News and Insights
4 April 2023
As we pass the anniversary of the introduction of legislation that allowed creditors of a Jersey company to commence winding up proceedings against debtor companies under the Companies (Jersey) Law 1991 (the Creditors' Winding Up), this Espresso Briefing discusses the new procedure and its impact.
On 1 March 2022, Jersey introduced a new way for creditors to enforce their debt claims against Jersey companies. The Creditors' Winding Up procedure that was created is strikingly similar to the procedure available to creditors in England and Wales. Following established concepts and processes in Jersey legislation and that of other jurisdictions, the Creditors' Winding Up procedure is familiar both domestically and for insolvencies with a cross-jurisdictional element.
Background to introduction
Before 1 March 2022, a creditor of a debtor company could only apply for an insolvent Jersey company to be declared 'en désastre', which means, broadly speaking, to be declared bankrupt in Jersey. Under the 'en désastre' procedure, the Viscount (the executive director of the Royal Court) is appointed to wind up the debtor company and distribute its assets. The Viscount invariably delegated this work to an experienced insolvency practitioner. Practitioners in the UK were not familiar with this procedure, and it was identified by industry that it would be of benefit to introduce, alongside the existing procedure, a means by which a creditor of a company can apply to the Royal Court for an insolvent company to be wound up with a liquidator appointed to conduct the winding up. This is now possible.
Conditions for application
The creditor's claim must be for at least £3,000 and not for the repossession of goods.
The creditor must also be able to show that the debtor company cannot pay its debts as they fall due, or it must be able to provide evidence of the debtor's insolvency.
A debtor company will be deemed unable to pay its debts as they fall due if it cannot pay an undisputed debt within 21 days of the creditor serving upon it a statutory demand for payment.
The application must be commenced by Representation and be accompanied by an affidavit. The affidavit must state that: (a) the creditor has a claim against the debtor company for a liquidated sum, that, to the best of the creditor's knowledge, is not subject to a genuine dispute and arguable defence or counterclaim, and which has not been paid; and (b) that to the best of the creditor's knowledge and belief, the debtor company is insolvent but has realisable assets, and specify the grounds on which the creditor believes the debtor company to be insolvent.
Rights of Debtor Company
A debtor can request that the Royal Court dismiss the application if it can show it is not insolvent and can pay the creditor's claim. Further, if the debtor company can show it was not insolvent at the time of the application by the creditor, it can apply to recover damages in respect of any loss sustained by the debtor arising from the application.
The creditor must provide at least 48 hours' notice to the debtor ahead of making an application to the Royal Court. It must also place a notice of the application in the Jersey Gazette at least 24 hours before the Court hears its application.
On hearing the application, the Royal Court will decide whether to approve or reject the commencement of the debtor's winding up.
The Court can decide the date from which the Creditors' Winding Up will commence.
If the application is approved, the Royal Court will also appoint a liquidator, or where the debtor company is in distress, a provisional liquidator to act. Only liquidators on the 'Register of Approved Liquidators' may be appointed to act by the Royal Court.
Once appointed, the liquidator will be responsible for realising the debtor company's assets and paying its debts. From the point of its appointment, the directors' powers in respect of the debtor company will cease, and the liquidator will be responsible for the management of the debtor company. The liquidator must also advertise its appointment in the Jersey Gazette.
Following the introduction of the new Creditors' Winding Up procedure, it is now possible to search if there are any outstanding winding-up applications against a debtor company. To make a search request, a person may email CWUApplications@courts.je. Searches are charged at £35 per search.