Introduction
With most economies on the edge of, or else in recession, the number of insolvency proceedings in a number of jurisdictions, will undoubtedly increase. Jersey will be no exception, not only with regard to local businesses facing difficulties, but also with regard to Jersey entities that form part of broader financial structures.
There have been two recent Jersey decisions concerning the provisions of the Companies (Jersey) Law 1991 (as amended) (the "Law") relating to winding up on just and equitable grounds, which might become a fertile area involving court appointed liquidators in Jersey given current economic conditions.
Just and equitable winding up
Article 155 of the Law provides that the Royal Court can order that a Jersey company be wound up on just and equitable grounds. In the Matter of Belgravia [2008] JRC161 (23 September 2008) and Bisson v Bish & Others [2008] JRC193 (11 November 2008) confirm the basis on which the Royal Court will exercise the jurisdiction. In short, both decisions demonstrate that the Royal Court will in broad terms follow English principles and authority (the respective statutory provisions being similar), some of which has been considered in previous Royal Court decisions.
The need for an investigation
Belgravia involved an application by three Jersey companies which had various roles within a regulated collective investment fund structure. The Belgravia group (ultimately held by Barclays Private Bank and Trust Limited ("Barclays") as trustee of a Jersey law trust) had been under regulatory scrutiny by the Jersey Financial Services Commission ("JFSC"). Various directions had been issued by the JFSC in relation to Belgravia ultimately resulting in (amongst other things) a suspension of subscriptions and redemptions into the respective Belgravia managed funds. Barclays had appointed Deloitte & Touche LLP to investigate the financial position of the Belgravia entities. Deloitte's report concluded that, in part, the Belgravia group was insolvent. That, combined with fears of shares being issued that would dilute Barclays' holding, further raised the levels of concern at Barclays and the JFSC - both were of the view that a full investigation into Belgravia's affairs was required.
In considering the application (made by Barclays but in the name of the Belgravia entities by representation), the Royal Court referred to earlier decisions where it had held that the approach to the circumstances in which Article 155 would be applied was to be flexible. The Court identified the available routes in Jersey law for winding up the Belgravia companies - a creditors' winding up (which would require a shareholders' resolution); a declaration en désastre; or a just and equitable winding up. Reasons in support of the just and equitable winding up advanced by Barclays included the need for an investigation (being a recognised category in England for the exercise of the just and equitable jurisdiction), the flexibility of the procedure as compared to a désastre (particularly where certain subsidiaries were not insolvent); and the importance of the choice of liquidator - in a creditors' winding up it is an appointment by creditors or shareholders¹; in a désastre the Viscount acts; and in a just and equitable winding up the Court appoints a liquidator. The Court in this case had no hesitation in granting the order and appointing two Deloitte representatives as liquidators.
Deadlock
Bisson concerned a company in deadlock. The three shareholders accepted that there had been a complete breakdown of mutual trust and confidence between them (two of whom also served as directors) with allegations of impropriety being made on both sides. Whilst the application for a just and equitable winding up by the largest shareholder was supported by the other shareholders, the Court first considered whether a voluntary winding up was the correct route. In granting the order sought, the Court accepted, based on earlier Jersey2 authority (which had followed English decisions) that deadlock could be sufficient ground to order a winding up on just and equitable grounds and that, on the facts, the requisite degree was shown to exist. The Court referred to some of the categories of circumstances that had been accepted by the court previously (eg, the stratum of the company has gone3; the need for an investigation4). The Court also noted that grounds existed to grant the order on the basis that the alternative routes of a voluntary or a creditors winding up both required a degree of agreement (a directors' statement in a voluntary winding up or forming and acting as a liquidator's committee in a creditors' winding up) which would not be forthcoming given the degree of acrimony between the parties. Representatives of Begbies Traynor were appointed to act as liquidators, with various orders made as to how the winding up was to proceed.
Who can act as liquidator?
In Bisson there had been a time when it was not clear who would act as liquidator. As a consequence, the Viscount had been convened to the proceedings by the Court with the possibility of him being appointed. The Viscount submitted that there was no legal basis for his appointment as a liquidator in a just and equitable winding up and that, in any event, he did not wish to take the appointment. The Viscount submitted that by reason of Article 7 of the Companies (General Provisions) (Jersey) Order 2002, he could only accept an appointment as a liquidator under a creditors' winding up5. Article 7 provides that for a public company or one being wound up as a creditors' winding up, only the Viscount or else persons who are members of the respective Institutes of Chartered Accountants in England, Wales, Scotland or Ireland or of the Association of Chartered Certified Accounts can be appointed as liquidator.
The Court did not have to decide the issue in Bisson due to the agreement to appoint the representatives of Begbies Traynor but the Viscount's submissions do highlight the issue of who can or would want to be appointed to wind up the affairs of a Jersey company in Jersey. The Viscount is responsible for administering désastres in Jersey (whether personal or corporate) as the debtor's property is vested in him as a matter of law once the declaration is made6. Whilst (subject to funding) the Viscount can engage professional accountancy assistance in circumstances where he is appointed (whether under a désastre or other Court ordered proceedings) it is apparent that the Viscount did not wish to see his already onerous case load increased further.
The future of Court appointments
With the increase in corporate winding ups, many of which are likely to involve (as in the case of Belgravia) complex and specialised financial structures, there will be a corresponding increase in appointments of liquidators. It is noteworthy that the Royal Court continues to be willing to exercise the just and equitable jurisdiction to appoint experienced professionals to take on appointments as liquidators. Obviously the jurisdiction to grant such relief is not unlimited and would not typically be available to creditors, for whom désastre proceedings remain the obvious route. It will be a matter for the legislature to consider whether, in the current economic climate, the legislative framework in Jersey is likely to swamp the Viscount with unmanageable levels of appointments if there is a dramatic rise in the numbers of désastre proceedings.
As a postscript, in August 2008 in its decision In the Matter of the IMK Family Trust7 the Royal Court appointed for the first time receivers in respect of a Jersey trust, holding that it had an inherent jurisdiction so to do; the receivers were representatives of KPMG. That decision has been upheld on appeal by the Court of Appeal8. It will be interesting to see to what extent that jurisdiction will be exercised in the future.
Footnotes
1. However, Article 175(1) of the Companies (Jersey) Law 1991 provides that the Court can appoint a liquidator in a creditors' winding up if no liquidator is acting; see also Re Fontayne and Fenbury Limited Unreported, 19 September 1996
2. Jean v Murfitt, Murco Overseas Limited and the Viscount [1996] JLR N8c
3. Re Leveraged Income Fund Limited 2002/209 31 October 2001
4. In the Matter of Belgravia
5. Ie under Part 21, Chapter 4 of the Law
6. Article 8 Bankruptcy (Désastre) (Jersey) Law 1990
7. [2008] JRC136 (15 August 2008)
8. [2008] JCA196 (19 November 2008)
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.
