Zone of insolvency - directors in the firing line

Happy New Year?

2018 saw a number of high profile insolvencies around the world, including in Guernsey. The climate for many sectors remains extremely challenging with the UK further hindered by continuing uncertainty around Brexit. EY's Profit Warning Stress Index hit its joint highest level for two years in the third quarter of 2018 with 68 UK quoted companies issuing profit warnings.

The Court of Appeal of Jersey has now considered in an appeal against the Royal Court’s decision of 10 January 2018 the case of a UK trustee in bankruptcy (the “Trustee”), whose appointment had been recognised in Jersey by order of the Court and who had been authorised to obtain documents and/or information for particular purposes, who was later subject to coercive measures in his home jurisdiction requiring the disclosure of such material for different, unauthorised purposes (in this case an Information Notice issued by HMRC pursuant to Schedule 36 of the UK Finance Act 2008 (the “

The Supreme Court of Bermuda has confirmed once again its willingness to order Confidentiality Orders in cases that involve the administration of private trusts. In the 2018 case of In the Matter of the E Trust (the “E Trust”), Acting Justice, Shade Subair Williams (subsequently appointed as a Puisne Judge) reaffirmed previous rulings that private trust proceedings can be anonymized and heard privately in Chambers.

The Facts

The Royal Court of Jersey was recently required to consider its approach when a trustee in bankruptcy appointed in a foreign jurisdiction (the “Trustee”), whose appointment has been recognised in Jersey by order of the Court and who has been authorised to obtain documents and/or information for particular purposes, is later subject to coercive measures in his home jurisdiction requiring the disclosure of such material for different, unauthorised purposes.

In the January 2018 edition of our dispute resolution and insolvency bulletin, we review eight cases from the BVI Commercial Court and BVI Court of Appeal from the past year. As most readers will be aware, the main non-legal news last year was that in September 2017, the British Virgin Islands were hit by category five hurricanes Irma and Maria which caused considerable devastation. The BVI Commercial Court temporarily relocated to St Lucia and impressively got back on its feet quickly in order to support the international financial services business of the BVI.

Introduction

On 4 September 2017, Her Honour Hazel Marshall Q.C., Lieutenant Bailiff, handed down judgment in the case of Carlyle Capital Corporation Limited (in Liquidation) and others v. Conway and others [2017] Civil Action No. 1510, one of the most anticipated judgments in recent Guernsey jurisprudence, and the first time that a Guernsey court has memorialised certain fundamental legal principles affecting directors and the companies they serve.

On June 27, 2017, the United States Supreme Court granted the petition for writ of certiorari regarding the decision In re Province Grande Olde Liberty, LLC, 655 Fed.Appx. 971 (4th Cir. Aug. 12, 2016) to decide a circuit split on the applicable standard for debt recharacterization.

On January 24, 2017, victims of Bernard Madoff’s Ponzi scheme lost their appeal of a bankruptcy court decision barring them from suing an alleged Madoff co-conspirator because of a third-party injunction contained in a settlement between the alleged co-conspirator and the Trustee liquidating Madoff’s scheme. See A & G Goldman Partnership v. Capital Growth Company (In re Bernard L. Madoff Investment Securities LLC), 565 B.R. 510, 514-515 (S.D.N.Y. Jan.

On May 8, 2017, the U.S. Bankruptcy Court for the Middle District of Florida entered an order compelling production of attorney-client communications between Regions Bank and its counsel, finding that Regions had put those communications “at issue” by raising a good faith affirmative defense under 11 U.S.C. § 548(c) in response to a fraudulent transfer claim brought against it. Welch v. Regions Bank (In re Mongelluzzi), No. 8:14-ap-00653-CED (Bankr. M.D. Fla. May 8, 2017), ECF No. 319 (Delano, J.) (herein Mongelluzzi).

In First Southern National Bank v. Sunnyslope Housing Limited Partnership, No. 12-17241 (9th Cir. May 26, 2017), the Ninth Circuit Court of Appeals, in an en banc decision, held that, for purposes of confirmation of a plan of reorganization over a mortgagee’s objection, the value of the mortgagee’s secured claim was the value of the property as low income housing not the value the mortgagee would have received on foreclosure free of the low income housing restrictions.