The Pauline Action is a legal mechanism that allows creditors to apply to the Royal Court of Jersey to set aside transactions undertaken by a debtor to defraud or otherwise prejudice them.

Emirates NBD Bank PJSC v Almakhawi and Others [2024] JRC 256 is the most recent case from the Royal Court to affirm that the Pauline Action, which has its origins in Roman law, remains an effective debt recovery tool for creditors in Jersey.

Purpose of the Pauline Action

On June 27, 2024, the U.S. Supreme Court released its 5-4 opinion in connection with the bankruptcy case of Purdue Pharma L.P. (“Purdue”). Over a vigorous dissent authored by Justice Kavanaugh, a narrow majority of the Supreme Court held that the Bankruptcy Code does not permit chapter 11 plans of reorganization to provide for non-consensual releases of non-debtors outside of the asbestos context.

Two recent decisions by U.S. District Courts have rejected attempts to include nonconsensual third party releases in chapter 11 reorganization plans. These rulings suggest third party releases may be facing increasing push back from the courts.