Jersey: What The First Jersey Insolvency Case Of Its Kind In 40 Years Means For The "Back Door" To English Administration

Last Updated: 29 March 2017
Article by Nicola Roberts and Leon Hurd

Most Read Contributor in Jersey, October 2017

In a recent trilogy of decisions concerning the high profile insolvency of Jersey company Orb a.r.l (Orb) and its sole shareholder Dr Gail Cochrane (Dr Cochrane), the Royal Court of Jersey has provided a clear endorsement of the capability of the Jersey insolvency regime to deal with complex cross-border insolvency matters.  We consider some of the salient points from the saga so far.

Taking the three decisions of the Royal Court in turn:

  1. In the Representation of Harbour Fund II LP [2016] JRC 171, the Royal Court declined an application by Orb's litigation funder, Harbour Fund (Harbour), to place Orb into English law administration.  On examination of the facts it did not consider there was any advantage of using English administration in favour of Désastre (i.e bankruptcy in Jersey), particularly in circumstances where there was no expressed desire to maintain Orb as a going concern (the First Proceedings).
  2. In Harbour Fund II LP v Orb a.r.l and others [2017] JRC 007, Harbour duly returned to the Royal Court to seek declarations en désastre of Orb and Dr Cochrane. Notwithstanding the potential scope and complexity of the two bankruptcies and the burden that would be imposed upon the Viscount and her department in respect of dealing with assets and actions around the world, the Royal Court declared both Orb and Dr Cochrane en désastre.   The Court stated it was important that Jersey, as a well-respected financial centre, discharged its responsibility for dealing with the affairs of a Jersey company and its own resident (the Second Proceedings).
  3. In the Representation of the Viscount [2017] JRC 025, the Viscount sought and was granted two Letters of Request to be issued by the Royal Court to the High Court of England and Wales requesting the assistance of the High Court  in accordance with Section 426 of the Insolvency Act 1986 in respect of each of the désastres of Orb and Dr Cochrane. The Letters of Request broadly sought the recognition of the Viscount in England with authority to exercise various powers to ascertain information about the assets of Orb and Dr Cochrane and to gather in relevant documents and to exercise various powers of investigation (the Third Proceedings).   The Letters of request are currently on their way to the English Courts.

Factual Background

In the Autumn of 2002 Orb underwent a corporate reorganisation and became the holding company of a group of companies with various interests in hotels, commercial and warehouse properties, transport and logistics businesses and venture and private capital. 

In or around late 2002, Dr Gerald Smith (Dr Smith), Dr Cochrane's former husband and the then  chief executive of Orb stole approximately £35 million from a company called Izodia in which Orb held approximately 30% of the shares and misapplied the majority of these monies to the benefit of Orb.  Following  investigations by the Serious Fraud Office Dr Smith faced criminal sanctions and by 2003 Izodia had issued proceedings   against Orb and Dr Smith for recovery of the stolen sums transferred from Izodia's bank account.  Following the discovery of the theft a substantial  proportion of Orb's assets were sold to a Mr Andrew Ruhan and companies owned or controlled by him.  In around 2004/5 Mr Ruhan settled the acquired assets into a complex structure ultimately owned by the trustee of an Isle of Man Settlement.

In 2006, Dr Smith pleaded guilty to a number of charges relating to the theft and was sentenced to 8 years in prison.  In 2007, a £41 million confiscation order was made against him in England.

Following Dr Smith's release from prison in 2012 Orb and others instituted proceedings against Mr Ruhan in England alleging there had been an oral agreement that Orb would share in the profits made from the sale/development of certain of its assets and that Mr Ruhan had concealed/or sold the assets for his own benefit and failed to  account to Orb for its share of the profits as agreed.  To ensure Dr Smith continued to assist Orb in the proceedings, Orb together with its joint claimants agreed with Dr Smith that in return for his cooperation they would transfer to him 50% of any sums recovered from Mr Ruhan up to the amount of the confiscation order. 

A final complexity worthy of note is that ancillary proceedings were commenced in Isle of Man in 2013 in respect of the assets under the Isle of Man Settlement, these proceedings were settled and the term of the settlement involved the transfer of the assets in the Isle of Man Settlement to Dr Cochrane in her personal capacity.  Mr Ruhan counterclaimed in the English proceedings, asserting that the Isle of Man settlement assets were beneficially owned by him and that the transfer of the assets to Dr Cochrane was a misappropriation.  Harbour is the litigation funder to Orb in respect of the English proceedings under the terms of a funding agreement which provided it with security over all of Orb's assets and a guarantee of Orb's liabilities by Dr Cochrane. 

