Jersey: In Re Arck Estrela Limited – Untangling A Fraudster's Web Of Trust And Corporate Structures

Carey Olsen continues to operate at the forefront of offshore asset recovery work and the development of insolvency law and process in Jersey.

In this case, the firm was instructed by the English liquidators of Arck LLP (in liquidation) to assist in the recovery of assets misappropriated from a large number of British investors and channelled through Jersey corporate and trust structures as part of a fraudulent collective investment scheme.

Arck LLP was an English Limited Liability Partnership used as a vehicle by Richard Clay and Kathryn Clark to defraud several hundred retail investors of close to £50 million on the bogus promises of substantial investment returns from offshore property investments. Clay was the driving force behind the fraud and was sentenced to 10 years and 10 months in prison by the English Crown Court following an investigation by the Serious Fraud Office, Financial Conduct Authority and other agencies, while Clark as a willing deputy was given a two year suspended sentence.

A substantial part of the LLP investors' money was funnelled through Jersey companies, purportedly to invest in tourism real estate assets in the Cape Verde Islands. The complex structure of corporate and trust vehicles put in place by the fraudsters stood between the UK liquidators and any chance of recovering any value. But Jersey lacks a creditor driven insolvency process which would have allowed the English liquidators of the LLP, as creditors with a claim of £27 million, to appoint a private law liquidator into the Jersey companies. A further complication was that all of the target Jersey companies had been dissolved by the Jersey Regulator having failed to file statutory returns.

The dissolved Arck Estrela Limited ("Estrela") was thought to be the asset holding entity. Assuming Estrela could be restored, the only available route into the assets was for the Court to appoint a liquidator using Art.155 of the Companies (Jersey) Law 1991, to wind up Estrela on the grounds it was just and equitable to do so.

While the LLP liquidators had sufficient standing to apply to restore the Jersey companies on existing principles, the Royal Court was reluctant to make the order without a plan to recover value for the creditors. Simply restoring the company to obtain a paper judgment was not sufficient as there would be no benefit to the creditors in the absence of identified assets within the jurisdiction. It was clear from the outset that the Royal Court would only restore Estrela if a mechanism could be ascertained to recover value by engaging the statutory investigatory and remedial powers of a liquidator.

Typically only the target Jersey company, its shareholders or directors can apply under Art.155 for a Court appointment of a liquidator into a Jersey company. The LLP's liquidators needed to become registered shareholders before making the application but the majority of Estrela's shares were held by other dissolved corporate entities or defunct offshore trusts.

The group's corporate records had been maintained by the Herald Trust group, which itself became defunct following investigations by the Jersey regulatory authorities. It was expected that the records were incomplete but a forensic examination hinted at a nascent trust benefitting Arck LLP created as the fraudsters tried to cut and run. The Royal Court had the option of undertaking a wholesale reconstruction of an insolvent corporate structure based on records which were likely to be incomplete, or recognising the establishment of a trust from indirect evidence comprising a chain of emails and an unexecuted trust instrument in respect of 5% of the shares in Arck.

The Court was persuaded that a trust existed in favour of the LLP which its liquidators could immediately dissolve on a Saunders v. Vautier basis to give them title to the shares. But title to the shares was not enough to give the LLP liquidators standing, as in the absence of any corporate governance Estrela's shareholders' register could not be updated. On a further application, this time made pursuant to the rarely employed Art.47 of the Companies (Jersey) Law 1991, the Court was persuaded that the LLP was entitled to be registered and ordered a rectification of the shareholders' register to reflect Arck LLP's legal ownership of the shares.

Having become registered shareholders the LLP liquidators applied for and were granted orders to wind up Estrela and appoint KPMG appointment takers as Jersey liquidators. By putting Estrela directly into a winding up process the potential for offences to be committed by failing to provide a registered office or complying with basic corporate governance were avoided.

In the course of various applications for Art.155 relief made by Carey Olsen Advocates since 2012, the terms of the local liquidators' appointment have been refined and tailored to provide a bespoke set of tools for the appointees tempered only by pragmatic compliance with the spirit of Jersey bankruptcy law to ensure appropriate judicial oversight of the just and equitable winding up process.

The Estrela application was made with the benefit of Carey Olsen's market leading experience of applications employing insolvency remedies to assist in asset tracing. This innovative approach enabled Carey Olsen to unscramble the fraudsters' opaque web of trust and corporate structures to get into the asset holding companies so as to facilitate the Court appointment of liquidators to investigate and recover value where they can.

Carey Olsen continues to act for the newly appointed liquidators, who are now conducting further investigations in the hope of securing assets and recovering value for the victims of this fraud.

The decisions of the Royal Court of Jersey are reported as In the Representation of Rendle & Butcher [2017] JRC 004 and [2017] JRC 042.

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
Events from this Firm
28 Nov 2017, Conference, London, UK

BVCA's tax, legal and regulatory conference takes place on 28 November 2017 at Savoy Place, London.

24 Jan 2018, Conference, St Peter Port, Guernsey

In association with the Guernsey Training Agency, we are pleased to offer a unique, interactive event that will explore the role of integrity in the modern employment relationship, with a particular focus on the financial services sector.

15 Mar 2018, Seminar, St Peter Port, Guernsey

We are once again sponsoring C5 Fraud, Asset Tracing & Recovery which is due to take place on 15-16 March 2018 (tbc) in Geneva.

 
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.