On 1st March 2022, the Companies (Amendment No. 8) (Jersey) Regulations 2022 (Regulations) came into force, which amended the CJL to introduce a process whereby a creditor can apply to the court for an insolvent company to be placed into a creditors’ winding up and for a liquidator to be appointed to conduct the winding up.
Prior to 1st March 2022, options available to a creditor seeking to enforce against a Jersey corporate debtor were extremely limited and were as follows:
- making an application for a declaration that a person’s property be declared en désastre under the Bankruptcy (Désastre) (Jersey) Law 1990 (the Bankruptcy Law). This is available to a creditor with a liquidated claim of more than £3,000; or
- enforcement of security, subject to the terms of that security; or
- a dégrèvement (being the process for enforcement against real property situated in Jersey only).
Before the introduction of the reforms, the creditors’ winding up procedure under Jersey law resembled the English law process of creditors’ voluntary liquidation. That is to say, it was a shareholder-initiated process and as such, not something that is technically available to creditors of a corporate debtor at all. This procedure, together with the other aforementioned choices, remain options for creditors under Jersey law – but the changes introduced earlier this year cannot be understated in terms of improving the prospects of recovery and protection of creditor interests.
The changes introduced mean that creditors now have the ability to utilise well recognised and familiar concepts such as the statutory demand. Whilst the statutory demand will not be a mandatory precursor to creditor led winding up proceedings, particularly in circumstances where there is other indisputable evidence of insolvency, it is hoped that it will offer more certainty as to the solvency or otherwise of a debtor. The quantum of the statutory demand will also mirror the level of liquidated claim in désastre, at the level of £3,000, aligning the process with existing Jersey law proceedings.
The changes to the CJL also permit the Court to appoint a Provisional Liquidator, who will be able to take steps to preserve assets where there is a concern that the assets will be dissipated or that the affairs of the company will not be properly conducted within the period between the application to court and the making of a winding up order.
RIGHTS OF CREDITORS/THIRD PARTIES
The newly reformed Jersey insolvency regime will not prejudice the rights of secured creditors, who will continue to be able to enforce their security if a company is placed into a ‘new’ creditors’ winding up.
In fact, the rights of third parties have been fully considered, as other creditors, shareholders and directors of the company which is the subject of a creditors’ winding up will have the right to be notified of the impending application and to file an objection to the winding up of a company, for example if a debt is disputed by the company.
It is also possible for any creditor or a contributor to apply to the court for the determination of a question arising in the winding up, or for the court to exercise any of its powers in relation to the winding up pursuant to Article 186A of the Companies Law.
ROLE OF THE VISCOUNT
The new procedure also brings a number of further advantages for creditors. A successful application for désastre resulted in the appointment of the Viscount (a public insolvency official similar to the Official Receiver) and consultation with the Viscount was a mandatory requirement prior to the issue of the application.
Whilst the Viscount is well qualified to deal with such matters, they do not have the resources – particularly outside of Jersey – to deal with more complex insolvencies. The new procedure under the CJL leads to the appointment of a professional insolvency practitioner chosen by the petitioning creditor. The process also allows for the creation of a creditors’ committee and provides for regular reporting to creditors. Again, this results in a more modern and flexible procedure which is better suited, in particular, to the challenges thrown up by crossborder insolvencies.
Insolvency and restructuring professionals in Jersey and further afield welcome this addition to the Jersey insolvency regime. The rights of creditors and the options available to them on any insolvency of a borrower are vitally important to the finance industry and the changes to the CJL introduced by the Regulations further enhance the jurisdiction’s profile as an international finance centre. We expect that, given time, this reform will have a fundamental impact on market practice in the Jersey restructuring and insolvency market.