Jersey: Cross-Border Insolvencies - Aiding A Foreign Court

In the current climate, where once well-respected, confident and apparently prosperous businesses with interests in more than one country now face insolvency and even closure, requests for assistance from a foreign court in insolvency matters will likely become more frequent.

Need For Assistance

The need for assistance arises from the fact that Jersey is a separate jurisdiction and consequently any authority granted to a foreign insolvency office holder will not extend to Jersey without further order of the Jersey Court. Therefore, in order to, for example, access money held in Jersey bank accounts, or to arrange for Jersey-situate real property to be sold, the foreign office holder must apply for his appointment to be registered in the Royal Court in Jersey. Article 49 of the Bankruptcy (Désastre) (Jersey) Law 1990 ("the Law") gives a discretion to the Royal Court to assist the courts of certain prescribed territories in matters relating to the insolvency of a person or business to the extent it thinks fit. The prescribed territories are currently the UK, Guernsey, the Isle of Man, Australia and Finland, each of which has reciprocal arrangements in place with Jersey.

In addition, the Royal Court has provided assistance to foreign office holders from non-prescribed countries (for example, South Africa and Sweden) on the basis of comity and as an exercise of the court's inherent jurisdiction.

Letter Of Request

The foreign office holder must first apply to his local court for a letter of request specifying the precise assistance that he seeks from the foreign court. The letter of request will be closely scrutinised by the Viscount (the court official who deals with insolvency applications) to ensure that it is appropriate.

A request from a court of a relevant country is said in Article 49(2) to be "sufficient authority for the court to exercise, in relation to matters to which the request relates, any jurisdiction which it or the requesting court could exercise in relation to these matters if they otherwise fall within its jurisdiction".

Recent market conditions have shone the spotlight on the situation where an English company, with a subsidiary in Jersey, has gone into administration. Concerns have been raised that assets created within the island will be taken into the English administration and distributed to English creditors. However, these situations are not new. It is clear from the Law itself and previous decisions of the Royal Court dating back to 1899 that the principle of universality (in insolvency matters) has been accepted in Jersey law.

Universality

In certain applications involving OT Computers Limited (2002) the Royal Court, having been satisfied that it was in the best interests of the creditors, granted an initial application permitting the High Court to make an order under English legislation placing the Jersey company in administration in order that a potential sale could be achieved.

The court recognised that as the company carried on the bulk of its business in England (as "Tiny Computers"), that was its Centre of Main Interest. The court granted a subsequent application discharging the administration order and placing the company into voluntary liquidation, again in England, despite the fact that the company could have been placed in the Jersey bankruptcy procedure of a désastre, or put into liquidation pursuant to the Companies (Jersey) Law 1991. Again, the court acted in what it saw as the best interests of the creditors of the company; concurrent proceedings in Jersey would merely have increased the cost and not produced such a good outcome for the creditors.

In a second case: MGN Limited re Walkers Advertising Associates Limited en désastre (1992), the Royal Court permitted the continuation of a désastre of a Jersey company with assets and creditors in England and which was being concurrently wound up under English insolvency law, on terms agreed between the Viscount and the English liquidator of the company.

Recognition In Jersey

It was agreed that the liquidator be recognised by the Jersey court and that the Viscount would realise the Jersey situate assets of the Jersey company and, after payment of his costs and settlement of the Jersey preferential creditors, the Viscount would remit the balance to the liquidator in the concurrent English winding up. This was upon the Viscount being satisfied that the claims of all other creditors would be properly and equitably dealt with in the concurrent English winding up and the Viscount being permitted to lodge all filed claims in the English proceedings.

Competing Insolvency Procedures

The Royal Court recognises that competing insolvency procedures do not advance the interests of the creditors; rather they are likely to increase costs, cause confusion and lead to inequitable treatment of like classes of creditors. It is likely that where there are proceedings, for example, in both Jersey and the UK, the Jersey authorities would have to apply to the UK court for assistance and vice versa.

The court is specifically authorised in Article 49 to have regard "to the extent it considers appropriate to the provisions for the time being of any model law on cross-border insolvency prepared by the United Nations Commission on International Trade Law". The current model law is not specifically incorporated into Jersey law unlike the position in England and Wales. However, it is of relevance given the provisions of Article 49.

It was designed to assist states to equip their insolvency laws with a modern, harmonised and fair framework to address more effectively instances of cross-border insolvency, particularly where the insolvent debtor had assets in more than one state and where some of the creditors were not in the state in which the insolvency proceedings were taking place. It makes reference to the concept of a 'Centre of Main Interest' which is the place where the debtor principally operates and the Royal Court has acknowledged this concept as mentioned above.

This article first appeared in the spring 2009 issue of the Appleby Jersey's Resolution newsletter.

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.