23 May 2022
Evolution of Jersey’s insolvency regimes
Legislation that came into force on 1 March 2022 marked the beginning of a new era in Jersey’s insolvency regimes and will strengthen its reputation as a jurisdiction at the forefront of the global financial services industry.
The new legislation has:
- created an additional type of winding up of an insolvent company that can be initiated by a creditor and ordered by the court; and
- redefined the eligibility criteria for appointment as a liquidator in specified circumstances (including liquidator appointments under the new court ordered creditors’ winding up procedure).
These changes represent a significant milestone in the evolution of Jersey’s corporate insolvency regimes and implement improvements from which creditors of distressed businesses will derive considerable benefit whilst incorporating protections that safeguard businesses from frivolous or vexatious applications.
Court ordered creditors’ winding up
Despite its name, the existing form of creditors’ winding up in Jersey could only be instigated by a company’s shareholders and not its creditors. Under the Companies (Amendment No. 8) (Jersey) Regulations 2022, which came into force on 1 March 2022, an additional type of winding up procedure has been created, which is known as a ‘court ordered creditors’ winding-up’. It enables creditors, for the first time in Jersey, to apply to the court under the Companies (Jersey) Law 1991 (the ‘CJL’) for an insolvent company to be placed into a creditors’ winding up and for a liquidator to be appointed to conduct that winding up.
The new regime sits alongside the existing winding up regimes under the CJL (summary, creditors’ winding up instigated by shareholders, and just and equitable winding up) and the désastre regime under the Bankruptcy (Désastre) (Jersey) Law 1990, and has therefore introduced a further layer of protection and flexibility to creditors seeking to commence an insolvency process in Jersey, whilst ensuring there are appropriate safeguards to protect the interests of businesses.
Under the new regime, a creditor with a liquidated claim of £3,000 or more may apply to the court for an order to commence a creditors’ winding up of a Jersey company. Such application can only be made where:
(a) the company is unable to pay its debts;
(b) the creditor has evidence of the company’s cash flow insolvency; or
(c) the creditor has the consent of the company.
The company is deemed to be unable to pay its debts for the purposes of paragraph (a) above if: (i) the creditor has served on the company a statutory demand in a prescribed form requiring it to pay the sum due; and (ii) the company has for 21 days after service of that demand on the company failed to pay the sum or dispute the debt due to the reasonable satisfaction of the creditor.
Where the court makes an order to commence a creditors’ winding up, it will also appoint a liquidator (or more than one liquidator), being either a person nominated by the creditor that made the application or a person selected by the court. The new regime also enables the court to appoint a provisional liquidator and therefore provides comfort to creditors that company assets will not be dissipated in the intervening period between the initial application and the court order to commence the creditors’ winding up.
There are also safeguards to balance the interests of businesses against those of creditors and to protect against frivolous or vexatious applications. For example, a creditor will usually be required to give a company notice that it intends to make an application and, once an order for a creditors’ winding up has been made by the court, at any time during the course of that winding up, the company may apply to the court for an order terminating it. Any such application to terminate must be refused if the court is not satisfied that the company’s property is sufficient to pay in full claims filed with the liquidator or that the liquidator has been advised will be filed within the prescribed time. In considering the application the court must have regard to the interests of creditors and the company. Further, if an order for a court ordered creditors’ winding up is made and it is found that the company was not insolvent at the date of the application, the company has the right to recover damages for any loss sustained unless, in making the application, the creditor acted reasonably and in good faith.
Reforms applicable to liquidators
Contemporaneously with the introduction of the new winding up procedure, a Ministerial Order (the Companies (General Provisions) (Amendment No. 6) (Jersey) Order 2022 (the ‘Order’)) came into force, to effect changes to the Companies (General Provisions) (Jersey) Order 2002 that have:
(a) amended the conditions of eligibility and required qualifications for appointment as a liquidator in specified circumstances (including those liquidator appointments under the new court ordered creditors’ winding up procedure);
(b) created a new public ‘Register of Approved Liquidators’; and
(c) given the Viscount (the executive officer of the court with responsibility for certain insolvency matters) a supervisory role over liquidators, including to hear complaints about the exercise of (or failure to exercise) their powers.
Under the Order, a person will only be regarded as eligible for appointment as a liquidator of a public company and a liquidator of a company that is subject to a creditors’ winding up (under both the existing and new regimes) if they are registered as an approved liquidator and entered on the new public Register of Approved Liquidators administered by the Viscount. In order to qualify for such registration, a person must be an individual and must meet the relevant criteria, which include:
(a) being Jersey resident;
(b) being an individual who has the necessary level of experience determined by the Viscount in writing and is appropriately qualified (e.g. as an accountant or insolvency practitioner in the UK); and
(c) having substantial bonds in place.
Notwithstanding the eligibility requirements above, it is possible for a non-Jersey resident individual (who otherwise meets the qualification requirements) to be appointed as a liquidator in Jersey under the new regime provided that they are appointed jointly with a liquidator who is Jersey resident and registered as an approved liquidator. This will enable creditors and the court to draw on resources and expertise that may not otherwise be available in Jersey.
Carey Olsen welcomes the reforms, which bring Jersey into step with other jurisdictions in certain key areas and create a clear and modern procedure that practitioners and industry representatives in other jurisdictions will easily understand. In addition, they provide creditors with comfort that matters will be progressed quickly, with appropriately qualified liquidators and subject to the supervision of the court, whilst implementing processes and remedies that safeguard the interests of companies and offer protection against frivolous or vexatious applications.
This article first appeared in Volume 19, Issue 3 of International Corporate Rescue and is reprinted with the permission of Chase Cambria Publishing.