The Channel Islands of Guernsey and Jersey did not introduce emergency insolvency legislation as a result of the Covid-19 pandemic and do not presently have measures equivalent to those found in the UK's Corporate Insolvency and Governance Act, 2020 ("CIGA").
However, the High Court's consideration of whether so-called restructuring "super Schemes" under Part 26A of the Companies Act 2006 are "likely to be recognised in any key overseas jurisdictions which are material to its effectiveness" and, thus, whether they can be of "substantial effect in relevant jurisdictions outside England and Wales" is of particular interest offshore1 .
This Walkers' briefing addresses issues that may be relevant to the recognition of foreign insolvency officeholders and restructuring plans by the Royal Court of Guernsey and the Royal Court of Jersey (the "Royal Courts").
Recognition of foreign officeholders
Despite the close and historical ties to the UK, neither Guernsey nor Jersey has ever been part of the European Union and, as such, the EU Insolvency Regulation has not been a relevant factor in questions of recognition or mutual assistance. Notwithstanding the wide-ranging effects of Brexit, the UK's departure from the European Union has not affected the Channel Islands' approach to assisting foreign officeholders.
It should also be noted that the Channel Islands are not signatories to the UNCITRAL Model Cross-Border Insolvency Law (the "UN Model Law") nor any other recognised international insolvency regime.
In the United Kingdom, section 426 (4) of the Insolvency Act 1986 (the "UK Insolvency Act") requires UK courts to provide assistance to other UK courts or those from a "relevant country or territory" in matters relating to insolvency law. For the purposes of section 426, a "relevant country or territory" includes the Channel Islands and the Isle of Man2 .
Section 426 of the UK Insolvency Act has been extended to the Guernsey by virtue of the Insolvency Act 1986 (Guernsey) Order 1989. This means that the Royal Court is mandated to assist the courts of England and Wales, Scotland, Northern Ireland and the other Crown Dependencies in relation to relevant insolvency proceedings.
In Jersey, Article 49 of the Bankruptcy (Désastre) (Jersey) Law 1990 (the "Désastre Law") confers a discretionary power on the Royal Court to assist foreign courts of a "relevant country or territory" in matters relating to insolvency, and when doing so may have regard to the UN Model Law. The countries currently included within the definition of a "relevant country or territory" are3 :
- the Isle of Man;
- the United Kingdom; and
- the Republic of Ireland.
The countries so far prescribed are those which have, within their own domestic insolvency regimes, offered reciprocal treatment to Jersey.
The process for recognition in either jurisdiction is well-tested and relies upon i) a letter of request being issued to the relevant Royal Court by the external court and, thereafter ii) an application for an order giving effect to that request. Requests are granted at the discretion of the Royal Courts, including a discretion as to whether to apply local law or the law of the applicant jurisdiction, but they are, in practice, invariably granted unless considered to offend the Islands' public policy or if the outcome is deemed oppressive.
For jurisdictions that are unable to rely upon reciprocity under s426 of the UK Insolvency Act in Guernsey, officeholders will be reliant upon common law principles for recognition. That has involved satisfying the test derived from the English case of Schemmer and others vs Property Resources Ltd in order to demonstrate a "sufficient connection" between the relevant entity and the jurisdiction in which the foreign officeholder was appointed in order to justify recognition of the foreign court's order. In Jersey, as the Désastre Law is ancillary to (and therefore has not replaced) the customary or common law of désastre, the Royal Court retains an inherent jurisdiction to assist foreign courts from countries other than the six currently prescribed under Article 49. In such cases, the Royal Court will have regard to the principles of international comity and will ordinarily be willing to assist where there is a valid connection between the debtor and the law under which the insolvency occurred, particularly where there is evidence that the requesting court would grant such assistance to the Jersey court. It should be noted, however, that the inherent jurisdictions of the Royal Courts under the common law are discretionary. Parties may, however, expect the Royal Courts to exercise their discretion unless public policy or oppressive outcome concerns arise.
Following recognition under either regime, the Royal Courts can grant a range of remedies designed to assist foreign officeholders in securing assets and information.
Because Part 26A is an extension to the UK Companies Act rather than the UK Insolvency Act, section 426 recognition in Guernsey is not available for restructuring plans. This means that recognition by the Guernsey Royal Court of a Part 26A restructuring plan will fall to be assessed on common law grounds. As for the position in Jersey, the Désastre Law has a broader definition of "insolvency" than the definition of "insolvency law" found in section 426 of the UK Insolvency Act. It is therefore unclear whether an application for recognition of a Part 26A restructuring plan would be competent under Article 49. Even if Article 49 does not apply, an application for recognition of Part 26A restructuring plan could be brought on the basis of the Royal Court's common law discretionary power.
Turning back to the discretionary considerations highlighted in cases such as Virgin Atlantic, Virgin Active and DeepOcean, the interplay between English and Guernsey or Jersey law may then be critical to the High Court's assessments of whether a relevant plan is likely to have any substantial effect outside of England and Wales:
- Where a restructuring plan applies solely to the compromise of English law debts and where all relevant parties have submitted to the jurisdiction of the English courts, then recognition by the Royal Courts may naturally follow on common law principles and doubts as to any substantial effect outside of England and Wales may fall away.
- Where, however, a restructuring plan deals with creditors' rights that arise under the laws of jurisdictions other than England and Wales or where the plan has been ordered despite certain creditors opting not to participate in the compromise, then the limits for common law recognition may be called into question and the ability to obtain Royal Court recognition becomes far less clear.
- In these latter circumstances, both the issuing UK court and the recognising Royal Court may then be faced with contentions that a restructuring plan i) cannot have legitimate substantial effect outside of England and Wales; ii) should be rejected at the outset; and/or iii) should be deemed incapable of recognition when presented to the Royal Courts.
As the parameters for 'sanctionable' restructuring plans continue to develop in the UK, the scope for foreign recognition of these inherently flexible procedures will advance accordingly. We anticipate, however, that the sorts of considerations highlighted in this briefing may prove to be of critical importance in the context of restructuring plans that rely upon effect and recognition in the Channel Islands.
1. Quotes taken from Virgin Atlantic Airways Limited  EWHC 2376 (Ch) and In the Matters of Virgin Active Holdings Limited and Ors  EWHC 1246 (Ch); but see also In the Matters of Deepocean I UK Limited and Ors  EWHC 138 (Ch); In the Matter of Gategroup Guarantee Limited  EWHC 304 (Ch); and In the Matter of Smile Telecoms Holdings Limited  EWHC 685 (Ch).
2. Section 426 (11) of the UK Insolvency Act.
3. Bankruptcy (Désastre) (Jersey) Order 2006.
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.