Jersey: Cross Border Insolvency – Putting Jersey Companies Into English Administration?

Last Updated: 3 February 2009
Article by Wendy Benjamin

Jersey has its own distinct insolvency procedures, the most important of which for companies are creditors winding up and désastre (bankruptcy). A creditors winding up is not instigated by creditors – it is the insolvent company which initiates this non-court procedure and so it is more akin to a voluntary winding up in the United Kingdom. Instead creditors have to apply to the Royal Courts of Jersey to have the company declared "en désastre". This is a liquidation process driven by a court officer, the Viscount, who acts rather like the Official Receiver in the United Kingdom.

In either case the inevitable result is the realisation of the insolvent company's assets and the distribution of the cash proceeds amongst creditors in line with the order of priorities set out in statute, followed by dissolution. Although both Jersey procedures have some flexibility, they do not necessarily provide the same level of flexibility offered in practice by English administration under the English section 426 Insolvency Act 1986. There is no equivalent administration process in Jersey.

However, the Jersey courts have been willing to facilitate the use of English administration for some Jersey companies whose economic activities are mainly outside Jersey where that might achieve the best possible outcome for creditors and the greatest opportunity for salvaging the underlying business. The United Nations Commission on International Trade Law (UNICITRAL) model law on cross border insolvency has been influential in that regard although its application in Jersey is limited as discussed below.

Letter Of Request

To put a Jersey company into English administration, an application must be made for a letter of request from the Royal Court of Jersey to an English Court. There is no statutory procedure. The application is made to the Royal Court under its inherent jurisdiction following local authorities. It is, therefore, a discretionary remedy. The application is instigated by "representation" which is made by a Jersey advocate on behalf of the applicant. The representation summarises the background and reasons for the application and it details the orders sought from the court including the form of the letter of request.

The representation is supported by affidavits. These may perhaps be sworn by a director of the insolvent company, representatives of any security trustee or senior creditors and accountants. The affidavits need to cover the nature and location of the company's economic activities, any financial/security arrangements, the location of creditors, the reasons for the application and the expected results of administration. Critically they need to show why local alternatives such as désastre and creditors winding up would not be as beneficial to creditors, shareholders and the insolvent company as an English administration. Reasons may include, for example, maximizing the realisation of value for creditors, the sale of the insolvent company or its group as a going concern, the avoidance of duplication of costs and the ease of co-ordination with other jurisdictions through the administration process. The affidavits should also exhibit English counsel's expert opinion on the receipt of the letter of request by English courts, and the availability and likelihood of administration in the UK amongst other documents and reports such as valuation reports.

Authorities

The representation is submitted with a skeleton argument detailing the relevant authorities which in Jersey include the cases of In Re OT Computers Limited 31 Jan 2002 and 19 January 2004 and In Re Doltable Ltd 4 April 2005. English and other authorities may also be helpful.

When giving statutory assistance to the courts of certain specified countries (including the United Kingdom), the Jersey courts may have regard to the UNCITRAL model law on cross border insolvency under Article 49 of our Bankruptcy (Désastre) (Jersey) Law 1990. The UNCITRAL model law does not have more general application in Jersey. However, by analogy the courts may wish to have regard to it for outgoing letters of request (as occurred in re OT Computers Limited). Also the EC Regulation on Insolvency Proceedings does not have application in Jersey although the courts may still have regard to the concept of centre of main interest.

Hearing

The views of the Viscount should be sought well before the hearing (as to content, format and ambit of application) by analogy with Practice Direction RC05/17 for incoming letters of request. The Viscount may be given notice and asked to attend the hearing to express agreement that the application is in the interests of creditors generally and that he has no objection to the application.

The Royal Court hearing is held in front of a judge (Bailiff or Deputy Bailiff) and two jurats who are the arbiters of fact. The Jersey advocate presents the representation. English counsel may wish to be in attendance but has no rights of audience.

The application may be made "ex parte". This means that full and frank disclosure must be made to the court i.e. outlining any possible arguments as to why the letter of request should not be issued. Also the proceedings may be held in camera in the interests of justice pending the English administration. Once any order for administration has been made in England, any Jersey judgment is likely to be made public.

This article first appeared in the winter 2008/09 issue of Appleby Jersey's Finance newsletter.

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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