Vol 7 (2010) - Issue 2

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Keeping a Jersey, Channel Islands, Company Trading: Two Recent Trends

In the absence of administration or an equivalent regime in Jersey, the Royal Court of Jersey has had to adopt a flexible approach if it is desirable and appropriate to keep a Jersey registered company trading. Two recent trends are noticeable. First, is the increasing use of winding up on just and equitable grounds and second is requesting the use of English (or Scottish) administration. A brief summary of these two procedures is set out below.

Winding up on just and equitable grounds

The procedure, which is dealt with in the Companies (Jersey) Law 1991 at Article 155 and is based on similar provisions in England, is available to companies and their shareholders (but not creditors) and to the Jersey Financial Services Commission. It is a wholly discretionary remedy without any fixed criteria for its application (so that, although there are categories into which most applications fall, there is no exhaustive list). In the past decade winding up on these grounds has been applied to a collective investment fund (the Leveraged Income Fund Limited, in October 2002), a fund administration and management business (comprising companies within the Belgravia Group, in September 2008), a high street retailer (Poundworld, in March 2009) and, most recently, a trust company (Centurian Management Services Limited in October 2009). The remedy is not insolvency dependent and there may or may not be a need for an investigation into the company’s affairs (although both of these factors, together with loss of ‘substratum’, are the principal grounds on which the application has usually been founded in Jersey).
One key feature of the remedy is that the Court has a broad discretion when appointing liquidators on these grounds to grant appropriate powers to the appointees, including powers to trade the business. Accordingly, if the desirability of continuing to trade a business in order to maximise value is the most important factor to be considered when weighing up the alternatives for dealing with a distressed Jersey company, then winding up on just and equitable grounds may well be the answer. (For completeness I would mention that the Viscount of the Royal Court of Jersey does have limited powers to trade a business in the only other court-initiated insolvency procedure in Jersey, désastre, which is similar to an English compulsory liquidation. He may do so for the purposes of the company’s beneficial disposal, although I would add that this power is not extensively used.)
Of course, winding up is designed to lead to the ultimate death of the company. Whilst it might be open to the Royal Court to stay or terminate a winding up in appropriate circumstances under the Companies (Jersey) Law 1991, as far as I am aware this has never been done. Aside from that point, the trading conducted during the winding up is most often merely a device to maximise returns, rather than being carried out with the aim of giving the company breathing space to sort out its affairs and survive as a going concern, as is the case under a genuine reconstruction procedure.
I should also add that Jersey does not have provisional liquidation. I am aware that in certain jurisdictions, notably from my own experience in the Cayman Islands, provisional liquidation is widely used to gain the benefit of a moratorium and to restructure liabilities, often through a creditors’ scheme of arrangement which, if successfully achieved, can lead to survival of the company and eventual dismissal of the winding up petition.
Given what appear at first sight to be limitations of the domestic position in Jersey, it is sometimes appropriate, if the company’s ultimate survival is a realistic goal, to look overseas for assistance from another jurisdiction with which the company has sufficient links, and to see if the overseas court will take jurisdiction and apply administration, or some similar procedure. Whether assistance is available from another jurisdiction in relation to a Jersey company, will of course depend on the jurisdiction involved.