The liquidators of Flightlease (Guernsey) Limited (“FLGL”) applied to the Court for an order that no dividends be paid in the liquidation of FLGL to Flightlease (Ireland) Limited (“FLI”) in respect of guarantees given by
FLGL in respect of FLI’s liabilities. FLI’s liabilities to FLGL were outweighed by the liabilities owed in the opposite direction.
Both FLGL and FLI were insolvent and the Court was asked to decide a number of matters, including whether the rule in Cherry v Boultbee (1839) 2 My & Cr 442 would apply in Guernsey. In addition the Court was asked to consider whether, if the principle applied, it could be contracted out of.
In brief the rule in Cherry v Boultbee (also known as the “fund ascertainment principle”) provides that a person who is entitled to participate in a fund of money but is also bound to make a contribution to that fund then he cannot be allowed to participate unless and until he has fulfilled his duty to contribute.
The Court decided that the Cherry v Boultbee principle affords a fair solution which is just and equitable for creditors of insolvent companies. In addition the principle had not been displaced by the terms of the agreements between the parties, and between the parties and other creditors. The application was therefore allowed although the judge did note that given this case involved insolvent companies, then whether the principal applied in other contexts in Guernsey law is a matter for subsequent consideration.