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, August 2018

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
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
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
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions