Jersey's creditor-friendly reforms now in force
01 March 2022
On 1 March 2022, a package of creditor-friendly reforms to Jersey's insolvency regime came into force. The principle features are that:
- Creditors will now be able to apply to the Jersey court for a Jersey company to be wound up and private sector liquidators appointed. Previously creditors had only one domestic option: a désastre (bankruptcy) administered by the Viscount.
- A provisional liquidator (not previously available in Jersey) can be appointed to preserve the position where there is a real concern that the affairs of the company will be conducted improperly, its books and records will be destroyed or its assets dissipated between the creditor's application to court and the making of a winding up order.
- A new register of Approved Liquidators has been introduced.
These changes, which have been in the pipeline for many years, will enhance Jersey's reputation as a creditor-friendly destination for international finance. Secured creditor rights remain unaffected.
Winding up by creditors
There are two principal regimes for corporate insolvency in Jersey: désastre and winding-up, as set out in our briefing. One quirk of the existing regime was that a creditor was only able to initiate a désastre; it had no ability to commence a winding up under the Companies (Jersey) Law 1991 (the "Companies Law").
The reforms seek to rectify that. In order to retain certainty, and rather than starting from scratch, the changes to the Companies Law bolt a gateway taken from désastre (including mirroring the threshold debt requirements) onto the existing Creditors' Winding Up ("CWU") process. A court application is therefore always required.
In order to assist a creditor to show a debtor's insolvency, the reforms include a template statutory demand. A statutory demand is not required if there is other indisputable evidence of insolvency.
Taking the process step-by-step:
- If required, the creditor serves a statutory demand (by personal service) on the debtor company requiring payment within 21 days.
- Save where the creditor has agreed not to issue an application or the claim is for the repossession of goods, the creditor may, on notice to the company, immediately apply to the court to wind up the company and/or appoint a provisional liquidator under Articles 157A to C of the Companies Law. The form of application will be by way of representation accompanied by a supporting affidavit.
- Such applications will come on for first hearing at a sitting of the Jersey court on a Friday afternoon. Papers will need to be filed with court at least two clear days, and an advert placed in the Jersey Gazette at least 24 hours, before the first hearing.
The court can adjourn the application for further information or otherwise, at any point. Indeed, it may adjourn the matter to a later substantive hearing to allow fuller evidence to be filed and more detailed submissions from the parties (as is often the case with a désastre application).
- The making of the order is entirely discretionary.
- If the court makes an order winding up the debtor company, it is deemed to take effect from the date the application was made (or such other date as the court deems fit). The court will appoint one or more liquidators (we would typically expect two to be appointed). The liquidators must meet certain registration requirements (see below). The liquidators may, or may not, be the same as any provisional liquidators.
- The liquidator(s) must notify various persons and publicise the appointment and must call a meeting of the creditors. As with the existing CWU regime, after commencement of the winding up, no action shall be taken or proceeded with against the company save with the leave of the court, but secured creditor rights remain unaffected.
There is the potential for mischief between the date the application is filed with the court and the substantive hearing. The reforms introduce the concept of a provisional liquidator (not previously available in Jersey) who can be appointed in that interim period; in other jurisdictions which already have this concept, this tends to be viewed as an emergency procedure.
On an application for the appointment of a provisional liquidator, the affidavit in support must state that the applicant believes that it is likely that a winding up order will be made by the court and such appointment is necessary in the interim to preserve the debtor company's assets and books and records, together with the grounds for such belief. The court will usually expect such grounds to include the immediate risk of dissipation of company assets or loss or destruction of the company's books and records. We expect these applications will be dealt with urgently ex parte on the papers (as is typically the case, for example, with an application for a freezing order).
Register of Approved Liquidators
A person will now only be eligible to be appointed as a liquidator (or provisional liquidator) under the Companies Law if they meet certain criteria and are entered on the new "Register of Approved Liquidators". Practitioners will renew their registration annually for a fee.
Under the previous rules, to be a liquidator in Jersey, you had to be a member of one of a number of prescribed professional bodies, essentially UK or Irish accountancy bodies. The new rules widen the categories of professionals to include UK licensed insolvency practitioners, and also impose additional experience requirements.
In addition, an individual will be required to have in place a bond to protect against fraud and dishonesty by the liquidator. The bond would be additional to any professional indemnity insurance that is held by the Approved Liquidator and/or their employer.
Although there is a Jersey residency requirement, in order to enable the use of specialist skills that may not necessarily be available in the Island, a "non-Jersey liquidator" (who meets the other criteria) may be entered as such on the register and appointed as a joint liquidator (or joint provisional liquidator) of a company - but only alongside a Jersey resident Approved Liquidator.
As a liquidator is an officer of the court, the Viscount has a role in relation to the receipt of complaints and consideration of the conduct of the winding up.
These welcome reforms strengthen Jersey's position as a creditor-friendly jurisdiction.
Authors: Edward Drummond (Partner) and Joe Royster (Paralegal), Jersey