The Court of Alderney recently ordered that a group of Alderney companies previously carrying on the business of the online poker site Full Tilt Poker (the Full Tilt Alderney Companies), be wound up on the grounds that they had lost their substratum and it was in the public interest and reputation of the Bailiwick of Guernsey that they be wound up.
The judgment is of significant interest as the Alderney Court was called upon for the first time to consider the standing of applicants for a compulsory liquidation order on the basis that they have "a legitimate and substantial interest in making the application" pursuant to section 127(1) of the Companies (Alderney) Law 1994.
The application was brought by Alan Roberts and James Toynton of Grant Thornton (the Applicants), represented by Advocate Anthony Williams of Appleby, and arose from the forfeiture by the US Government of nearly all of Full Tilt's assets as a result of charges brought against various entities and individuals associated with Full Tilt.
"Legitimate and Substantial Interest"
Typically an application for a compulsory winding up would be brought by the company itself, a member or a creditor of the company. However section 127(1) of the Companies (Alderney) Law 1994 (the Alderney Companies Law) provides that an application for a compulsory winding up may also be made to the Alderney Court by "any other party who proves to the satisfaction of the court that he has a legitimate and substantial interest in making the application".
There is no authority in Alderney as to the meaning of "legitimate and substantial interest" in the context of section 127(1). No similar provision exists either in the English Insolvency Act 1986 or in the Companies (Jersey) Law 1991.
However, interestingly section 408 of the Companies (Guernsey) Law 2008 (the Guernsey Law) provides that "An application for the compulsory winding up of a company may be made to the Court by the company, by any director, member or creditor thereof or by any other interested party".
The Royal Court of Guernsey has considered the meaning of "any other interested party" in the context of section 408 of the Guernsey Law in In the Matter of Synergy Capital (Guernsey judgment 28/2012). By way of general guidance on this issue, the Deputy Bailiff observed (at paragraph 80 of the judgment) that:
"In every case where the issue arises, I think it will be necessary to have regard to all of the circumstances in which an applicant for a winding up order claims to have links to, and so an interest in, the company entitling it to bring the application. The basis of the person's interest in the company will need to be assessed against the touchstone of whether an appropriate degree of connection or association with the company exists so as to warrant the person taking steps to bring about its dissolution ..."
The Full Tilt Application
The application arose from the forfeiture by the US Government of nearly all of Full Tilt's assets as a result of charges brought against various entities and individuals associated with Full Tilt relating to various offences including operating a Ponzi scheme, violating gambling laws, bank fraud, wire fraud and money laundering.
As part of the deal giving effect to the forfeiture order, the US court ordered that funds be provided to a firm of Guernsey Advocates for the purposes of 'winding down' the Full Tilt Alderney companies. Those funds were provided to the Applicants for the purpose of initially seeking to voluntarily wind up the Full Tilt Alderney Companies.
However, it transpired that neither the Full Tilt Alderney Companies nor any of their members or creditors were willing or able to wind up the Full Tilt Alderney Companies. The Alderney Registry had issued striking off notices in respect of the Full Tilt Alderney Companies but agreed to a stay of execution pending the hearing of the compulsory winding up application.
The application was supported by the known creditors of the Full Tilt Alderney Companies and no opposition was entered. Notwithstanding the absence of opposition the Alderney Court was concerned to ensure that a judicial marker was laid down as regards the categories of persons who may be given standing to make a compulsory winding up application on the "legitimate and substantial interest" basis. After very serious deliberation of the key issues, the Alderney Court was persuaded that the facts of this case constituted "exceptional circumstances" on the basis that the US Government had specifically set aside a sum of money from the forfeited assets to ensure that the Full Tilt Alderney Companies were wound down.
In the light of the fact no other party was willing or able to voluntarily wind up the companies and that the only other alternative, specifically a strike off order, would result in any assets vesting bona vacantia, the Court noted the significant benefits of a compulsory winding up order which would result in the affairs of the companies being properly investigated and granted the applicants standing to pursue the application.
As regards the merits, in light of the fact that the assets of Full Tilt had been forfeited by the US Government and the gaming licenses of the Full Tilt Alderney Companies had been revoked and/or suspended, the Alderney Court ordered that it was just and equitable to wind up the companies on the basis they had lost their substratum i.e. where the main object for which the company has formed has become impracticable: see in re Suburban Hotel Company (1867) Ch. App. 737.
Moreover, given the nature of the charges raised by the US Government and the background of those charges, the Alderney Court considered that it was also desirable for the protection of the public and in the interest of the reputation of the Bailiwick of Guernsey that the Full Tilt Alderney Companies be wound up in order to ensure that their affairs were properly investigated.
While the decision is fact specific, it is clear that for a party to have standing to make an application for a compulsory liquidation order under the Alderney Companies Law on the "legitimate and substantial interest" basis, a significant connection or association with the company in question will need to be demonstrated such as to equate to "exceptional circumstances". The decision also brings into focus the key role that the Alderney Court and Alderney Gambling Control Commission has to play in the regulation and supervision of international online gaming sites, which are licensed in Alderney, particularly given the nature of the business conducted on these sites and the potential for perpetrators of financial crime to utilise such sites for criminal gain.
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