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").

The liquidators made an ex parte application under Article 170 to sanction the proposed compromise of a claim brought against AAA Holdings Limited (the "Company") which claim was the subject of court proceedings. The compromise had been agreed, subject to the sanction of the court, on commercial grounds and subsequent to legal advice having been obtained.

The key question before the court was whether the other creditors of the Company, of which there were three, should be notified of the proposed compromise and so be given the opportunity to be heard.

Article 170 does not contain a requirement that other creditors are notified and given an opportunity to be heard. The Royal Court was referred to an English law authority (In re Greenhaven Motors Limited [1999] BCC 463) which considered the court's approach to an application by a liquidator for leave to compromise proceedings. The salient points from that authority, which in the Royal Court's view reflected the correct approach, are as follows:

  • in deciding whether to sanction a proposed compromise, the court must consider the interests of those who have a real interest in the assets of the company in liquidation, and whether those interests are to be best served by entering into the compromise;
  • it is not for the court to examine the terms of the compromise; and
  • the court may need to weigh the different interests of those whose interests it must consider and, in addition, the views of the liquidator.

The court went on to say that, in the absence of a liquidation committee or a meeting of creditors (as envisaged by Article 170), creditors should ordinarily be given the opportunity to be heard so that their views could be taken into account by the court before it decided whether or not to sanction a compromise. In this respect, any creditor wishing to be heard would do so at its own risk as to costs.

It was noted that there may, on occasion, be circumstances in which it is not suitable for the views of other creditors to be heard. An example in this regard would be where to obtain the views of other creditors could jeopardise the compromise. There was no such concern in this case and the application was therefore adjourned to allow the other creditors to be notified and given the chance to be heard.

The final issue, the court having arrived at the decision to notify the creditors, was the question of what information should be given to them. It was decided that, whilst legal advice protected by litigation privilege should not be disseminated, the creditors should be given sufficient information to understand the terms of the compromise and, in addition, the reasoning behind the recommendation of the liquidators that the compromise should be sanctioned.