It has been common practice in recent years for the English Courts to make administration orders in respect of Jersey companies with English situs assets, based upon letters of request from the Royal Court of Jersey issued pursuant to section 426 of the UK Insolvency Act 1986. However, a recent case in the English High Court has challenged the basis upon which these administration orders have historically been made.
Section 426 of the UK Insolvency Act 1986 allows the English courts to make orders in response to requests for assistance from courts having "corresponding jurisdiction in any other part of the United Kingdom or any relevant country or territory". For these purposes, Jersey is a relevant country or territory. Where a Jersey company has all its material assets in England (particularly relevant for real estate holding companies), it is not unusual for the secured creditors to seek to obtain an English administration order, given the comparative flexibility of that regime as opposed to a declaration of désastre, the primary Jersey insolvency procedure available to third party creditors. (Under a désastre, a court official, the Viscount, takes possession and title of all the worldwide assets of the insolvent person, following which he will liquidate the assets and distribute to creditors in accordance with a statutory waterfall of payment. One consequence of the involvement of the Viscount is that pre-pack arrangements are more problematic.)
The Royal Court of Jersey has typically been supportive of these applications for letters of request where the assets of the insolvent company are in England, on the basis that an English administration order is seen as generally beneficial to the creditors as a whole.
In the case of HSBC Bank v Tambrook Jersey Limited ( EWHC 866 (Ch)), the English High Court was asked to consider a letter of request issued by the Royal Court of Jersey, requesting an order appointing administrators in respect of Tambrook, a Jersey incorporated company. The directors were based in Jersey, but its main business activity was in England. It had borrowed monies from HSBC Bank Plc and used these to buy and develop properties in Kent. The development had failed resulting in a collapse in the value of those properties; as a consequence, HSBC were looking to enforce their security. Following common practice, new administrators had been identified and a potential buyer found in anticipation of the order being made.
However, in this case, Judge Mann declined to make the order, for the following reasons:
- Section 426 requires a request from a court in a relevant country or territory. Three other elements must be present: (1) a UK court exercising insolvency jurisdiction, (2) a foreign court exercising insolvency jurisdiction and (3) assistance by the UK court for the foreign court.
- In this case, there were no current or proposed insolvency proceedings in Jersey. For section 426 to apply, the Royal Court of Jersey must be acting as an insolvency court in that it is doing something or planning to do something in that capacity which the English court can assist. Indeed, Judge Mann noted that the application for a letter of request was driven by a wish to avoid Jersey insolvency proceedings and to obtain an English administration order in lieu of désastre proceedings. The English High Court was being asked to provide "a substitute, not an assistance". The fact that the creditors may benefit was not material; it is the foreign court when exercising an insolvency jurisdiction that must be assisted. On this basis, the request did not fall with the scope of section 426.
- Judge Mann noted that there had been a number of English cases where Jersey letters of request had been submitted to the English courts and administration orders made as a consequence, even where there was no apparent intention to commence insolvency proceedings in Jersey. However, it did not appear that in those cases there had been an express consideration of the jurisdictional point raised now.
The potential consequence of this case is that it may be necessary to show that there are current or contemplated insolvency proceedings in Jersey before the English courts will make an administration order in "assistance". This appears to be based on a narrow reading of the provisions of section 426 and at odds with the more usual (and more commercial) approach of courts of different jurisdictions co-operating on cross-border insolvencies to benefit the creditors as a whole. Certainly, the approach of the Royal Court of Jersey when considering a letter of request of this kind is to place heavy emphasis on the interest of creditors and how they would be better served by an English administration. This judgement is however at first instance and may be the subject of an appeal.