In a recent High Court case, a liquidator sought an order declaring that certain payments made by a company prior to its liquidation were a ‘fraudulent preference’ and invalid. The company had made payments to its overdrawn bank account which was personally guaranteed by one of its directors. It was alleged that the payments were made in order to reduce the company’s overdraft and therefore, the director’s own personal exposure under the guarantees.

The draft Banking Business (Amendment No. 8) (Jersey) Law 201- has been adopted by the States of Jersey and is awaiting the approval of the Privy Council. The draft Law will amend the Banking Business (Jersey) Law 1991 to provide for offences and impose duties under the Depositors Compensation Scheme.

Introduction

In finance transactions, security over Guernsey situs assets is usually taken by way of security agreement under the Security Interests (Guernsey) Law, 1993, as amended (the "Law").

The States of Guernsey has announced the recommendations from the consultation carried out on proposed changes to the Companies (Guernsey) Law 2008. This coincides with a judgment from the Royal Court highlighting the timely nature of proposed changes.

The 2008 Law was the result of a wholesale revision and consolidation of the corporate legal framework. Whilst its focus was on corporate law it also encompassed the insolvency regime in Guernsey. The consultation exercise was to determine what, if any, changes may be required now that the 2008 Law had been in place for some time.

This Briefing addresses the usual manner in which solvent voluntary liquidations proceed. The discussion is subject to the particular provisions of the Memorandum and Articles of Association of any company seeking a voluntary liquidation.

Where a company is not a regulated entity, has no liabilities and is able to pay its debts as they come due, a voluntary winding up and dissolution may be commenced by a resolution of directors.

Where it is proposed to appoint a voluntary liquidator, the directors of the company shall:

The term “pre-pack”, as it relates to insolvency sales, can have different meanings in different jurisdictions. In essence it refers to a sale of a distressed company or asset where the purchaser or investor has been identified and the terms of the sale have been fully negotiated before an insolvency process occurs. The advantage to the “pre-pack” structure is that the sale can be completed immediately upon or closely after the appointment of the insolvency office holder and, critically, without material interruption to the trading activity of the target company or asset.

The Central Bank of Ireland (the “Central Bank”) has declared its intention to strengthen the protection of client assets and has now published its “Review of the Regulatory Regime for the Safeguarding of Client Assets” (the “Review”).

The Review identifies three main objectives which should form the basis of a client asset protection regime:

The usage of pre-pack insolvency sales is less developed in Ireland than in other jurisdictions, but there has been an increasing number of asset sales structured through pre-pack receiverships over the last year. The most recent successful example was the sale of the A-Wear retail chain by its receiver Jim Luby of McStay Luby. In July 2011 the Superquinn grocery chain was sold to Musgraves by its receivers Kieran Wallace and Eamonn Richardson of KPMG, in what was probably the largest ever pre-pack transaction in this market. 

Once a company has entered into a formal insolvency process, all its assets must be realised and distributed in accordance with the Companies Acts. An attempt to prefer a particular creditor up to two years prior to an insolvent liquidation can be declared void by the courts on the application of the liquidator of the insolvent company. To succeed on such an application, however, the liquidator must prove that the dominant intention of the insolvent company at the time it entered into the transaction was to prefer the creditor in question.

Introduction

With the continuing development of sophisticated cross-border financial transactions, certain contractual practices have evolved and, with the passage of time, become recognised as standard in the relevant marketplace. Financial centres such as Jersey monitor such developments with a view to implementing policy and/or legislation as may be required or desirable to maintain and enhance the reputation of Jersey as a jurisdiction of choice for such cross-border transactions.