its financial statements. Yes, in certain circumstances, on application to the FSC. Authorised Representative A private or professional fund must have an FSC licenced authorised representative (Authorised Representative) to act as a point of contact between the fund and the FSC. No exemption is available. On the happening of certain events, a professional or private fund is required to notify the FSC. The table below summarises these notification requirements and the timeframe for providing notice. The appointment of a functionary (ie the manager, administrator, investment advisor, custodian, any prime broker or (in the case of a unit trust) the trustee). Not less than 7 days prior to the date of appointment. A functionary ceasing to act (notice must include a statement of the reasons for such functionary ceasing to act). Within 7 days. The appointment of a director. Within 14 days. A director ceasing to hold office (for whatever reason). Within 14 days. The appointment of an Authorised Representative. Within 14 days. An Authorised Representative ceasing to hold office (for whatever reason). Within 14 days. The appointment of an auditor. Within 14 days. An auditor ceasing to hold office (for whatever reason). Within 14 days. Any change in the address of the fund's place of business, whether in or outside the BVI. Within 14 days. Any amendment to its constitutional documents. Within 14 days. The issuance of any offering document not previously provided to the FSC. Within 14 days. The amendment of any offering document previously provided to the FSC. Within 14 days. There are various reporting and payment deadlines for a professional or private fund throughout the year. 31 March Pay recognition fee of US$1,200 to the FSC. Failure to pay may attract administrative penalties and/or other enforcement action 30 April For funds that are limited partnerships, pay the Registrar of Corporate Affairs (together with the Registrar of Limited Partnerships, the Registry) licence fee of US$750 31 May FATCA reporting deadline and Common Reporting Standard (CRS) reporting deadline 31 May For funds that are companies incorporated ...
Feb 19

Unpacking Luxembourg's new carry regime

In this episode of the Funds Download, Head of our Luxembourg Funds & Asset Management team Vanessa Molloy and Counsel Pierre Luc-Wolff discuss Luxembourg’s new carried interest tax regime. They explain the two categories now available, contractual carry and participation carry, and explore who can benefit, including employees, partners, directors, and advisors. If you’re considering establishing a fund in Luxembourg, the Cayman Islands, or the British Virgin Islands, visit our Funds Hub for guidance: https://www.harneys.com/funds-hub/
10/10/2019

The Rules

Classify, Classify, Classify In the tenth instalment of Harneys’ Substance on Substance series, Philip Graham and Josh Mangeot discuss the release of the final version of the guidance formerly known as the “Code”, which was published by the ITA on 9 October 2019 as its newly-titled Rules and explanatory notes (the Rules). Key Takeaways • With the certainty provided by the final Rules, it is vital that all directors and operators of BVI entities classify their entities as a matter of priority, if they have not already done so. There is an ongoing legal obligation on BVI entities under the Beneficial Ownership (Secure Search System) Act 2017, as amended with effect from 1 October 2019, to determine whether they are carrying on a relevant activity and the first compliance periods have started for all companies and other relevant legal entities. •Harneys online economic substance classification solution remains available for use at https://economicsubstance.vg and provides formal legal advice for a fixed fee – the solution reflects the final Rules and classifications received by users who have previously classified their entities using the solution are unaffected, subject to some minor cross-references to the numbering used in the final Rules. • the ITA released a useful summary document of the relatively minor amendments made to the last public published by the ITA. The key changes include: o where an entity wishes to be treated as provisionally “non-resident” due to its tax status under foreign laws, the “reasonable period” in which to provide the ITA with evidence of such status will be two “financial periods” o BVI entities in liquidation are still generally expected to comply with the substance requirements o the presumptions of non-compliance for BVI entities that are carrying on IP business have been made more difficult to rebut (ie disprove) and are subject to expanded reporting and evidentiary requirements • Economic substance reporting for each BVI entity will generally begin in 2020 at the end of the current financial period, so all BVI entities should determine any economic substance compliance requirements for the current period. This episode was recorded on 10 October 2019.
Aug 14

Directors' duties: causation and loss in insolvent trading

The court upheld the first instance judge's key findings against two former directors but narrowed the company's recovery. It separated the client money shortfall caused by the wrongdoing from losses generated by ordinary trading. The decision also gives a practical reading of the landmark UK Supreme Court decision in BTI 2014 v Sequana regarding "creditor duty" and claims about insolvent or loss-making companies. In 2017, Next Generation bought 58 per cent of AFL Insurance Brokers. Before the sale, the Finches were directors of AFL. They had used client money to fund business expenses and concealed trading losses through false accounting. The High Court found fraudulent misrepresentation, dishonest breach of warranty, breaches of duties owed to AFL and unlawful means conspiracy. Those findings were not reopened on this appeal, which was limited to one question: whether AFL's trading losses were legally caused by the Finches' breaches and unlawful acts. The Court of Appeal allowed the appeal in part. It focused on the scope of the duties that had been breached and on the distinction between a factual opportunity to incur a loss and a legal cause of loss. The fraud explained why AFL's financial position was hidden. It did not, without more, explain why the business later made losses. AFL's trading performance remained a commercial question, not a loss automatically attributable to the fraud. Losses arising from AFL's ordinary operations, including the post-acquisition losses, were not shown to be caused by the Finches' misconduct. That conclusion was reinforced by the fact that when new management took over, further capital was injected and AFL at times traded profitably before the business was wound down. The fraud may have given AFL an opportunity to keep trading, but an opportunity was not the same as a cause. The Court of Appeal held that the law was clear that it does not generally impose upon directors a duty to ensure that their company does not trade while insolvent or at a loss, a conclusion also reached in Sequana. Sequana concerned when directors must take account of creditors' interests as a company approaches insolvency. It confirmed that this is a modification of the directors' duty to the company, rather than a separate duty owed directly to creditors. The modified duty is engaged when the company is insolvent, or when insolvency is imminent (with creditor interests being paramount when an insolvent liquidation or insolvent administration is inevitable). A remote risk of future insolvency is not enough. In this case, the court found that the Finches did not breach their duty to give appropriate considerations to the interests of AFL's creditors in the sense discussed in Sequana; indeed, the essence of the fraud was that the Finches ensured AFL's trade creditors were paid albeit using money belonging to its clients. This case serves as a useful reminder that directors who misuse entrusted money remain liable to restore it, but they are not insurers of the company's commercial performance. The law does not impose on directors a duty to ensure that their company does not trade while insolvent or at a loss. In a breach-of-duty claim, the loss must flow directly from the specific breach. It is not enough to show that the business would have ceased but for the wrongdoing and trading losses arising from the company's ordinary operations are not automatically attributable to misconduct. While Harneys does not practise the law of England and Wales, the decision will be of general interest to practitioners in the BVI and Cayman Islands, where liquidators bringing claims against directors will need to identify the specific duty that was breached and demonstrate that the loss claimed was a direct consequence of that breach, rather than simply showing that the company continued to trade while insolvency was a possibility.
06/17/2022

International transfers of personal data: Theory and practice

In this episode, Senior Associate Elina Mantrali and guest expert Phil Lee, discuss the scope and practical implications of the EU’s rules on international transfers of personal data under the EU’s General Data Protection Regulation and, more recently, the European Court of Justice’s decision in Schrems II. Phil is a leading data protection expert and is a partner in Fieldfisher's leading Privacy, Security and Information law group in London, with experience on both sides of the Atlantic, having previously set up Fieldfisher’s office in Silicon Valley.

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