The effect of Jersey corporate insolvency on foreign security
20 January 2020
There are two principal regimes for corporate insolvency in Jersey: désastre and winding-up.
Désastre is a court-initiated process (similar to winding-up by the court under English law) which can be commenced by a company itself, a creditor holding an undisputed debt (over £3,000) or the Jersey Financial Services Commission. A company must be cash flow insolvent (i.e. unable to pay its debts as they fall due) and have realisable assets.
On the declaration of a désastre, all the property of a debtor, wherever it is in the world, immediately vests in the Viscount. The Viscount is the Court's Executive Officer and administers the désastre. The Viscount collects in, realises and distributes the assets of the insolvent debtor.
Creditors' winding-up is an extra-judicial process (although court directions may be sought) instigated by shareholders rather than creditors. It is commenced by a special resolution of the shareholders which is often, although not always, passed following a recommendation of the board. Cash flow insolvency is not a pre-requisite (although the obvious route for shareholders of a solvent company is summary, rather than creditors', winding-up).
On a creditors' winding-up the property of the company does not vest in the liquidator but only the liquidator can deal with its property.
On an insolvency, the validity and enforcement of properly granted foreign law security over foreign situated property would be determined by the laws of the place where that property is situate, in accordance with the principles of private international law.
Whilst there is no statutory recognition of foreign law governed security interests in the event of a désastre or a creditors' winding-up of a Jersey company, from our understanding of the current practice of the Viscount (and we also note in this regard the provisions of Article 13 of the Security Interests (Jersey) Law 2012 (the "Security Law"), which gives statutory recognition of the capacity of a Jersey person to grant security governed by foreign law over property situate outside Jersey), is that valid foreign law governed security interests would be recognised by the Viscount (in a désastre) and a liquidator in a creditors' winding-up. We further understand that the Viscount would be unlikely to seek involvement where the secured party is seeking to enforce valid foreign law security, subject to remitting any surplus arising after discharging the secured liabilities to the Viscount.
The above approach is consistent with the position concerning intangible moveable property pursuant to the Security Law, which provides that the secured party is still able to enforce its Jersey law security over intangible moveable property even where a grantor of security is declared bankrupt or if proceedings that lead to bankruptcy of a grantor have been commenced.
We understand that the above approach is consistent with the Viscount's practice in désastre cases having such a fact pattern. Although the incidence of such cases is small, our understanding is that the only material désastre during the last few years was dealt with in such a manner.