Guernsey: Insolvency Practitioner Guidelines Introduced In Guernsey

In March 2017, the States of Guernsey approved the reform of Guernsey's insolvency laws, which afford greater protection to creditors and investors. The necessary legislative amendments are currently being drafted although the date of issue is yet to be determined.

Key changes proposed include:

  • Distinguishing between solvent and insolvent voluntary liquidations;
  • Liquidators to call at least one meeting of the creditors within a set period of time following their appointment;
  • Power for administrators to make distributions to all types of creditors where the distributions are in keeping with the objectives of the administration;
  • A statutory duty to report director misconduct / bring disqualification proceedings against delinquent directors;
  • Where there is an insolvent voluntary liquidation a requirement that:

    • an independent liquidator be appointed, subject to the court having the power to approve a non-independent liquidator and notice of such appointment being sent to all creditors; and
    • reports be provided to creditors and investors.

The current regime for voluntary liquidation is lightly regulated and allows non-independent liquidators to be appointed with no court oversight. There is obvious potential for this system to be abused.

These revisions and additions to the existing legislation are to be welcomed as they will create a more robust regime.

As part of its role in setting high professional standards for those working in this sector, the local industry body for insolvency specialists , The Channel Islands Association ofRestructuring and Insolvency Experts (ARIES) (a member of INSOL International) has produced a series of guidance notes, the Guernsey Insolvency Practice Statements (GIPS), which are largely based on the current UK Statements of Insolvency Practice (SIPS). They are designed to complement the proposed legislative reforms and, pending the implementation of those reforms, provide guidance where there is currently uncertainty.

The five GIPS cover:

  • GIPS 1 – An introduction to the regime and the fundamental ethical principles
  • GIPS 2 – Investigations into the affairs of an insolvent company
  • GIPS 3 –Directors reports and disqualification of directors
  • GIPS 4 – Convening and holding creditors' meetings where there is an insolvent liquidation
  • GIPS 5 –Pre-packaged sales of businesses

It is anticipated that the GIPS will set an industry standard for best practice. Clearly, the people most likely to adopt the GIPS are those appointees already involved in ARIES and who in any event operate at a high standard. Their impact will be far greater if non-regular appointees adhere to them. Encouraging a wider audience may prove challengingalthough the clear structuring of the GIPS and the use of plain English makes them easy to follow. Hopefully this will encourage all practitioners to make good use of them. It ishoped that the court will become familiar with the principles and over time will come to expect them to be followed.

GIPS 1 – general principles

A framework of standards

This statement makes it clear that the GIPS are not statements of law and are not legally binding. However, they are intended to run parallel to the law and provide practitioners with a clear framework of standards with which they are expected to comply.

Fundamental ethical principles

A helpful list of fundamental ethical principles is set out against which the GIPS must be interpreted, namely integrity, objectivity, professional competence and due care, confidentiality and professional behaviour.

GIPS 2 - investigations into insolvent entities

This statement provides step by step guidance as to how investigations into the failure of insolvent entities should be conducted. No such guidance has existed previously. This is reflective of increased levels of regulatory scrutiny over corporate governance within the Island.

The approach is pragmatic rather than prescriptive and practitioners are encouraged to "use their professional judgment to determine the extent of investigations that are to be undertaken". Ongoing engagement with creditors to ascertain their views about actual and prospective investigations is encouraged.

Preliminary enquiries

Guidance is given as to what preliminary enquiries should be made of the officers of the company, the directors and the extent that the company's records should be reviewed. 

Where the practitioner believes that there are grounds for further investigations or possible action she/he is exhorted to seek the views of the creditors on any further investigations.

Further investigations

Detailed guidance is given for the more far reaching enquiries that may need to be taken in appropriate cases.

Potential action

Helpfully, practitioners are reminded to consider adverse costs insurance in the case of potential action.

GIPS 3 - disqualification of delinquent directors

This statement deals specifically with the disqualification of delinquent directors. Again a pragmatic approach is encouraged: "practitioners should not take a pedantic view of isolated minor compliance failures but should form an overall view of the director's conduct when deciding whether a report is appropriate".

Reporting

Where there are concerns about a director's conduct, it is suggested that a report is prepared and submitted to the Guernsey Registry and, in the case of regulated companies,the GFSC within six months of the administrator's appointment. Guidance is provided as to the content of the report. Helpfully a template report is provided which it is hoped will encourage practitioners to adopt the guidance.

Reminder of the law of defamation

There is a reminder as to the need to have regard to the laws of defamation and some brief guidance as to when discussions are appropriate and when caution must be exercised. This is to be welcomed as practitioners may not always be alert to this issue.