Lessons from the saga so far

  • Must carefully consider connections to England and ask whether there is "any advantage to English administration"

In the First Proceedings, the Royal Court found that  there was no advantage to using English administration in favour of  désastre.  Further,  it did not accept that Orb  had substantial connections with England.

Although evidence from an English accountancy firm identified some properties in London it was deemed unclear as to whether Orb had an interest in these properties, further the majority of assets listed by the accountant were situated outside England and Wales.  Accordingly, the Royal Court held that initiating the English administration process over a Jersey company that had no substantial connection to England was unjustified.

The court made its finding despite the fact that Orb satisfied all of the established criteria for placing a Jersey company into English law administration, namely:  undisputed insolvency, a liquidated claim against it by Harbour,  UK assets  and an opinion of English Counsel confirming that the application for administration would be likely to succeed. 

The Royal Court has put a clear marker down that going forward it will be closely examining whether, in substance, a company has a close connection with England when considering whether English law administration is appropriate for a Jersey company.   It was also concerned about  allowing  an English administrator to exercise powers in Jersey that are not available under Jersey law to the Viscount, such as the power available to an administrator to keep the company trading as a going concern,  labelling it as being "administration by the back door."

  • The Royal Court will not easily permit any frustration of dé sastreproceedings

Prior to the Second Proceedings,  Harbour made formal demand on Orb for a liquidated sum of £5.2 million and a further disputed claim of £28 million.  As Orb was unable to pay, Harbour issued a formal demand to Dr Cochrane, as guarantor of Orb's debt.  The debt remained unpaid that therefore  Harbour issued the Second Proceedings and sought declarations en désastre of  both Dr Cochrane and Orb.

Two days prior to  the hearing, a claim was filed in the English courts by Dr Cochrane and Orb against Harbour for a sum of £73 million. Thereafter, Dr Cochrane and Orb instructed Jersey Advocates to assist with resisting Harbour's application for a declaration en désastre

The Royal Court refused to allow Dr Cochrane and Orb to frustrate the Jersey désastre process by engaging in English proceedings that it considered to be a 'last gasp' attempt to avoid bankruptcy and accordingly, refused to adjourn Harbour's application to declare Dr Cochrane and Orb en désastre.  Not impressed by the conduct of  Dr Cochrane and Orb The court concluded that the English proceedings did not represent a genuine claim.

  • the Royal Court will request, on behalf of the Viscount,  assistance from the English High Court

In the recent Third Proceedings, the Royal Court has given further support to the view that Jersey, as a well-respected financial centre, should discharge its responsibility for dealing with the affairs of Jersey resident company, and resident by granting an application by the Viscount (the official Insolvency officeholder of Jersey) for the issue by the Royal Court of letters of request, pursuant to which the Viscount sought recognition in England to administer the désastres of Dr Cochrane and Orb.   It is estimated that Dr Cochrane and Orb owe creditors the combined sum of £1.3 billion.

The court was prepared to make a wide request for assistance including asking the English court to authorise the Viscount to exercise such of her powers and functions as may be necessary, (including the power to intervene in and prosecute or defend or apply for a stay in various sets of proceedings currently before the English courts and to ascertain information and gather in relevant documents relating to assets of Dr Cochrane and/or Orb). If the request is accepted, it will be the first time that Jersey's Viscount has been recognised by the English High Court for nearly 40 years.

Comment

The trilogy of cases has provided a salutary reminder to the international insolvency community and to creditors of Jersey companies, that Jersey has a sophisticated insolvency regime which will be utilised in cross border insolvencies. It is not clear whether these decisions will buck the trend of placing Jersey companies into English law administration, but it certainly demonstrates that it cannot be assumed that the door to UK administration is always going to be open and  the court will closely examine the facts in order to determine whether English law administration is in fact suitable for a Jersey company in all the circumstances.

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
 
In association with
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
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (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 www.mondaq.com

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 Mondaq.com’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.

Disclaimer

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.

Registration

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 unsubscribe@mondaq.com 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.

Cookies

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.

Links

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.

Mail-A-Friend

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.

Emails

From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

Security

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 webmaster@mondaq.com.

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 EditorialAdvisor@mondaq.com.

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 enquiries@mondaq.com.

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