Jersey: Jersey Companies and English Administration

Last Updated: 15 September 2010
Article by Bruce MacNeil

Most Read Contributor in Jersey, September 2016

There has been a considerable amount of interest from clients recently on putting Jersey companies holding UK real property and other assets into English administration. Where a Jersey company and its creditors intend to rescue the company as a going concern, or English administration would achieve a better realisation for creditors than a désastre or a winding up, it may be advantageous to commence English administration. There is no statutory procedure for this under Jersey law, although there are several cases in which the Royal Court of Jersey has exercised its inherent jurisdiction and issued a letter of request to the English court to facilitate making a Jersey company subject to English administration.

By way of background, an insolvent Jersey company may potentially become subject to Jersey insolvency proceedings such as a désastre or a creditors' winding up, each of which is a procedure for insolvent liquidation, as opposed to a rescue procedure such as English administration. There is no direct equivalent under Jersey law of English administration under Schedule B1 of the UK Insolvency Act 1986. Further, an insolvent Jersey company having its management and/or assets in a foreign jurisdiction may potentially become subject to foreign insolvency proceedings under the laws of the foreign jurisdiction. For example, a UK Law of Property Act 1925 receiver may potentially be appointed over the property of a Jersey company under the terms of an English law security agreement without involving any court (although it may be advisable for the receiver to obtain recognition in Jersey, as discussed in the section below on Jersey recognition of foreign insolvency proceedings).

Where a Jersey company's centre of main interests is in England, we understand from English cases including Re BRAC Rent-A-Car International Inc [2003] 2 All ER 201 and Re DBP Holdings Limited [2004] EWHC 1941 (Ch) that the English court has jurisdiction to hear a direct application to the English court for the administration of a non-English company (e.g. a Jersey company). A Jersey company's "centre of main interests" would be determined for these purposes in accordance with the EU Regulation on Insolvency Proceedings.

Nevertheless, where a Jersey company's centre of main interests is in England, it may still be advantageous to obtain a letter of request from the Royal Court to the English court for the commencement of administration for the following reasons:

  1. obtaining a letter of request would ensure that the Royal Court would recognise the appointment of the English administrators of the Jersey company. It would be advisable for the English administrators to obtain recognition in Jersey where they need to deal with Jersey assets or take other steps in Jersey - please see the section below on Jersey recognition of foreign insolvency proceedings;
  2. it may be questionable whether the Jersey company's centre of main interests is in England, or should be stated to be in England for tax or other reasons; and
  3. in accordance with principles of comity, we understand that obtaining a letter of request from the Royal Court to the English court would be very likely to preclude the possibility of a declaration of désastre being made in respect of the Jersey company.

Where a Jersey company's centre of main interests is not in England, any application for the English administration of the Jersey company would have to be made via a letter of request from the Royal Court to the English court, thereby giving the English court jurisdiction in respect of the administration (as we understand that, as a matter of English law, the English court would not otherwise have jurisdiction). The letter of request procedure is explained below.

Letter of Request Procedure

An application to the Royal Court for a letter of request to the English court to make an administration order under section 426 of the UK Insolvency Act 1986 could be made by the Jersey company ("Jerseyco") or a creditor of Jerseyco. Such application would be likely to require relevant parties with an interest in the application to be convened, including Jerseyco and its creditors. The application may potentially be made in camera to preserve confidentiality pending the making of the English administration order.

In Representation of The Governor and Company of the Bank of Ireland [2009] JRC 126, the Royal Court granted an application from a creditor of two insolvent Jersey companies for a letter of request to be made to the English court to put the Jersey companies into English administration. It is worth noting that one creditor of the Jersey companies was the Jersey Comptroller of Income Tax and arrangements were made in the letter of request to ensure that this debt was given priority status under English law. This case, together with Representation of Anglo Irish Asset Finance [2010] JRC 087 in which the application was also made by a creditor, represents a recent development. Previous Jersey cases concerning making Jersey companies subject to English insolvency proceedings, namely In re O.T. Computers Ltd 2002/29 (31 January 2002) and Representation by Doltable Ltd [2005] JRC 038A, were brought by the debtor company rather than a creditor.

From a procedural point of view, advance notice of any application for the issue of a letter of request would need to be given to the Viscount (a Royal Court official), who would need to be provided with a copy of the draft application before it is filed. However, it would be unlikely to be necessary for the Viscount to be formally convened to attend the hearing, unless the Viscount specifically requests this following his review of the draft application. The Viscount would typically seek confirmation that Jerseyco has no creditors in Jersey that would be prejudiced by the commencement of English administration (as opposed to Jersey insolvency proceedings, such as a désastre or a creditors' winding up).

The application to the Royal Court would be made on behalf of Jerseyco or a creditor by way of a representation (the formal court document) supported by affidavit evidence. There would be a hearing of the application which would be conducted by a Jersey advocate. The Royal Court would expect supporting affidavit evidence to be provided by the directors of Jerseyco, creditors and/or the proposed administrators, in addition to (or exhibiting) the following:

  1. a valuation showing Jerseyco's insolvency according to the cashflow and/or balance sheet tests, and valuing Jerseyco's assets on the basis that an administration order would be made (or if not made, on the basis that Jerseyco would be subject to a désastre or a creditors' winding up);
  2. a draft letter of request in a form acceptable to the Royal Court as well as the English court; and
  3. an opinion from English counsel that:
  1. the English court would receive the letter of request in the form drafted;
  2. receipt of the letter of request would enable the English court to consider whether to make an administration order; and
  3. on the basis of the material available to English counsel, the English court would be likely to make the administration order.

