In brief: liquidation and reorganisation processes in Jersey

Types of liquidation and reorganisation processes

What are the requirements for a debtor commencing a voluntary liquidation case and what are the effects?

An insolvent corporate debtor would usually commence a creditors’ winding up. The procedure is set out in Chapter 4 of the Companies (Jersey) Law 1991. The requirement is that there is no outstanding declaration of désastre in respect of the company. The process starts with the company passing a special resolution for a creditors’ winding up and advertising this fact. A creditors’ meeting is then called at which creditors will usually nominate a liquidator.

The effect of a creditors’ winding up (the aim) is to bring about the orderly liquidation of the company where the assets are realised and distributions are made to the company’s creditors.

While an insolvent corporate debtor could seek its own declaration of désastre instead, a creditors' winding up is usually preferred over a désastre in corporate insolvencies.

What are the requirements for a debtor commencing a voluntary reorganisation and what are the effects?

There is no formal reorganisation process. Where there is good reason for a reorganisation being carried out in a foreign jurisdiction (eg, by way of an administration process in the United Kingdom) then the Royal Court may, on application by the creditors, issue a letter of request to the courts of that foreign jurisdiction asking that the company be put into a reorganisation process there.

Schemes of arrangement can also be used to effect a restructuring with creditors but are rarely used when a company is already insolvent.

How are creditors classified for purposes of a reorganisation plan and how is the plan approved? Can a reorganisation plan release non-debtor parties from liability and, if so, in what circumstances?

There is no formal reorganisation process. Schemes of arrangement can also be used to effect a restructuring with creditors but are rarely used when a company is already insolvent. Simply, creditors are divided into separate classes based on their rights against the company and in each class, a majority in number representing three-quarters of the value of the voting creditors must vote in favour. Court sanction is then required. Further, if the arrangement is entered into immediately preceding the commencement of, or during the course of a creditors’ winding up, then creditors have a right of appeal within three weeks of completion of the arrangement.

What are the requirements for creditors placing a debtor into involuntary liquidation and what are the effects? Once the proceeding is opened, are there material differences to proceedings opened voluntarily?

The Companies (Jersey) Law 1991 has recently been amended to provide for a creditor-instigated winding up process. This new process sits alongside the existing shareholder-instigated winding up process in Chapter 4 of the Law. Slightly confusingly, both are termed a 'creditors' winding up'.  However, the creditor-instigated process requires an order of the Royal Court.

A creditor with a liquidated claim of at least £3,000 may make an application to the Royal Court for the winding up of the debtor company if: the debtor is unable to pays its debts; the creditor has evidence of the company's insolvency; or the creditor has the consent of the company. One route to establishing insolvency is to follow the statutory demand procedure. A creditor is deemed unable to pay its debts if it has failed to pay within 21 days of a statutory demand being served on it and is otherwise unable to reasonably dispute the debt. In all circumstances for a court-ordered creditors' winding up, the creditor must give the debtor at least 48 hours' notice of the application to court being made.

If the Royal Court accepts the creditor's application, then it will order the winding up of the debtor company and either appoint the liquidator nominated by the creditor or select a different liquidator. The Royal Court may order the appointment of a provisional liquidator after the application but before the winding up order has been made. The Royal Court may terminate a winding up if it is satisfied that the creditors' claims will be paid in full.

There are no material differences between creditor-instigated and shareholder-instigated winding up processes. In both, the liquidator seeks to realise assets for the benefit of creditors, including pursuing any claims on behalf of the company, and the provisions relating to both are in fact the same under the Law. However, both are materially different to summary winding up, which is a solvent process. 

The option remains for a creditor to apply for a debtor to be declared en désastre pursuant to the Bankruptcy (Désastre) (Jersey) Law 1990, the 2006 Rules and common law. However, a désastre is generally considered to be disadvantageous when compared to the new creditors' winding up process on the basis that the creditor does not have any control and the costs are usually higher.

Both a natural person and a corporate may be declared en désastre. Once a declaration has been made, the Viscount (the Royal Court’s enforcement officer) is appointed to administer the estate. In this way, désastre is materially different to the liquidation processes set out in the Companies (Jersey) Law 1991 in that a court official, rather than a professional insolvency practitioner, has conduct of the liquidation. There are other processes that may be used but these are not considered as désastre is usually preferable.

A company in a creditors’ winding up (court-ordered or otherwise) may be declared en désastre but not the other way around.

What are the requirements for creditors commencing an involuntary reorganisation and what are the effects? Once the proceeding is opened, are there any material differences to proceedings opened voluntarily?

There is no formal reorganisation process. Where there is good reason for a reorganisation being carried out in a foreign jurisdiction (eg, by way of an administration process in the United Kingdom) then the Royal Court may, on application by the creditors, issue a letter of request to the courts of that foreign jurisdiction asking that the company be put into a reorganisation process there.

Do procedures exist for expedited reorganisations (eg, ‘prepackaged’ reorganisations)?

There is no formal reorganisation process. Where there is good reason for a reorganisation being carried out in a foreign jurisdiction (eg, by way of an administration process in the United Kingdom) then the Royal Court may, on application by the creditors, issue a letter of request to the courts of that foreign jurisdiction asking that the company be put into a reorganisation process there. Schemes of arrangement can also be used to effect a restructuring with creditors but are rarely used when a company is already insolvent.

How is a proposed reorganisation defeated and what is the effect of a reorganisation plan not being approved? What if the debtor fails to perform a plan?

There is no formal reorganisation process.

Are there corporate procedures for the dissolution of a corporation? How do such processes contrast with bankruptcy proceedings?

If a company is solvent then it may follow the summary winding-up process contained in Chapter 2 of the Companies (Jersey) Law 1991, at the conclusion of which it will be dissolved. If a company is insolvent then it will usually end up in a creditors’ winding up or a just and equitable winding up at the conclusion of which, again, it will be dissolved. Similarly, a company will also be dissolved at the conclusion of a désastre process.

How are liquidation and reorganisation cases formally concluded?

Insolvent liquidations (ie, by way of a creditors’ winding up or a just and equitable winding up) are usually concluded by the liquidator preparing a final account and laying it before a meeting of the creditors, and then filing the necessary paperwork to dissolve the company. In the case of a just and equitable winding up (which is a court-ordered process), the liquidator will usually return to court for final orders, including that the company be dissolved.