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After a long period of consultation, the Jersey legislature recently passed the Companies (Amendment No.8) (Jersey) Regulations 2022 (Amendment No. 8) amending the Companies (Jersey) Act 1991 (the Corporate law). This amendment introduced a new insolvency remedy for creditors of Jersey companies with effect from 1 March 2022. This is a significant development for Jersey insolvency law, strengthening the position of the jurisdiction as a leading international financial center.
Jersey Insolvency Proceedings
The main procedures for winding up an insolvent Jersey company are as follows:
- Disaster: an insolvent Jersey company can be liquidated by the Royal Court following a disaster claim. The application may be made either by: (i) a creditor (before a liquidated sum of at least £3,000), (ii) the company itself, or (iii) in certain circumstances, the Financial Services Commission of Jersey. If the Royal Court declares the ownership of the company in disaster, all assets of the company vest in the Viscount (the chief enforcement officer of the Royal Court). The viscount will realize the assets and distribute the proceeds to the company’s creditors.
- Liquidation of creditors: before March 1, 2022, this procedure could only be initiated by the shareholders of an insolvent Jersey company. Shareholders must pass a special resolution, and then shareholders and creditors each appoint a liquidator. In the event of a dispute, the liquidator appointed by the creditors directs the procedure. The liquidator may exercise all the powers of the company necessary to realize the company’s assets, pay the company’s debts and liquidate the company.
The Companies Act also contains provisions relating to fair and equitable winding up and schemes of arrangement which are broadly similar to the equivalent proceedings under the UK Insolvency Act 1986 and the UK Companies Act 1985. The recourse in case of fair and equitable liquidation was used more frequently. in recent years, the words “fair and equitable” being interpreted flexibly by the Royal Court.
The liquidation of new creditors
Prior to March 1, 2022, the primary remedy in Jersey for the creditor of an insolvent Jersey company was to seek a declaration of disaster. Amendment No. 8 creates another option by allowing a creditor to apply to the Royal Court for an order commencing the winding up of a debtor company and the appointment of its proposed liquidator.
Who can apply?
A creditor, having a claim of at least £3,000 against a Jersey company, can apply to the court for an order for the liquidation of creditors.
What do I need to apply?
To make a claim for creditors’ liquidation, the creditor must establish that:
- the debtor company is unable to pay its debts as they fall due
- the creditor has proof of the insolvency of the company or
- the creditor has the consent of the company
(together the Terms).
A company will be deemed “unable to pay its debts” in accordance with point (a) above if, within 21 days of the creditor giving notice of a summons (in the prescribed form) to the company, it fails:
- pay the debt he owes to the creditor; Where
- dispute the debt to the reasonable satisfaction of the creditor
Therefore, service of a legal demand on the company will be the usual practice before a creditor applies to the court for the liquidation of a creditor, except in the exceptional circumstances referred to in points (b) and (c) below. above.
A creditor is not permitted to make the claim where (i) the debt is less than £3,000, (ii) the creditor has agreed not to make the claim, or (iii) the creditor’s claim is for repossession Goods.
What is the procedure for the liquidation of creditors?
The creditor must give the company (except in exceptional circumstances) 48 hours’ notice before going to court. Notice of the claim must be placed by the creditor in the Jersey Gazette no later than 24 hours before the claim is heard in court. The application documents must be provided to the Bailiffs’ Chamber and the Court Registry no later than 5 p.m. on the Tuesday immediately preceding the Friday on which the application will be heard by the Royal Court.
The court will review the request and decide whether to approve (or reject) the commencement of liquidation proceedings and the appointment of a liquidator. If necessary, for example to prevent the dissipation of the assets of a debtor in distress, the court may also appoint a provisional liquidator at any time between the application made and the issuance of the liquidation order.
At the hearing, if the court is satisfied that at least one of the conditions is met, it may issue an order for the liquidation of the company and the appointment of one or more liquidators with effect from the time the court sees fit. . The court will only appoint a liquidator who is a member of the new “Register of approved liquidators” which will be administered by the Viscount.
The liquidator will publish his appointment, call a meeting of creditors of the company and, before the meeting of creditors, the directors of the company must produce a statement of the affairs of the company. The liquidator can then exercise all the powers of the company to realize the company’s assets, pay the company’s debts and liquidate the company.
What is the effect of the start of creditors’ liquidation?
The legal personality and the capacity of the company continue until its liquidation but, from the start of the liquidation of the creditors, the company must cease to exercise its activity (other than that necessary for its liquidation). The court, after considering the application filed, may make an order that the liquidation of creditors shall commence from the date the application is made or on such other date as the court determines.
The assets of the company remain vested in the company but the powers of the directors will cease after the appointment of the liquidator (unless the court or the liquidator sanctions their maintenance). The liquidator stands in the place of the administrators and acts as the company’s agent.
After the commencement of the liquidation, no action may be brought or continued against the company except with leave of the court.
Implications for a secured creditor
A debtor company becoming insolvent or subject to liquidation proceedings will not affect the ability of a secured creditor to enforce its security interest so long as it had a valid and enforceable security interest under the law of 2012 on sureties (Jersey) (the SIJL) before the company became insolvent.
Can the request be contested by the company?
A company may, at any time during the proceedings, ask the court to reject the liquidation of creditors. However, the court may reject such a request if it is satisfied that the company does not, at the time of the request, have sufficient assets to pay the creditors’ claims in full.
If it is later determined that the company was not insolvent on the date of the application, the company may seek damages from the court for any loss suffered by the company as a result of a winding-up order. .
The amendments which came into force on March 1, 2022 mark a new beginning for creditors wishing to assert their claims against a Jersey company. It is particularly advantageous that this creditor mechanism follows a form already familiar to many other jurisdictions, such as England and Wales. Jersey will be able to benefit from the experience of specialist UK insolvency practitioners who are experienced in its operation and will be able to rely on the catalog of precedents and case law in those jurisdictions which is likely to be considered persuasive by the courts of Jersey. These changes will no doubt strengthen Jersey’s reputation as a leading financial centre, further strengthening its support for creditors.
The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.