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Désastre is one of several insolvency (or bankruptcy) procedures available under Jersey law. Of the Jersey procedures, it bears the most resemblance to bankruptcy in common law jurisdictions. In practice, the procedure only tends to be used in individual rather than corporate insolvencies owing to the emergence of creditors’ winding up (a simpler option for corporate insolvencies).
What is Désastre?
The Bankruptcy (Désastre) Jersey Law 1990 (the Désastre Law) was a transformative piece of legislation when introduced. Before its introduction, désastre in Jersey was a creature of the Island's customary law.
Désastre is one of several insolvency (or bankruptcy) procedures available under Jersey law. Of the Jersey procedures, it bears the most resemblance to bankruptcy in common law jurisdictions. In practice, the procedure only tends to be used in inpidual rather than corporate insolvencies owing to the emergence of creditors' winding up (a simpler option for corporate insolvencies).
The Viscount's Department is closely involved in the procedure, both during the application stage and after the debtor's property has been declared en désastre (bankrupt). The Viscount is vested with the debtor's property and will administer the debtor's estate. The procedure usually lasts four years, after which the debtor will be discharged from their debts (although this period may be varied).
Creditors' power to recall after enactment of the Désastre Law
Although Article 7 of the Désastre Law provides that a debtor may apply to recall a declaration of désastre, no equivalent statutory provision exists for a creditor to do so. The question therefore arises: has a creditor's power to recall a désastre under the customary law survived the introduction of the Désastre Law?
Désastre is a procedure necessarily declared and administered in the interest of creditors. For instance, the Projet de Loi1 for the Désastre Law on page 4 states that "a declaration 'en désastre' takes place with the object of safeguarding the interests and rights of creditors, and also with the object of enabling the debtor to come to an arrangement with his creditors if that is possible."
It naturally follows that there are few reasons why a creditor might wish to lift a désastre without the Viscount completing the procedure. One example may be that where a debtor's circumstances have changed, an insolvency process no longer remains the best option for the creditors.
Actual examples of a creditor attempting to lift a désastre are rare, but it is not completely unheard of. A small number of judgments that followed the introduction of the Désastre Law suggest that a customary law basis for a creditor to recall a désastre may have survived. All cases referred to later in this article, besides one from 1988, postdate the Désastre Law.
This residual customary law is separate from the statutory Désastre Law2. It appears that it remains in force to the extent that the residual customary law does not conflict with the statute. See Re the Representation of Seale Street Developments Ltd (3rd September 1992) JU 158:
"It follows [...] that the 1990 law is ancillary to, and not in substitution for, the common law governing désastre proceedings. But, on the other hand, the legislature provided expressly that there would have to be sufficient funds to pay all the creditors before a debtor could apply to have the désastre lifted. Is then the Court prevented from receiving an application from a creditor who is not a debtor in person? There are many cases in the table, where a creditor has applied to have the désastre lifted, and it seems to us that the 1990 Law does not prevent that. (emphasis added)
Moreover, the Désastre Law does not expressly provide that a creditor's right of recall has been abolished or that a creditor may not make such an application. Accordingly, there is no contradiction and no apparent basis to conclude that the power of a creditor to recall a désastre has ceased.
The Legislature's Intention: by abolishing certain customary law concepts did the legislature intend to preserve others?
By introducing the Désastre Law, the States of Jersey legislature intended that some customary law concepts would be abolished by the Désastre Law (see the Projet page 26). In the wording of the statute, this intention appears most obviously in Part 11 "Abolition of Certain Customary Law Concepts", specifically the abolition of the Norman Customary Dower (Article 46) and Désastre maritime (Article 47).
Other pre-1990 customary law concepts were not listed for abolition despite the express listing of the specific customary law concepts referred to above. This can and has produced an interpretation (expressio unius est exclusion alterius) that a body of residual customary law of désastre has survived the codification of the désastre procedure.
