Originally published in Resolution - Winter 2011/12
Jersey is seeing an increasing number of applications to the Royal Court by liquidators and those seeking to wind up insolvent Jersey companies. This article looks at what is to be learnt from three such applications.
The first (Re Charles Le Quesne (1956) Limited  JRC 155) was an application by two directors of that company to wind it up under Article 155 of the Companies (Jersey) Law 1991 as amended ("the Companies Law") on the basis that it was just and equitable to do so. There is a growing use of this jurisdiction in Jersey, given that the Island (unlike neighbouring Guernsey) has no system of administration or equivalent.
In this case, the company was a long established building contractor in the Island. It had two ongoing contracts: one for the construction of certain new facilities at a school, the other for the refurbishment of an estate of publicly owned houses.
Although the company had new purchasers in April 2011, its cash flow position was such that without a cash injection, it would be unable to meet its debts and hence would be insolvent. Its liabilities were over £1 million, and its assets were quite limited. However, if it were able to complete its two contracts, it would be able to make a profit of some £400,000.
It was proposed that two liquidators be appointed and they would be authorised by the court to complete the two contracts. The purchasers would also provide an immediate cash injection by way of an unsecured loan and would cover the costs of the liquidation.
The alternative was to place the company en désastre under the Bankruptcy Désastre (Jersey) Law 1990, whereby the court's executive officer, the Viscount, would be appointed to collect in the company's assets and distribute them to creditors, or a creditors' winding up under the Companies Law. In either case, the company would have to cease business immediately, would be unable to complete the contracts and make any profit from them, and the creditors would receive very little by way of dividend.
In considering the matter, the court noted that the usual way of dealing with insolvent companies in Jersey was by way of creditors' winding up. This enabled the creditors, through the medium of a creditors' committee, to choose a liquidator and to supervise the conduct of a liquidation. However, in certain cases, the court may be persuaded that there was an advantage to winding up under the just and equitable ground. The court was of the view that this was such a case as without it, the opportunity for the company to make some £400,000 to pay off the creditors could be lost and they would accordingly be worse off. The court did, however, provide that notice of the decision should be given forthwith to all the creditors and they had liberty to apply to set aside the court order and convert the procedure to a désastre or a creditors' winding up.
Creditors' Winding Up
The second case was an application by the joint liquidators of two Jersey companies, Corebits Services Limited and Zoombits Limited  JRC 166, which had been involved in the fulfilment industry. Both were the subject of a creditors' winding up. The liquidators wished to pool the assets and liabilities of the two companies in order to treat them as if the companies were a single entity, on the grounds that the way the companies traded would make it disproportionately expensive to work out the assets and liabilities of the companies individually.
Such cost was said to be in the region of £100-200,000 and the court was convinced that it was not in the interests of the companies' creditors for there to be such expenditure as it would diminish the assets available to them. The court, however, had to consider whether it had the jurisdiction to make such an order, as it had never before been asked to do so in the context of a creditors' winding up.
The court noted that in the case of Royco Investment Company Limited  JLR 236, in the context of a désastre, that a pooling arrangement had been approved. Also, in England, a pooling arrangement was approved on a liquidators' application in Re BCCI SA (No3)  BCLC 1490 as explained by Nicholls V-C:
"The pooling arrangements are not conditional upon acceptance by creditors ... I am satisfied that the affairs of BCCI SA and BCCI Overseas are so hopelessly intertwined that a pooling of their assets ... is the only sensible way to proceed. It would make no sense to spend vast sums of money and much time in trying to disentangle and unravel."
The court noted the provision of the Companies Law (Article 186A), which enabled a liquidator in a creditors' winding up to apply to court in effect for directions. The court may in that case exercise all or any of the powers that would have been exercisable by it or the Viscount if the company had been declared en désastre. Thus, the court considered that it did have the necessary powers. The court held that the creditors did not need to be convened – they had been fully notified of what was proposed and given the opportunity of objecting, which they had not.
The last case concerned Centurion Management Services Limited  JRC 134 and other companies in that group, which again had been wound up on the just and equitable ground. The application concerned the disposal of records by the liquidator following the companies' dissolution. The companies had very substantial records as the group had conducted trust company business, thus had records relating both to itself and its clients.
The liquidators had a retention which would cover their fees but leave little over and not enough to pay for the storage of the documents. The liquidators proposed to pay for the storage and seek contributions from various stakeholders, but if that failed, altruistically, they would waive their fees. The court described such approach as "public spirited" but "wrong in principle and undesirable as a precedent".
Instead, the court "judicially encouraged" the new service providers to accept the records relating to their clients. Insofar as they were not accepted, or there were other records, the liquidators could destroy them having given the Jersey Financial Services Commission 21 days prior notice of their intention of doing so, thus allowing it to order retention if in its discretion it determined to do so.
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.