News and Insights
28 September 2016
This briefing note covers the following common methods by which a company registered in Jersey may be wound up.
In a summary winding up (voluntary, where the company is solvent). in a creditors’ winding up (voluntary, where the company is insolvent). following a declaration that the company’s property is en désastre (voluntary or involuntary, where the company is insolvent).
In addition, companies may be dissolved at the end of an applicable limited term, by order of the court in certain circumstances (e.g. a just and equitable winding up) and where the Registrar of Companies exercises his power to strike a company off the register. These matters are not covered by this note.
1. SUMMARY WINDING UP
Statement of solvency A summary winding up can only occur where a company:
- has no assets and no liabilities;
- has assets… but no liabilities;
- has liabilities that the company is able to discharge within 6 months of commencing the winding up;
- has liabilities that will arise more than 6 months from commencing the winding up which the company will be able to discharge as they fall due; or
- has a combination of (b) and (c).
The first step in a summary winding up is that the company directors must sign a ‘statement of solvency’ confirming that each of them has made full enquiry into the company’s affairs and is satisfied that one of the above criteria applies.
Special resolution - Within 28 days of the directors signing this statement, the members must resolve by special resolution that the company be wound up summarily. This resolution needs to be delivered to the Registrar of Companies within 21 days together with the statement of solvency. It is an offence to deliver a statement signed without reasonable grounds.
Effect - The winding up commences upon the date of the passing of the special resolution and the company must then cease to carry on business. The powers of the company may be exercised only for the purposes of realising the company’s assets, discharging its liabilities and distributing its assets. These powers will be exercised by the directors unless a liquidator is appointed.
Dissolution - A company which has no assets and no liabilities will be dissolved upon registration of the statement of solvency. In any other case, following the discharge of any liabilities and the distribution of all remaining assets, the company will be dissolved upon registration of a second statement confirming that the company has no assets and no liabilities.
Termination - A summary winding up may be terminated by special resolution or if the directors (or liquidator) form the opinion that the company is insolvent, at which point the company will enter a creditors’ winding up instead.
2. CREDITORS’ WINDING UP
Special resolution - A creditors’ winding up commences on the passing of a special resolution by the members. It is advertised in the local paper with 14 days of the resolution being passed.
Creditors’ meeting - Not less than 14 days before the company meeting at which the special resolution is to be proposed, the company must give notice to its creditors calling a meeting of creditors to be held in Jersey on the same day as and immediately following the conclusion of the company meeting. The notice should also nominate a person to be liquidator for the purposes of a creditors’ winding up.
Effect - With effect from the passing of the resolution, although the corporate state and capacity of the company continues until it is dissolved, the company must cease to carry on business except in so far as may be necessary for its beneficial winding up. No change in the status of the members of the company is permitted. Any transfer of shares made without the liquidator’s approval will be void. Proceedings (other than an application for a declaration that the company’s property is “en désastre”) may only be taken against the company with the court’s consent.
Liquidator - Only an individual qualified to act may be appointed as liquidator. The creditors may also appoint a liquidation committee. If they do so, the company may propose up to five members of the committee. Once a liquidator has been appointed, the directors must cease to act unless the liquidation committee or the creditors authorise them to do so. The liquidator may exercise all the powers of the company required for its beneficial winding up except that the compromise of any claim by or against the company and the payment of any class of creditors in full require the sanction of the court, the liquidation committee or a meeting of creditors.
Dissolution - If a creditors’ winding up continues for more than 12 months, the liquidator must call a general meeting of the company and a meeting of creditors. Such meetings must be held within three months of each anniversary of the commencement of winding up. As soon as the company’s affairs have been wound up, the liquidator must prepare an account of the winding up and lay the account before a general meeting of the company and a meeting of creditors. Once such meetings have been held, the liquidator must make a return to the Registrar of Companies which in the case of a public company must be accompanied by a copy of the accounts. The company is deemed to be dissolved on the expiry of three months from the date the liquidator’s return is registered, unless the court, on the application of the liquidator or any other interested party, makes an order deferring the date of dissolution.
3. BANKRUPTCY (DÉSASTRE)
Declaration & effect - Désastre is a declaration of bankruptcy, the effect of which is to vest the insolvent debtor’s assets in the Viscount, whose duty it is to get in and liquidate those assets for the benefit of creditors with proven claims.
Application - There are a number of parties who may make an application for a declaration, including: a creditor with a claim against the company of not less than £3,000; by the company itself; or the Jersey Financial Services Commission. It is necessary to give the Viscount at least 48hrs notice of an intention to make a désastre application, although in practice it can be very helpful to give more. If there is a need for urgency, the Court has discretion to hear an application on short notice. The application is usually made ex parte by way of a Representation accompanied by an affidavit setting out all the relevant facts to satisfy the requirements – the most important of which is to show prima facie that the company is insolvent but has or is believed to have realisable assets. A creditor applicant will also need to show that is has a claim against the debtor. If the company is solvent at the date of the declaration, damages can be claimed from the applicant in respect of any loss sustained as a consequence of the declaration, unless the applicant acted reasonably and in good faith.
Viscount - On the making of the declaration, all the company’s property immediately vests in the Viscount. The Viscount has extensive powers in the winding up of the company’s affairs including: carrying on the company’s business as far as is necessary or expedient for its beneficial disposal; borrowing money in the company’s name and charging property; making compromises or arrangements with creditors; making any compromise or arrangement with debtors; disclaim onerous property; and appointing an agent to act for him or her in respect of any particular property. There are detailed rules in place which govern the rights of secured and unsecured creditors, the proving of debts and their order of payment, and also the setting off of debts and interest payable. Dissolution When the Viscount has realised all the company’s property or as much as can be realised, the Viscount will supply all creditors and the Judicial Greffier with a report and accounts relating to the désastre and the creditors will receive whatever final dividend is due. It is for the Viscount to notify the Registrar of Companies in writing of the date on which the final dividend is paid. Once the registrar receives the notice the company will be dissolved from the date of receipt, unless the Attorney General has notified the Registrar that criminal proceedings have been instituted or are pending against the company.
For advice on the winding up procedures and insolvency issues, contact our commercial team on: +44 (0)1534 632255.