With an increasing number of insolvency proceedings before it, the Jersey courts have recently seen several cases involving court appointed liquidators. Our previous briefing (“Just and Equitable Winding Up in Jersey - Who Will Take on the Role of Liquidator?”) considers the decisions reached In the Matter of Belgravia  JRC131 (23 September 2008) as well as Bisson and Bish & Others  JRC193 (11 November 2008) in which the Royal Court confirmed the basis upon which it will exercise its jurisdiction to order a just and equitable winding up under Article 155 of the Companies (Jersey) Law (the “Law”).
An appropriate remedy
The recent case of In the Matter of Centurion Management Services Limited  JRC227 (1 December 2009) the Royal Court confirmed the decision made in Belgravia and reviewed the factors which would be taken into consideration when determining whether a just and equitable winding up is an appropriate remedy.
An application was made by the directors of Centurion Management Services Limited for guidance on which of the three options available for the dissolution of Centurion should be followed: a creditors’ winding up, a désastre or a winding up on just and equitable grounds. Centurion believed that the latter was the most appropriate.
Centurion was a trust company which the Jersey Financial Services Commission (the “JFSC”) had identified as failing to comply with the relevant legislative and regulatory requirements. With the consent of the JFSC, Centurion had entered into a sale and revenue agreement with Trustcorp Services Limited (“Trustcorp”) pursuant to which Centurion’s clients joining Trustcorp would reduce Centurion’s insolvency.
Centurion was insolvent on both the balance sheet and cash flow tests. Due to its financial position, regulatory difficulties and the sale and revenue agreements with Trustcorp it had no prospect of trading out of its insolvent situation and its winding up was therefore inevitable.
Reasons for a just and equitable winding up
The representors argued that a just and equitable winding up was the most appropriate remedy in these circumstances for the following reasons:
- Centurion would need to carry on trading after the commencement of the winding up and the liquidator would continue to incur liabilities in so doing;
- A creditors’ winding up would not necessarily allow for the interests of Centurion’s clients to be taken into account during the winding up (Art 159 of the Law);
- Centurion’s clients would be likely to have more confidence in a just and equitable winding up rather than a creditors’ winding up because the liquidator would be directly accountable to the Court;
- Winding up the business in this way would require a flexibility of approach not expressly provided for in a creditors winding up;
- With a sale of its business to Trustcorp, the sub stratum of Centurion had gone; a situation in which the courts had previously exercised their powers under Article 155 (see Re Leveraged Income Fund Limited 2002/209);
- The choice of liquidator was important. The proposed liquidator had sufficient expertise and detailed knowledge to undertake the role and was willing to accept his appointment in a just and equitable winding up but was reluctant to consider appointment under a creditors’ winding up;
- There was a real possibility of a conflict of interest between Centurion and its creditors, which a liquidation committee would not be adequate to deal with;
- There was a need to appoint a liquidator urgently in order to protect the interests of Centurion’s clients and to meet the JFSC’s regulatory requirements; and (ix) Although a désastre could be declared immediately, the Viscount was in no better position to deal with the winding up of the company than a liquidator appointed under Article 155.
In Belgravia the Court had been concerned with the need to wind up companies that managed regulated funds and where an investigation was required into the possible misappropriation of assets in breach of fiduciary duties. The Court in Belgravia accepted that a just and equitable winding up was appropriate for a number of reasons, including:-
- the need for flexibility;
- the avoidance of conflict with the creditors;
- the need to protect the interests of the investors; and
- the need for the appointment of an appropriately experienced liquidator.
Although there was no need for an investigation with Centurion, there was a need to continue the regulated business whilst the company was wound down, and on that basis similar considerations to those in Belgravia applied. The Court accepted the Representor’s reasoning and made an order for a just and equitable winding up.
The future of Court appointed liquidators
Centurion continues the trend seen in both Belgravia and Bisson of the Royal Court’s willingness to exercise its jurisdiction to allow a just and equitable winding up where other options for the winding up of an insolvent company are available, but are less flexible or attractive.