Relevant Case Law: examples of the creditors' power to recall in action
There is no judicial controversy about the fact that a creditors' right of recall existed under the customary law prior to the Désastre Law's enactment. "There is ample authority for the raising of a "désastre". It seems that historically the raising of a "désastre" was effected only on the application of he who had declared it." Application by Hill Street Trustees Ltd re Arya Holdings Ltd en désastre (8th March 1988) 1988/0452. In that decision it was held
that the Court could see no reason why this power should be limited to the original declarant (as opposed to a different creditor) provided agreement had been reached with the original declarant.
The power of creditors to recall a désastre requires agreement between creditors:
"There appears to be no authority (and we had no law cited to us other than this judgment) to give an indication to us as to how we can exercise a discretion if even one creditor strongly opposes the raising of a désastre. With no authority to guide us we have formed the clear impression that such an objection is fatal."
"It seems to us that without the co-operation of those creditors who opposed the recall (we are not concerned with those who took a neutral view) we cannot allow the application. It is accordingly dismissed. [...] It is always open to Mr. Chapman to persuade the three creditors who have now identified themselves to change their minds. If he could achieve that object then a further application could be brought." (emphasis added) (Representation of David Henry Chapman (17th November 1992) 1992/199)
The upshot of this is that, although we consider that a désastre may be recalled by a creditor under the customary law, it is uncertain whether all creditors (instead of a majority of creditors) must agree. Changes brought about by the Désastre Law3 have created this uncertainty.
There is authority that agreement of only a majority of creditors may be required. In the case of In re Blue Horizon Holidays Ltd en désastre (18 February 1994) 1994/038, in the context of an application by a debtor to recall a désastre, the Court found that the Viscount may bring such a Representation with an agreement of a majority of creditors:
"There is one more thing the Court wants to say and it is this: all the property at Blue Horizon Holidays, Ltd is vested in the Viscount. Should the Viscount wish, at the request of – it would be impossible to say all – but the majority of the creditors, both as to number and in substance to make a Representation to this Court regarding the administration of the bankrupt Company, or regarding the possibility of its continued trading, the Court will, of course, listen to any such application, but it will have to be with the consent of the majority, I repeat, either in number or in substance, of the creditors."
In In re Blue Horizon Holidays Ltd en désastre (4 March 1994) 1994/050, the Court affirmed the above:
"What the Bailiff was saying there is that if the Viscount wished, at the request of the creditors, to make a representation to the Court regarding the administration of a bankrupt company then the Court
would listen to any such application. I do not think that the Court was encouraging the bankrupt company [...] to make an application to the Court. What the Bailiff was saying was that if the creditors wished to support such an application by the Viscount then the Court would listen to that application."
Further to this, the Court proceeded to affirm that in circumstances where the debtor cannot recall the désastre:
"it is for the Viscount, in effect to decide whether it is in the interests of the creditors to make any such application. [...] you should work in collaboration with the Viscount to see whether the creditors can be persuaded to urge the Viscount to take a different view. At this stage we have no evidence that the creditors in fact wish to urge the Viscount to take a different view. But if circumstances change then certainly the Court would be prepared to consider an application from the Viscount, I would like to make that clear." (emphasis added)
The Court of Appeal in In the Matter of the Désastre of Blue Horizon Holidays Limited 1997 JLR 124 appears to have identified at JLR 133 [15] that all liabilities of the debtor must have been discharged before the creditor can apply for the désastre to be recalled. However, we consider that this was not commentary on the customary law provision. Instead, the Court of Appeal simply stated the position under the Désastre Law (i.e. that there is no statutory provision for any creditor to apply for a recall under the Désastre Law save for the discharge provisions in Part 9 Article 40(2)).
Takeaway
The world continues to face considerable financial instability. Old certainties cannot be taken for granted. It is therefore critical that creditors (and debtors) understand the range of options available to them.
Footnotes
1.The Jersey equivalent of a Parliamentary Bill before it is enacted as legislation
2.The Désastre Law did not codify the existing customary law on insolvency
3.See also 1987-88 JLR Notes-7a
4.Especially the incorporation of Article 7(3) and the express repeal of Loi (1867) au sujet des débiteurs et créanciers
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.
