Jersey: Vultures Forced To Hunt Elsewhere – The Changing World Of Distressed Debt

Last Updated: 6 August 2012
Article by Gillian Robinson

Distressed debt or special situation funds, otherwise known as vulture funds, are once again being scrutinised by the courts, the media and the legislature in many parts of the world.

These are private equity or hedge funds which invest in debt, often owned by sovereign states, which are, or are about to be, in default and which then take steps to affect recovery. If an individual company becomes insolvent, most countries have domestic laws which compulsorily apply an insolvency scheme to all creditors who then bear a proportionate part of the loss, subject to any security they might have. There is no equivalent global scheme which applies to debts owned by countries or sovereign states. Thus if one creditor, or its assign, invests the time and money to recover these sovereign debts, it does so in preference to the other creditors.

The 1996 Heavily Indebted Poor Countries Initiative ("HIPC") aimed to ensure that no "poor" country faced debts which it could not manage. The IMF and the World Bank calculated the proportionate reduction required in a country's external debts in order to return to them 150% of the value of the country's annual exports. There are currently 40 eligible or potentially eligible countries in the HIPC Initiative, many of which are on the African continent. On a voluntary basis, members of the Paris Club and certain multilateral institutions cancel their debt in a commonly agreed manner.

The UK went further and introduced the Debt Relief (Developing Countries) Act 2010 (the "Act"), and in doing so is the only jurisdiction in the world to have enacted such legislation. It came into force on 8 June 2010, originally with a "sunset clause" which meant it was only in force for a year. However, it has subsequently been made permanent. The Act seeks to limit the proportion of debts owed by an HIPC, which a commercial creditor can claim through the UK courts by reference to the criteria established by the International Monetary Fund and the World Bank. It also actively seeks to encourage HIPC governments to negotiate solutions for these debt issues.

The Act does not apply in Jersey and currently there is no equivalent legislation in the Island. It is for that reason that a New York fund established under the laws of Delaware, FG Hemisphere Associates LLC was able to bring proceedings in the Royal Court of Jersey against The Democratic Republic of Congo ("DRC"), La Général des Carrières et des Mines ("Gécamines") and Groupement pour le Traitement du Terril de Lubumbashi Limited ("GTL").

Default on Payments

In the 1980s a Yugoslav company, constructed and extended credit for the funding of a hydroelectricity facility and electric transmission lines in the DRC. Both the DRC and a state owned electricity company defaulted on the payments under the credit agreements and so the matter was referred to a contractually agreed arbitration before the International Chamber of Commerce. The DRC did not participate in the process although the electricity company did, and in 2003 awards were made against both entities. The benefit of those awards was then assigned to FG Hemisphere which took steps in various jurisdictions – Belgium, Bermuda, South Africa and Hong Kong - to enforce them.

Over US$100,000,000 was still outstanding together with daily accruing interest when FG Hemisphere commenced the Jersey proceedings. As well as suing DRC, it sued Gécamines, a DRC state owned mining company, and GTL, a joint venture company incorporated in Jersey. Gécamines was one of the partners, the others being two Dutch and Luxembourg companies. The object of the joint venture was the commercial exploitation of cobaltrich slag produced by Gécamines from its operations in DRC. This resulted in considerable income for Gécamines from GTL.

Leave to Enforce the Awards

Thus, the purpose of the Jersey proceedings was for FG Hemisphere to obtain leave to enforce the awards (under the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958) as a judgment against DRC and Gécamines, and to execute any such judgment against the assets of Gécamines in Jersey. The Royal Court gave leave and granted a freezing order which prevented GTL from making certain payments in respect of the slag production to DRC and Gécamines, and gave leave to enforce the awards against Gécamines' shares in GTL. The latter two appealed and the Court of Appeal gave judgment on 14 July 2011. The appeal by Gécamines was refused subject to one point relating to interest. Gécamines was found to be an organ of the DRC and thus liable for its debts. GTL's appeal as to the nature of the freezing order granted was also refused. A further appeal is however pending to the Privy Council.

In September 2011, shortly following Jersey's Court of Appeal judgment, the States of Jersey issued a Green Paper. The consultation paper asks whether Jersey should enact legislation equivalent to the UK Act, and if so whether the same benchmarks and other criteria (e.g. the list of countries involved) should be different from the UK. It notes that "Jersey is, in myriad ways, a jurisdiction different from that of the UK, not least in its commercial, fiscal and international profile". The authors of the Green Paper seem to consider that there is a dilemma: "It will be necessary both to preserve Jersey's commercial reputation as a jurisdiction which honours and enforces the sanctity of contractual relations and to maintain Jersey's political reputation as a transparent well regulated and respected international finance centre". The closing date for the consultation was 8 December 2011.

Interestingly, Guernsey issued a HPIC Initiative consultation paper in August 2011, even though it had not seen the same type of litigation as Jersey. Guernsey's Policy Council has already agreed that a report should be prepared recommending the enactment of legislation to prevent vulture funds operating through the Guernsey courts, with the aim being to bring proposals before Guernsey's Parliament at the earliest possible opportunity. The policy makers in Guernsey did not seem to perceive there to be the same type of dilemma as Jersey.

It is also of note that countries such as France and the United States have considered and rejected legislation of this nature. Belgium has a law promulgated in 2008 which provides limited protection to low income countries by ensuring that Belgian development loans cannot be seized or transferred, but it would appear that non legislative action is a more popular way of dealing with this issue.

Whether it is through voluntary initiatives brought about by the World Bank or by legislation in jurisdictions which follow the UK's lead, it appears that distressed debt funds may increasingly be limited to debts owed by companies or by non HIPC sovereign states. However, given the turmoil caused by the ongoing Euro zone crisis just as some doors may shut, so may others open.

This article first appeared in The Hedgefund Journal published in April 2012.

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

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

In association with
Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
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
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.