Guernsey:
Restructuring And Corporate Recovery Jurisdiction Guide: Guernsey
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Domestic Procedures
Question |
Answer |
What are the principal insolvency procedures for companies in
your jurisdiction? |
Liquidation (winding up) and administration.
A Scheme of Arrangement procedure can also be used for a company
to come to an arrangement with creditors.
|
Are any of the procedures available on a provisional
basis? |
Yes. Compulsory liquidation can be made on a provisional
basis. |
What requirements are to be satisfied for the procedures to be
pursued? |
Compulsory liquidation
The main reasons are that a company is unable to pay its debts
or that it is just and equitable to do so. A recent Guernsey case
has also seen a company wound up because it failed to provide
accounts to its members.
Voluntary liquidation - whether company is solvent or
insolvent
- Ordinary resolution (as provided in the M&As)
- Special resolution
- If the directors cannot sign a declaration of solvency within
the 5 weeks preceding the resolution to wind up a company then an
independent liquidators must be appointed
Administration
The company must be insolvent and the Court must be satisfied
that an administration order can either
(a) Ensure that the company survives or can be sold as a going
concern or
(b) that there will be a more advantageous realization of the
company's assets than on liquidation
Scheme of Arrangement
(a) Court to establish that it has jurisdiction to call meetings
of creditors/members
(b) Holding the meeting themselves in order to obtain the 75%
approval of the scheme; and
(c) Seeking the court's sanction in respect of the scheme
|
What is the procedure and how long typically does it take? |
Compulsory liquidation – no specific time and the
Court does not tend to impose time limits.
- An application can be made by the company, any director, member
or creditor or any other interested party (or by the Guernsey
Financial Services Commission (GFSC) in certain specified
circumstances)
- Company should be notified of the date, time and place of a
winding up application, and unless the Court is satisfied of this,
it will not hear the application
- Applications are typically filed on a Thursday and heard the
following Tuesday (so a company can be placed into liquidation
within a few days). The court is also able to sit on an urgent
basis if required
The liquidator:
- Must, within 7 days of the compulsory winding up order, send a
copy of the order to the registrar
- Will be appointed by the Court at the hearing of the winding up
application
Voluntary liquidation – no specific time
limits
- The winding up commences upon the passing of the resolution for
winding up
- Once the resolution has been passed, a copy must be delivered
to the Registrar within 30 days after the date it was passed.
Failure to do so will result in a civil penalty
- Company (by ordinary resolution) to appoint a liquidator and
fix their remuneration (company can delegate to creditors its power
to appoint a liquidator)
Administration – no timeframe as to how long an
administration order remains in force. Court can set a time limit
but rarely does so
- Company, its directors, members, creditors and the GFSC can
apply for an administration order
- Notice of the hearing must be given to the company, the GFSC,
and anyone else the Court directs including the creditors so those
parties can choose to make representations to the Court
- Notice of the application for administration order should be
given to the registrar at least 2 clear days prior to the making of
the application. Application usually filed on a Thursday and heard
the following Tuesday. The Court is able to sit on an urgent basis
if required
- The administrators will be appointed by the Court at the
hearing, and sworn into office
The administrator:
- Must within 7 days of the administration order, send a copy of
the order to the registrar
- Must within 28 days send notice to creditors of the
appointment
Scheme of Arrangement
The process can be relatively quick, and will be reviewed on a case
by case basis. |
Can any procedures be pursued without the involvement of the
Court? |
Yes. Voluntary liquidation is a process which can take place
without the involvement of the Court. |
What is the effect upon control of the company and its assets
during those procedures? |
- Upon appointment (by the members or the Court) the liquidator
has custody and control of the assets of the company. The powers of
the directors and members of the company cease, save for very
limited exceptions
- In a compulsory liquidation the company ceases to carry on
business and commits an offence if it continues to do so, with some
limited exceptions. Liquidators are given powers which include
bringing or defending civil actions
- Wide powers of management are granted to administrators of
Guernsey companies (Schedule 1 to the Companies Law)
- A Scheme is not a formal insolvency process and so the company,
under its directors, remains in control of the company's assets
during and after the scheme process
|
Is there an automatic moratorium and if so when does it come
into effect and what is its effect? |
No. There is no moratorium in either a compulsory or voluntary
liquidation.