Disqualification orders

Where it appears that the conduct of a director makes him unfit to be concerned in the management of a company the practitioner is advised to make an application to the Court for a disqualification order. Advice is given as to the preparation of affidavit evidence where proceedings are instituted. Historically, there have been very few cases in Guernsey of disqualifications being sought following insolvency proceedings and it will be interesting to see if the number of applications for disqualification orders increases pursuant to the issuing of this guidance.

GIPS 4 – creditors' meetings

Currently in Guernsey, there is no requirement to hold a creditors' meeting in either a voluntary or compulsory winding up. This will change when the proposed reforms are implemented.

Initial meeting within 42 days

This statement seeks to ensure that, in insolvent situations, at least one meeting is proposed within 42 days of the liquidator's appointment (unless having regard to the known assets and liabilities of the company, the likely result of the liquidation and any other relevant matters, it is not necessary for a meeting to be held).

In circumstances where a meeting is not held, guidance is given as to the content of the notice to be sent to the creditors informing them of this decision.

Convening of the meeting

Practical guidance around the convening of the meeting is offered. Again it is very creditor focused, for example, the date and time must be fixed with the convenience of the creditors in mind. When choosing a venue for the meeting, a place which is convenient for creditors should be chosen. Where there are creditors outside of the jurisdiction in which the meeting is being held, telephone facilities should be put in place and care should be taken to ensure that accommodation facilities for those who wish to travel to the meeting are adequate.

Conduct of the meeting

There is detailed guidance on the information to be provided at the meeting and the conduct of it.

Informal creditors liquidation committee

There is an interesting provision which provides that should the creditors wish to form an informal creditors' liquidation committee the liquidator may allow it. Unlike in other jurisdictions, there are no provisions under Guernsey law for the formation of a creditors' committee and as such, these committees will fall outside the scope of the statutory regime.

GIPS 5 – pre-packaged sale

This statement is largely based on the UK SIP16.

What is a pre-packaged sale?

The term "pre-packaged sale" refers to an arrangement under which the sale of all or part of an insolvent company's business or assets is negotiated with a purchaser prior to the appointment of an administrator or liquidator, but who then facilitates the sale immediately or shortly after appointment. Pre-packs are a controversial subject. It is imperative that the administrator or liquidator acts with objectivity and professionalism so as not to bring both themselves and the profession into disrepute. They must be able to demonstrate that they are acting in the interests of the creditors as a whole.

Historically, the Royal Court has only sanctioned one pre-pack in Guernsey in Esquire Realty Holdings Limited 17.04.2014 Royal Court (unreported). In doing so, it made it clear that it had been comforted by the parties' compliance with the UK SIP16 (as it was then). In his judgment, the Bailiff stated that any pre-pack in Guernsey should follow the SIP16 regime in the future. For this reason, GIPS 5 very closely follows SIP16.

Differentiating between roles

The guidance makes it clear that a practitioner must clearly differentiate between any pre-appointment role in which they provide advice to the company, and the functions and responsibilities of the administrator or liquidator following their formal appointment. The nature of these two distinct roles must be explained to the directors and creditors.

Expected standards of conduct

  • Very detailed guidance is given as to how a practitioner should conduct himself / herself including the need to:
  • Make it clear to directors/parties connected with the purchaser that it is not his/her role to advise them;
  • Keep a detailed record of the reasoning behind the decision to undertake a pre-packaged sale;
  • Keep a detailed record of the alternatives considered;
  • Obtain valuations from independent valuers and/or advisors carrying adequate professional indemnity insurance; and
  • Market the company appropriately. Very high level advice is given which interestingly includes the suggestion that online communication should be included by default and any decision not to engage in such marketing should be justified.

Conclusion

The GIPS are a positive step that will help both office-holders and creditors better understand the insolvency process and should raise standards without unnecessarily increasing costs. Additionally, pending the implementation of the reforms to the Guernsey insolvency laws, they provide valuable guidance on matters where the law is currently silent.

Useful links

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Events from this Firm
10 Mar 2019, Conference, St Peter Port, Guernsey

The International Conference on Private Investment Funds plans to analyse the current market and future of private investment funds, the prospect of changes and updates to regulatory and tax regimes, among other timely topics.

12 Mar 2019, Conference, St Peter Port, Guernsey

For four days the conference provides opportunities to network, learn and transact through premium events, conferences and dedicated exhibition zones.

24 Mar 2019, Conference, Unknown, Jersey

The 9th Global Fund Finance Symposium is organised by the Fund Finance Association to educate members, legislators, regulators and other constituencies about the fund finance market.

 
In association with
Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions