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)

Once an international business corporation enters insolvent liquidation, the insolvency scheme displaces discretionary relief for oppression or unfair prejudice. The liquidator must collect and distribute the company’s assets under that scheme and the pari passu principle. Section 204 relief cannot create a bespoke regime to claw back contractual payments or reallocate claims between creditors. Payments made pursuant to certificates of deposit cannot ordinarily be recovered as unjust enrichment. Nor can equitable relief ordinarily be used against bona fide purchasers for value without notice. A common-misfortune approach developed for trust funds cannot be transplanted to the debtor-creditor relationship between a bank and its depositors.

Stanford International Bank Ltd operated in Antigua and Barbuda as an international business corporation and conducted a Ponzi scheme through certificates of deposit. It entered receivership in February 2009 and liquidation in April 2009. The liquidators sought directions to pursue claw-back claims against depositors who had received payments before liquidation and to readjust the claims of partly paid depositors in favour of depositors who had received nothing.

Wallbank J refused authority for the claw-back claims but authorised pursuit of the readjustment claims. The Court of Appeal of the Eastern Caribbean Supreme Court held that relief under section 204 of the International Business Corporations Act was unavailable in an insolvent liquidation and refused the relief entirely. The appeal concerned the availability of section 204 relief, the proposed claw-back claims and the readjustment of creditors’ claims.

The appeal was dismissed.

1. Availability of section 204 relief. Lord Briggs, with Lord Wilson and Sir Andrew Longmore agreeing, held by a majority that relief under section 204 of the International Business Corporations Act was unavailable in relation to the affairs of an Antiguan international business corporation in insolvent liquidation. Insolvent liquidation is a watershed. Before it, the company’s affairs are controlled by its directors and officers and may be subject to equitable restraints. After it, the company’s property and affairs are entrusted to the liquidator and governed by the statutory and common-law insolvency scheme.
2. The liquidator takes the company’s assets, rights and claims as they stand at the cut-off date, subject only to the powers supplied by the applicable insolvency law to reopen prior transactions. The equitable and discretionary oppression jurisdiction and the insolvency scheme serve different objectives and are fundamentally incompatible. Section 204 could not be used to obtain a bespoke distribution, claw back payments which the insolvency scheme did not permit to be avoided, or alter the pari passu distribution between creditors of equal priority. The relationship between sections 204 and 301, and the purposive construction required by section 371, did not alter that conclusion.
3. Claw-back claims. The Board unanimously upheld the refusal of permission to pursue the proposed claw-back claims. Depositors had contractual entitlements to principal and interest under their certificates of deposit. Risk warnings did not detract from those express entitlements. Money paid pursuant to a contractual entitlement could not be recovered on the basis of unjust enrichment. Further, the depositors were bona fide purchasers for value without notice, against whom an essentially equitable claim would not ordinarily lie. That differed from a statutory or common-law wrongful-preference claim.
4. Readjustment claims. The Board unanimously held that the proposed readjustment would also be impermissible. Requiring a partly paid depositor to bring prior payments into account against later liquidation distributions would produce an effect similar to claw-back and would depart from the applicable insolvency scheme. It would also create an unjustified distinction between depositors paid in full and those paid only in part.
5. Common misfortune. The rateable-distribution principle developed in cases concerning trust funds could not be transplanted to bank insolvency. Bank depositors were creditors, not beneficiaries of a common trust fund, and their rights were governed by the insolvency scheme.
6. Lady Arden, with whom Lord Carnwath agreed on the standing point, took the view that a liquidator was not in principle excluded from being a proper person under section 200(b)(iv). She nevertheless agreed with the dismissal of the appeal and with the conclusions against the claw-back and readjustment claims. Lord Carnwath otherwise agreed with Lord Briggs.

• Privy Council: Appeal dismissed. The Board advised that the relief sought should be refused.
• Court of Appeal of the Eastern Caribbean Supreme Court: Held that section 204 relief was unavailable in relation to an IBC in liquidation and refused the relief sought.
• High Court of Antigua and Barbuda: Wallbank J refused authority for the claw-back claims but authorised the liquidators to pursue readjustment claims.