Offshore bank failure and financial crime caused by offshore corporations differs from traditional liquidation and insolvency for reasons of structure and operation. The closure of an offshore bank may involve cross-border activities in different jurisdictions, sometimes even offshore. The scope and nature of the offshore financial nature provides for enhanced privacy. The detrimental effect of this approach is that asset tracing and ultimately fund recovery is a lengthy, difficult and often unfortunate disappointing process.
Underlying actions in the insolvency and liquidation process for offshore bank failure often remain hidden for creditors. Limited liquidity can be made available to creditors during the initial administrative stage of bank closure while stakeholders determine the appropriate resolution strategy. The next phase triggers the domestic deposit guarantee scheme that repays qualifying depositors the insured amount. Unsecured claims and account surpluses rely on liquidation and insolvency procedures. Even though offshore banks and business units of traditional banks dealing with non-resident deposits are well capitalized, there is mostly insufficient collateral to honor all outstanding debt.
A liquidator gets appointed by the court and serves the best interest of the company. As such, liquidators may start procedures to regain access to obscured assets. A standard approach of recovery follows a general outline. The collection of intelligence and evidence and asset tracing in offshore bank failure has an extra territorial character. Therefore, mutual legal assistance in foreign jurisdictions may be required. In strong cases, assets are confiscated and secured by the court to avoid its disappearance. During the court proceeding, the competent authority decides on the legitimacy of returning the assets to the bank. When the court agrees with the position of the liquidator and the bank, the court order can be enforced, and assets are returned to the bank for distribution to unsecured creditors on a pari passu basis.
Recovery procedures in offshore bank failure are often prolonged due to the civil actions from stakeholders. Courts are available for private parties who feel wronged by either regulatory intervention or acts and omissions by the bank. Such civil action delay insolvency and liquidation proceedings. Among other reasons it is therefore critical to understand all the steps in the recovery and ensure timely and correct applications where possible.