Jersey has a familiar range of legal processes and remedies for the restructuring and insolvency of corporations. The principal provisions are contained in the Companies (Jersey) Law 1991 and the Bankruptcy (Désastre) (Jersey) Law 1990. These have been consistently applied and developed by the Royal Court. While certain reforms are often discussed, Jersey seeks to position itself as a jurisdiction with a system in which creditors can have confidence. From a broader perspective, the Royal Court has shown itself willing to engage in cross-border insolvencies, whether by granting recognition to overseas office holders or seeking assistance from other jurisdictions.
Of the various restructuring options under the Companies (Jersey) Law (including merger and takeover provisions), schemes of arrangement have seen the most activity in recent years. A court-approved scheme enables a binding compromise to be reached among creditors or shareholders with a 75% majority (in voting rights for shareholders and value for creditors). Most schemes that have been presented to the Royal Court have been shareholder schemes, typically to restructure holding companies or to achieve takeovers. Cells of Jersey protected cell companies can be subject to a scheme.
For insolvent companies, the Companies (Jersey) Law provides for a creditors' winding up. This is commenced by a shareholders' special resolution followed by a creditors' meeting to appoint a liquidator. Once in office, the liquidator's primary duties are:
- to wind up the company's affairs and collect its assets; and
- to assess creditor claims and distribute the liquidation estate.
The alternative to a creditors' winding up, and a process that can be creditor driven (rather than shareholder driven), is an application to the court for the company to be declared en désastre under the Bankruptcy (Désastre) (Jersey) Law. If granted, the insolvent company's assets will be vested in the viscount – the executive officer of the Royal Court.
Secured creditors' rights remain in place, notwithstanding the commencement of a creditors' winding up or a declaration en désastre; there is no moratorium on the enforcement of security, although proceedings by or against a company that is in liquidation will require court sanction. For unsecured creditors, there is a pari passu (ie, on an equal footing) distribution after payment of:
- the liquidation costs (including, in the case of a désastre, a statutory levy of up to 12.5% of the value of assets realised or distributed by the viscount); and
- the preferred claims (including those of employees, tax and rates, and limited landlord claims).
Wide powers are granted by statute to enable liquidators or the viscount to:
- obtain information and documentation;
- disclaim certain kinds of onerous property; and
- apply for orders setting aside transactions at an undervalue or which may be considered to have been preferences.
Claims in wrongful and fraudulent trading can also be brought by a Jersey liquidator or the viscount.
In recent years, the court's discretionary jurisdiction over the just and equitable winding up of Jersey companies has developed. Historically, this jurisdiction – which cannot be invoked by creditors – has been the preserve of solvent companies that either have a deadlock shareholder base or have reached the end of their life (a loss of substratum). However, there is a growing body of examples where just and equitable winding up has been used to achieve a variety of ends, including:
- to allow an insolvent company to trade out contracts or sell stock;
- to enable investigations into potential fraud to be carried out or to protect investors; and
- to enable the pre-packed sale of a distressed company's business.
The process requires a court application and, if granted, the court will have wide discretion as to the orders that it can make. It will typically grant the liquidators the broad powers contained in the Companies (Jersey) Law and the Bankruptcy (Désastre) (Jersey) Law.
As a jurisdiction, Jersey is at the heart of cross-border restructuring. Inevitably, situations will arise where insolvent companies' assets or potentially important evidence are located overseas or an overseas liquidation regime would be best for creditors. Conversely, situations will arise where a foreign insolvency process requires steps to be taken in Jersey. The Bankruptcy (Désastre) (Jersey) Law contains an assistance provision which gives the Royal Court discretion to provide assistance to the courts of prescribed jurisdictions (ie, the British Isles, Western Australia and Finland). Further, as a matter of comity, the Royal Court is willing, where appropriate, to assist overseas liquidators or other appointed officers by recognising those office holders in Jersey. A letter of request from the court of the home jurisdiction is needed for any application for assistance – whether statutory or under customary law – and, for non-prescribed countries, confirmation that similar assistance would be granted if the Jersey court required it. Examples of recognised office holders have included liquidators, administrators and receivers from a variety of jurisdictions. Applications have also been successfully made to the court for the grant of letters of request to the English court to place a Jersey company in administration where creditors' interests would be best served, thereby 'passporting' the insolvency of the Jersey company to England. In January 2017, for the first time in 40 years, the viscount successfully obtained an order that a letter of request be issued to the English court to seek her recognition to enable her to pursue the collection of assets in England in a significant désastre.
As to reform, the lack of administration or other rescue procedures is seen by some as an area for change in Jersey. This has been under discussion for some time, but is not seen by all as necessary or beneficial – particularly by those in structured finance, where bankruptcy remoteness for secured parties is an attraction that Jersey offers. The lack of a creditor-driven process other than désastre is perhaps the biggest gap in the Companies (Jersey) Law at present, and it is anticipated that legislative changes will be made to address this and to ensure that Jersey's legal landscape in the area of restructuring and insolvency remains attractive to those looking to do business using Jersey-based structures.
For further information on this topic please contact Nigel Sanders at Ogier by telephone (+44 1534 514 000) or email ([email protected]). The Ogier website can be accessed at www.ogier.com.
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