New BVI High Court judgment: Almond v Linxens BVIHCM 2023/0177

The BVI High Court has handed down judgment in a preference claim arising out of the liquidation of a BVI company called Tsinghua Unigroup International Co., Ltd. (“TUI”). TUI’s role was to raise money for the Tsinghua Unigroup group, a Chinese technology and semiconductor manufacturer (among other things).

On 9 December 2020, TUI announced to the Hong Kong stock exchange that it would be unable to meet approximately US$463m of liabilities under certain bonds. Two days prior to the announcement, TUI had paid US$125m (by way of partial repayment of a loan) to a company called Linxens Holdings SAS (“Linxens”). Linxens was also part of the Tsinghua Unigroup group.

The liquidators of TUI brought a claim against Linxens alleging that the payment was an unlawful preference within the meaning of section 245 of the BVI Insolvency Act 2003. There were two central issues at trial – whether TUI was cash flow insolvent on the date of payment and whether the payment was in the ordinary course of business.

As to the cash flow solvency issue, the Judge (Justice Wallbank KC) held that TUI was insolvent. Linxens had failed (in circumstances where there was a presumption of insolvency that it was required to rebut) to provide the necessary “building blocks” of solvency, including evidence that it had $523m available to it on the day the money was paid to Linxens. The fact that TUI had declared its own cash flow insolvency to the Hong Kong stock exchange two days after the payment was made was important contemporaneous evidence.

As to the ordinary course of business issue, the Judge held that it was insufficient that the repayment of a debt was routine for a finance company like TUI. What mattered was whether the “design” of the transaction was to confer a preference on the creditor. In this case, there were contemporaneous emails that showed that employees within the group thought the intention of the payment was to “push back cash” to group entities ahead of the expected default on the bonds.

In the circumstances, the payment was an unfair preference and Linxens was ordered to pay US$125m to the liquidators.

Richard Fisher KC and Jon Colclough (instructed by Ogier) acted for the liquidators.

David Alexander KC (instructed by Mourant) acted for Linxens.

Read the full judgment here