In the matter of Centurion Management Services Limited and Article 155 of the Companies (Jersey) Law 1991 [2009]JRC227

Introduction

This judgment of the Royal Court in Jersey illustrates circumstances in which the court has been prepared to exercise its jurisdiction to order that a company be wound up on the grounds that it is just and equitable so to do.

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.  

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").

A winding up on 'just and equitable' grounds is a fast evolving remedy which allows a company to avoid a désastre. As in England and certain other jurisdictions, it is a flexible tool, with certain generally accepted grounds for the court exercising its discretion to grant the remedy, such as the need for an investigation into the affairs of the company concerned. Unlike désastre, it is not dependent on the cash flow insolvency of the company concerned and the Royal Court has a broad discretion to tailor the powers it may grant a liquidator to the needs of the situation.

The rule that creditors generally cannot continue to sue a company once a winding up order has been made has been applied to companies being wound up on 'just and equitable' grounds. This is not explicit in the Companies (Jersey) Law 1991 but has been ordered by the Court to give efficacy to the process. One of the features of winding up is that it is generally regarded as better to marshall claims against the company through a liquidator-operated adjudication procedure.

If a company in liquidation has a claim against another entity, can the liquidator compromise the claim on his own or must he do so with reference to the creditors to whom the settlement proceeds will make their way? That was answered with the Royal Court saying that creditors should ordinarily be given the opportunity to appear at the hearing at which the compromise is sanctioned [link to 2009 JRC 110].

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.

Introduction

The credit crunch 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 companies have often been used in cross-border finance transactions, it is important to be aware of the differences between Jersey and English insolvency procedures for companies.  

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

These are:-  

Bisson -v- Barker, P. Bish, H. Bish and Viscount 2008 JLR N[46]

This decision addresses the court's powers to order the winding up of a company on just and equitable grounds pursuant to Article 155 of the Companies (Jersey) Law 1991.
The company in question (the "Company") had operated two businesses in the Island. Relations between certain of the shareholders, involved in the management of the two businesses, broke down, such that it became impossible for them to continue to work together.

The Viscount