While the administration order is in force, no resolution may be
passed or order made for the winding up of the company, and any
application on foot for the company's winding up shall be
dismissed. No proceedings can be commenced or continued against the
company except with the consent of the administrator or the leave
of the Court, and if the Court gives leave, to such terms and
conditions as the Court may impose. This is a creditor-friendly
moratorium so that creditors with security and creditors with set
off may enforce those rights notwithstanding the moratorium in
place.
|
Can companies be forcibly wound up other than when
insolvent? |
Yes, if:
- It does not commence business within one year of its
incorporation
- It suspends business for a year
- It has no members
- It has failed to comply with a direction of the Registrar of
Companies to change its name or to hold a general meeting of
members
- It has failed to send its members a copy of its accounts or
reports under specific provisions of the Companies Law
- The Court is of the opinion that it is just and equitable that
the company should be wound up
The GFSC can make an application for the winding up of a company
which will be granted if the Court is persuaded that the company
should be wound up for the protection of the public or the
reputation of the Bailiwick.
|
To what extent are the procedures designed to facilitate a
rescue of a company's business? |
- One of the primary aims of administration is to ensure that the
company, or the whole or part of its business, survives or can be
sold as a going concern. Contrast this to liquidation where the
primary role of the liquidator is to realise the company's
assets and to make distributions according to a statutory order of
priority
- A Scheme can be used as a rescue procedure because the company
can come to a formal compromise with its creditors
|
Can the procedures be used to facilitate the sale of all or
part of the insolvent company's business? |
Yes.
- In the case of administration and liquidation, the office
holder can sell the business and assets of the company
- An administration process is better suited to facilitating a
sale of the business as a whole because of the moratorium which
allows the company to trade with a degree of protection
- Guernsey has also recently recognised the concept of the
"pre-pack" which allows the sale of the business to a
buyer immediately upon the appointment of administrators, allowing
for the seamless continuation of the business
- In a liquidation, one is more likely to see a piecemeal sale of
business and assets in order to generate realisations
|
Cross Border
Question |
Answer |
To what extent do the courts in your jurisdiction lend
assistance to overseas appointees (through recognition) and in what
circumstances? |
Statutory recognition: Guernsey will provide judicial assistance
in relation to insolvency matters to the courts of England and
Wales, Scotland, Northern Ireland, the Isle of Man and Jersey.
- Liquidator or administrator will apply to the court in their
jurisdiction and that court will send a letter of request to the
Court in Guernsey
- The Court in Guernsey will not comply with the letter if the
result would be contrary to public policy or oppressive. The Court
can apply the insolvency law of either Guernsey or the foreign
jurisdiction in relation to comparable matters falling within its
jurisdiction
- Court will seek to assist foreign insolvency procedures where
possible (and insolvency office holder can seek recognition under
the common law).
