The Corporate Insolvency and Governance Act 2020 ("CIGA") came into force on 26 June 2020 with the main objective of giving businesses "breathing space" in order to continue trading in light of the COVID-19 pandemic. It was progressed quickly through parliament and includes a number of temporary measures aimed at immediately reducing the number of companies entering insolvency procedures.

The Royal Court of Guernsey has recently considered an application under the Companies (Guernsey) Law 2008 (the Law) for the Court to approve a contract for the sale of the assets of a Guernsey company in compulsory liquidation. The decision provides helpful guidance for liquidators and creditors as to the issues the Court will take into account in deciding whether to grant such approval.

Background

There has been much mention in the press in recent times about the amount of allegedly incorrect or fraudulent claims made by employers under the Government’s Coronavirus Job Retention Scheme (“CJRS”) (furlough scheme).

The current global pandemic has provided and will continue to provide plentiful opportunities for fraud and opportunism. One area which is potentially open to abuse is the protection of companies from the service of statutory demands or the presentation of winding up petitions following the enactment of the Corporate Insolvency and Governance Act 2020 (CIGA). It is important to consider alternative remedies if a debtor seeks to use this to their advantage.

Alerts and Updates

The rule becomes effective one year after it is published in the Federal Register.

On October 30, 2020, the Consumer Financial Protection Bureau (CFPB) issued a final rule revising Regulation F, 12 CFR part 1006, which implements the federal Fair Debt Collection Practices Act, 15 U.S.C. 1692, et seq. (FDCPA).

EXECUTIVE SUMMARY

Balance has been tipping over from creditors to shareholders and the pandemic is only bringing this deepening fault line to the fore.

Covid-19 slammed into the global consciousness this March and, as expected, immediately torpedoed the markets.

But despite the worsening economic data hogging news headlines, exacerbated by intensifying US-China tensions, the markets have paradoxically strengthened since. The S&P 500 has rebounded by more than 30 per cent since its March nadir, breaching its five-year pre-Covid-19 high.

The financial impact of the COVID-19 pandemic has put pressure on a wide range of structures and, as a result, lenders, borrowers and other counterparties are looking more closely at the impact of possible insolvency proceedings. As Jersey entities are often used in cross-border finance transactions, it is important to be aware of the differences between Jersey and English insolvency procedures for companies, trusts and limited partnerships.

What are the main Jersey insolvency procedures for a Jersey company?

These are:

Statutory demands are often conflated with other debt recovery mechanisms available to creditors. Whilst a statutory demand may, in certain circumstances, be a useful tool in the debt recovery kit, its primary function is to establish whether a company can pay its debts as they fall due i.e. whether it satisfies the “cash flow test”.

In Guernsey, a company must pass both the cash flow and balance sheet solvency tests to meet the definition of solvency.

Statutory demand is a common and important tool in the winding up process. But recently, the Hong Kong Court of First Instance has reminded us that it is by no means a must.