UBS AG New York and others v Fairfield Sentry Ltd (in liquidation) and others (British Virgin Islands) [2019] All ER (D) 122

The Privy Council dismissed an appeal from the Court of Appeal of the Eastern Caribbean Supreme Court (BVI) where the appellant sought an anti-suit injunction against the liquidators of Fairfield Sentry Limited to prevent proceedings in the US bankruptcy Court.

Following our previous article, there has been a further decision in relation to the Fairfield Sentry Limited liquidation. Fairfield was the largest feeder fund that invested into the fraudulent Bernard L. Madoff Investment Securities (“BLMIS”).

Fairfield Sentry Limited, Fairfield Lambda Limited and Fairfield Sigma Limited were BVI feeder funds that were wound up following the discovery of Bernie Madoff's fraudulent activities. Investors purchased redeemable shares in the feeder funds. The companies collectively invested approximately $7.2billion into BLMIS between 1997 and 2008.

Investors who withdrew their money early made significant profits, while those who invested later or did not withdraw their investments lost everything.

The Liquidators issued proceedings in the United Stated against several hundred defendants as voidable transactions under section 249 of the BVI Insolvency Act 2003 ("the Act") in relation to funds paid out to investors prior to the discovery of the fraud. The Liquidators claimed the payments were unlawful preferences and/or transactions at an undervalue.

UBS had redeemed their shares between 2004 and 2008 before the fraud was discovered and were therefore a potential defendant of the liquidator’s claims.

UBS sought an anti-suit injunction from the BVI Courts to restrain the Liquidators from proceeding with their claims in the US.

UBS argued that the Act could not be used by a foreign court. The core of the argument was that s.249 of the IA 2003, properly interpreted, conferred a right to grant the relief only on the High Court charged with supervision of the winding up, and that no foreign court was empowered to grant such relief.  UBS had already advanced and lost this argument in the US proceedings.

The Liquidators’ position was that it was for the US bankruptcy Court to decide whether it would apply BVI law in the US proceedings. The Liquidators also argued that it was an abuse of process to attempt to relitigate that issue, and that UBS offered no coherent basis on which the US proceedings were vexatious or oppressive to justify an anti-suit injunction.

In the Judgment, it was noted that it is common for courts to assist foreign Liquidations by applying the law of foreign proceedings, including in reversing voidable transactions. The Privy Council held that the Act could be used by foreign courts, stating that section 249 did not give an exclusive jurisdiction to the BVI High Court, so as to preclude foreign courts from exercising the power.

The Privy Council therefore rejected UBS’s arguments and dismissed the appeal.

For more information on this article please contact Olivia Reader from the Restructuring and Insolvency Team.