In deciding whether to grant the application for the letter of request, the Royal Court would consider a number of factors. Some of the factors that have been considered by the Royal Court to be persuasive in decided cases in this area include:

  1. the insolvency of Jerseyco on a cashflow basis (as this is the test to be applied for the commencement of a désastre or a creditors' winding up);
  2. if the management and economic activities of Jerseyco are primarily undertaken in England (although the EU Regulation on Insolvency Proceedings does not apply in Jersey, the Royal Court may still have regard to the concept of centre of main interests);
  3. if granting the application would be in the best interests of Jerseyco and its creditors, such as to achieve a better realisation for Jerseyco's creditors as a whole;
  4. whether an administration order would facilitate a sale of Jerseyco's business or a postponed sale of the assets of Jerseyco to achieve greater sale proceeds, thereby resulting in a better realisation for creditors than the sale of Jerseyco's assets for break-up value in a désastre or a creditors' winding up (In re O.T. Computers Ltd 2002/29 (31 January 2002); Representation of The Governor and Company of the Bank of Ireland [2009] JRC 126);
  5. whether there would be any duplication of costs resulting from potentially concurrent insolvency proceedings in England and Jersey (as in the case of In the matter of O.T. Computers Ltd (in administration) [2004] JRC 013);
  6. whether the assets of Jerseyco are primarily situated in England (as in the case of Representation by Doltable Ltd [2005] JRC 038A); and
  7. that the powers available to English administrators are much wider than those of receivers, allowing them to do anything necessary or expedient for the management of the affairs, business and property of Jerseyco (as in the case of Representation of Anglo Irish Asset Finance [2010] JRC 087).

If the Royal Court is satisfied of the following key factors, the application for the letter of request would be likely to succeed:

  1. Jerseyco is insolvent on a cashflow basis;
  2. granting the application would be in the best interests of Jerseyco and its creditors as a whole (and not prejudice a particular class of creditors); and
  3. the English court would be likely to make the administration order.

Although we do not advise on English law, we understand that, in deciding whether to make the administration order, the English court would consider, among other factors, whether administration would be likely to achieveits statutory purpose under the UK Insolvency Act 1986, i.e. rescuing the company as a going concern, achieving a better result for creditors as a whole than a winding up and/or realising property in order to make a distribution to secured or preferential creditors.

Jersey Recognition of Foreign Insolvency Proceedings

There have been a number of cases in which Jersey companies have become subject to foreign insolvency proceedings which have been recognised in Jersey. Article 49 of the Bankruptcy (Désastre) (Jersey) Law 1990 provides that the Royal Court may, to the extent it thinks fit, assist the courts of prescribed jurisdictions (including the United Kingdom, Guernsey, the Isle of Man, Finland and Australia) in all matters relating to the insolvency of a person, and when doing so:

  1. may have regard, to the extent it considers appropriate, to the UNCITRAL Model Law on Cross Border Insolvency; and
  2. shall have regard in particular to the rules of private international law.

Article 49(2) provides that a request from a court of a prescribed jurisdiction for assistance (i.e. a letter of request) shall be sufficient authority for the Royal Court to exercise any jurisdiction which it or the requesting court could otherwise exercise in relation to the matters to which the request relates. The Royal Court also has an inherent customary/common law jurisdiction to consider applications based on letters of request from the courts of non-prescribed jurisdictions.

It is advisable for foreign insolvency officeholders (including administrators, administrative receivers, receivers and liquidators) appointed in respect of Jersey companies to obtain recognition in Jersey where they need to deal with Jersey assets or take other steps in Jersey. The usual and recommended procedure for foreign insolvency officeholders to obtain recognition in Jersey is an application to the Royal Court supported by a letter of request from the foreign court. The Royal Court would be likely to recognise the appointment of a foreign insolvency officeholder where there is a valid connection between the debtor and the laws of the jurisdiction of the insolvency proceedings (e.g. based on the management and/or assets of the Jersey company being in the relevant foreign jurisdiction). In such circumstances, the Royal Court would be likely to assist the foreign insolvency officeholder, for example by endorsing and registering their appointment in Jersey or by appointing and empowering the Viscount to provide appropriate assistance to the foreign insolvency officeholder.

As with applications for the issue of a letter of request (as described above), procedurally it would be necessary to inform the Viscount in advance of an application for recognition of a foreign insolvency officeholder and provide him with advance copies of the application and supporting documentation (Application of Andrew Dick, Trustee in Bankruptcy JU (2002/15); Practice Direction 05/17 - Applications for Aid in Bankruptcy and Insolvency matters).

Future Developments

In the current economic climate, we are likely to see an increasing number of Jersey companies being put into English administration, particularly where the intention is to rescue the company as a going concern rather than having an insolvent liquidation. In circumstances where, for example, there has been a breach of the loan to value ratio or other events of default under the transaction documents, allowing the company to continue to trade with the benefit of an administration moratorium (preventing creditors enforcing their security or other rights) may result in a better realisation for creditors in the long run.

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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