The liquidity crisis has increased the need for creative procedures to avoid sudden death bankruptcy in order to salvage existing value.

A Jersey company or a company incorporated elsewhere but administered in Jersey may become involved in insolvency procedures under Jersey law or the law of a jurisdiction outside Jersey.  

The role of Jersey as a financial centre means that on occasions there will be a requirement for a foreign liquidator or an office-holder under bankruptcy legislation to obtain information or documentation from persons or companies located in the Island. There have been a series of recent court decisions establishing the appropriate levels of co-operation with other jurisdictions.

The Royal Court of Jersey can receive requests from outside Jersey by courts prescribed under the Bankruptcy (Désastre) (Jersey) Law 1990 or based on principles of comity. This will commonly involve a Jersey company or any other company with assets or information situated in Jersey. Insolvency practitioners appointed under a law or by a court outside Jersey will have no authority, as a matter of Jersey law to act in Jersey. It is normal therefore for an application to be made for recognition of the appointment and authority to exercise powers in Jersey.

A Jersey company or one of its creditors may wish the company to be placed into administration in England under Schedule B1 of the UK's Insolvency Act 1986 (the "Act").

The Royal Court of Jersey can receive requests from outside Jersey by courts prescribed under the Bankruptcy (Désastre) (Jersey) Law 1990 or based on principles of comity. Such requests may involve a Jersey company or any other company with assets or information situated in Jersey. Insolvency practitioners appointed under a law or by a court outside Jersey will have no authority, as a matter of Jersey law, to act in Jersey. It is normal, therefore, for an application to be made for recognition of the appointment of such practitioners and to authorise them to exercise powers in Jersey.

The States of Jersey published a White Paper on a proposed statutory insolvency payments scheme (the "Scheme") on 3 December 2009, with a closing date for consultation responses of Friday 5 February 2010.

The White Paper states:

The Statutory Position:

The provisions governing the recognition of a foreign (including a UK) insolvency office holder under Jersey law are found in Article 49 of the Bankruptcy (Désastre) (Jersey) Law 1990 (the 'Law') and Article 6 of the Bankruptcy (Désastre) (Jersey) Order 2006 (the 'Order').

In the matter of the Representation of Gregory Branch and Lee Manning, Joint Liquidators of AAA Holdings Limited (in liquidation) [2009]JRC110

This judgment is of interest as being the first occasion on which the Royal Court in Jersey was asked to sanction the compromise of a claim under Article 170 of the Companies (Jersey) Law 1991 (the "Companies Law").

Background

The concept of cell companies was first introduced to Jersey in February 2006. In addition to the widely recognised principle of the protected cell company ("PCC"), a new concept of incorporated cell company ("ICC"), the first of its kind, was also implemented.

In the current economic environment, there are a number of entities that are being restructured. Our current experience has been that such restructurings fall into two areas, namely a debt for equity swap or a release of “toxic” assets from a group structure in order to minimise exposure to this asset class.

Debt for Equity Swap