Judge had erred; fiduciary duties to the company still owed

The Privy Council overturned concurrent findings of fact determining that a previously exonerated director was in breach of her fiduciary duties in allowing a loan to be repaid in circumstances where the company was insolvent.

The decision in this case is significant because:

  1. The Privy Council was satisfied that it could overturn concurrent findings of fact in the BVI High Court and the Easters Caribbean Court of Appeal.
  2. It contains findings of breach of fiduciary duty by the director (Chen).

Pioneer Freight Futures Ltd (company) was incorporated in the BVI. The company experienced financial difficulties from September 2008. In May 2009, it borrowed $13m from Zenato Investments Ltd (Zenato).The loan was repayable in two years.Whilst the company was commercially insolvent by late October, it repaid Zenato in November before entering liquidation in the BVI on 17 December 2009.

The liquidators identified the repayment of the loan as a preference payment, and a breach of duty by Chen. Chen denied the claim asserting that she had resigned as a director in or around May 2009. The BVI Court found that as Chen had ceased to be a director in August 2009, she did not owe the company fiduciary duties at the time of the repayments to Zenato. Even though she knew of the repayments, Chen was found not to have caused or procured them. The Court of Appeal found that the court was entitled to make these findings.

The liquidators appealed on the basis that Chen remained a de jure director until the company entered liquidation, and that even if they were wrong, she was a de facto director as she retained control of the company’s affairs, including the bank payments. 

The Privy Council rejected the notion that Chen had resigned in May 2009. There was no evidence that she had resigned in August or at any time prior to the repayments. In light of the lack of evidence, the judge had made an error of law; Chen owed fiduciary duties to the company throughout and by permitting the payments to Zenato, Chen was in breach of those duties.

Byers and others (Appellants) v Chen Ningning (Respondents) (British Virgin Islands) [2021] UKPC 4

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