Jersey: Appointment By The Jersey Court Of Foreign Receivers As Managers Of A Jersey Company

Last Updated: 8 January 2014
Article by Bruce Lincoln and Tom Sowman

Introduction

This briefing concerns the latest judgment in the Ablyazov matter following a third application brought by English court appointed Receivers, in which the Jersey Royal Court held that it had jurisdiction to appoint the Receivers (whose appointment had been recognised by the Jersey Court in an earlier judgment) as managers of a Jersey company. Furthermore, upon their appointment the powers of the Jersey resident directors of that company were suspended, thereby allowing the Receivers to properly gain control of the company's affairs without interference from the directors.

Background Facts

In August 2009 proceedings were commenced against Mr Ablyazov in the English High Court. The proceedings were brought by JSC BTA Bank which is incorporated in Kazakhstan. The claim was in excess of US$1.8bn, but could eventually exceed US$4bn. On 6 August 2009 an order was made in the High Court (the Receivership Order) appointing the Receivers in respect of certain assets of Mr Ablyazov. The Receivership Order was later extended on two occasions.

One of the companies covered by the extension of the receivership order was Eurasia Logistics Limited (Eurasia), a Jersey company with Jersey resident directors (the Directors).

In 2011 the Receivers sought the Jersey Court's recognition of their appointment as receivers, which was duly granted (see In the Matter of the Assets of Ablyazov [2012] (1) JLR 44). In that judgment, the Jersey Court concluded that it had an inherent jurisdiction to recognise foreign court appointed receivers provided that there is a sufficient connection between the defendant, whose assets have been made the subject of a receivership order, and the jurisdiction in which the order has been made. However, the Jersey Court refused to grant the Receivers' request to be given the power to require any person in Jersey to attend upon them to provide information about the assets of Mr Ablyazov, and that any person who refused to do so would be in contempt of court, on the basis that such an order would neither be necessary nor appropriate in the particular circumstances.

Upon a subsequent application, the Jersey Court ruled that "the order of the Royal Court (of 30 November 2011) entitles the receivers to demand information about the assets subject to the receivership order" (see David Standish, John Milsom and Jeremy Outen v Eurasia Logistics Limited and Nautilus Trust Company Limited [2012] JRC 072).

In their latest application to the Jersey Court, the Receivers brought to its attention various changes made to the original Receivership Order. The terms of the Jersey Court's initial order in 2011 had made it clear that any further order of the English High Court and/or amendment of the Receivership Order which had the result of the Receivers being appointed as receivers of other assets not subject to the original order, would require a further order of the Jersey Court before it could be acted upon in Jersey.

On 17 May 2013 the Receivership Order had been amended by the English Court to state, amongst other things:

"The receivers shall also be appointed as managers of...Eurasia Logistics Limited... The said appointment shall, upon recognition of this order in the jurisdiction of the incorporation of the said companies, suspend the powers of the directors of those companies (such powers to be assumed by the receivers or persons acting on their instructions) save insofar as (i) any director thereof is authorised by the receivers... to exercise any of those powers..."

Position of the Receivers and the question before the Jersey Court

The Receivers argued, in putting forward the application for recognition by the Jersey Court of the amendments to the Receivership Order, that it was necessary to ensure the Receivers were able to act as managers of Eurasia so that two highly valuable properties in Russia could be secured. The Receivers pointed to the fact that the appointment of a manager in English law causes the directors' powers to cease, but the mere appointment of a receiver would not do so. The appointment of a manager would therefore allow more positive managerial steps to be taken in respect of Eurasia and its assets.

There were two questions before the Jersey Court as a result of this latest application:

a. Whether, in a domestic context, the Jersey Court has jurisdiction to appoint a manager who would assume the powers of the directors of the company concerned; and

b. What the effect of recognition of the appointment of managers for a company incorporated in Jersey would be in circumstances where there are currently Jersey resident directors of that company.

Approach of the Jersey Court

Appointment of a Manager

In respect of the first question, the Jersey Court found that it did have jurisdiction, applying the Jersey conflict of laws principles, to appoint a manager of a Jersey company, supplanting the powers of directors in an appropriate case. The Jersey Court further noted that, following the earlier decision in Ablyazov [2012] (1) JLR 44, the absence of a domestic equivalent is not a bar to the recognition of a foreign appointee. The Jersey Court's conclusion was based on the following:

a. The fact that the Jersey legislature has recognised certain circumstances when it is necessary for persons to be appointed to manage the affairs of a company and for the directors' powers to be removed;

b. An acceptance by the Jersey Court that it has an inherent jurisdiction to make an order for the appointment of a manager as part of the Court's armoury to ensure that its orders are complied with;

c. Given that the Jersey Court had already found that it had the power to recognise the appointment of a receiver (such receiver having been appointed initially in England), this power of appointment should similarly extend to recognise the appointment of a manager; and

d. Although not having been addressed on it, the Jersey Court stated that it may have jurisdiction to recognise the appointment of the receivers as managers pursuant to Article 9 of the Judgments (Reciprocal Enforcement) (Jersey) Law 1960.

Effect of Appointment of Manager

The Jersey Court concluded that it would be unthinkable for the Receivers to be appointed as managers over Eurasia and face the theoretical possibility of a running battle with the Directors of that company as to who had control of its affairs. The Jersey Court added that the necessary consequence of recognising the amendments to the Receivership Order which conferred managerial powers on the Receivers, was that the powers of the Directors should be suspended, and further ordered that managerial powers should only be assumed by the Receivers or other persons acting on the instructions of the Receivers. The Directors would only have authority to continue to act if so authorised by the Receivers in writing.

In a nutshell, if the Jersey Court was not prepared to suspend the powers of the Directors, it would not have been right to recognise the appointment of the Receivers as managers. The Royal Court found that this was an issue that went to discretion and not jurisdiction, and in all the circumstances the recognition of the Receivers as managers was the appropriate conservatory course.

Conclusion

In the absence of any defining domestic legislation in relation to: (i) the appointment of a manager in these particular circumstances; and (ii) the effect that appointment would have on the Directors, the Jersey Court has taken a practical approach based on common sense. Once the Jersey Court had gone through the steps to find that it had the power to appoint the Receivers as manager, it took the only practical decision it could in ordering that the powers of the Directors be suspended thereby allowing the managers to take proper control of Eurasia's affairs.

However, the Jersey Court does appear to have left open the door to a contrary finding in the future under different circumstances by emphasising that this question goes to discretion and not jurisdiction. That said, the Jersey Court will be naturally inclined to offer assistance to foreign courts whenever it can properly do so and where it is satisfied that there exists an appropriate connection between the parties involved and the foreign court.

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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