However, the common law concept of "modified
universalism" has been restricted following the 2015 Guernsey
case of Re X (a bankrupt)
|
Are there any limitations typically imposed in respect of the
recognition of an overseas appointee? |
Yes, if:
- An insolvency office holder seeking to exercise powers overseas
must not only be exercising those powers under the law of the
jurisdiction where they were appointed, but there is also a
corresponding common law or legislative power in the foreign
jurisdiction (view of the majority of the Board in Singularis)
- The minority of the Board in Singularis limited this further by
suggesting that the office holder can only exercise the power if
there are specific legislative provisions both in the home and
foreign jurisdictions. A Re X (a bankrupt) held that the Guernsey
court prefers this minority view
|
What kinds of overseas appointees have been recognised in your
jurisdiction? |
Overseas administrators, liquidators, trustees in bankruptcy,
regulatory court-appointed receivers and fixed charge
receivers. |
Do the courts in your jurisdiction assist in applications to
subject a company incorporated in your jurisdiction becoming
subject to an insolvency procedure in another jurisdiction? |
Yes. The assistance described above is reciprocal. Under
section 426 (as extended to Guernsey) reciprocity is only with the
UK and Crown Dependency courts. Under the common law it is, in
theory, with any court worldwide. |
Creditors
Question |
Answer |
What are the principle forms of security taken in your
jurisdiction in respect of movable and immovable property? |
Movable property
- Tangible assets - liens, a pledge, a landlord's right to
priority for unpaid rent, a mortgage and a reservation of title
clause
- Intangible assets - security interest under the Security
Interests (Guernsey) Law 1993 or a security under the Law of
Property (Miscellaneous Provisions) (Guernsey) Law 1979
Immovable property
- Security over real estate by either Rente hypothèque,
securing a fixed annual sum or Hypothèque conventionnel (a
bond)
- Bonds - general charge or a specific charge. Bonds in Guernsey
are slightly different to bonds in other jurisdictions, and have a
number of specific characteristics and requirements which must be
complied with before they are effective
|
What is the effect on secured creditors of the commencement of
an insolvency procedure? |
- Secured creditors will be repaid from the proceeds once a
property over which they hold security is sold
- Where a creditor has a security interest granted under the
Security Interests Law then that creditor is entitled to the
proceeds of the sale of the collateral when it is sold. However,
that creditor must apply the proceeds in the order specified by
section 7 of that law
|
Which creditors are preferred and to what extent? |
Preferred debts include rent to a landlord, wages, accrued
holiday remuneration, income tax and social insurance. Preferred
creditors do not, however, have priority over secured
creditors. |
What is the position regarding the recoverability and quantum
of liquidator's fees and expenses of the insolvency
procedure? |
- For both compulsory and voluntary liquidation, all costs,
charges and expenses properly incurred in a voluntary winding-up of
a company, including the remuneration of the liquidator, are
payable from the company's assets in priority to all other
claims
- Practice directions of 2015 regulate the information that
office holders should give to the court regarding their
remuneration and expenses. The Court will then fix the office
holder's remuneration upon appointment based on that
information and can review fee increase requests periodically
|
Avoidance transactions
Question |
Answer |
What if any categories of transaction can be avoided/set
aside? |
- Preferences
- Transactions at undervalue
- Guernsey also has a customary law remedy for transactions at
undervalue (similar to section 423 of the UK Insolvency Act 1986)
known as Pauline Actions, which enable transactions to be set aside
if they have defrauded creditors
|
Who is responsible for seeking orders to set aside such
transactions? |
The liquidator (preferences) and the victims/creditors (Pauline
Actions). |
Contributions to the liquidation estate and liability of
officers
Question |
Answer |
Can directors or shareholders be required to contribute to the
liquidation estate?
|
Yes, in the case of:
- Delinquent officers: appropriation or misapplication of company
assets, breach of fiduciary duty, personal liability for company
debts
- Fraudulent trading: intention to defraud creditors or for any
fraudulent purpose
- Wrongful trading: director knew or ought to have suspected at
some time prior to the commencement of the winding up that there
was no reasonable prospect of the company avoiding going into
insolvent liquidation (unless they also took every reasonable step
to minimise loss to creditors)
|
What liability can directors or other officers attract in
respect of an insolvent company? |
See above. |
In what circumstances can directors be disqualified as a
consequence of a company being wound up? |
- When director is considered unfit to be concerned in the
management of a company by reason of their conduct in relation to a
company or otherwise
- Relevant factors for the Court to consider include the
director's conduct in connection with any company that has gone
into insolvent administration. Disqualification orders can last for
up to 15 years
|
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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