(judgment 22/2009)

This case concerned whether the English Court of Appeal decision in Re Bayoil S.A. (the “Bayoil Case”) would be persuasive in Guernsey and how the Royal Court of Guernsey should exercise its discretion under section 406 of the Companies (Guernsey) Law 2008 (the “Law”).  

The Plaintiffs in these proceedings applied to the Court under s406 of the Law for an order that the Defendant be compulsorily wound up on the basis that it was unable to pay its debts within the meaning of s407 of the Law (the “Application”).  

It was common ground between the parties that the Defendant was unable to pay its debts within the meaning of s407 as a statutory demand had been made by the Plaintiff which remained unpaid and outstanding at the date of the hearing.  

Counsel for both parties agreed that the Bayoil Case is a persuasive authority in Guernsey such that the Court should only consider exercising its discretion to refuse to grant the Application if:  

  • there is a genuine and serious cross-claim or “a claim of substance”;  
  • the defendant company had been unable to litigate the cross claim; and  
  • the cross claim is in an amount exceeding the amount of the original claim.  

It was further agreed by Counsel that even if the Defendant could satisfy the Court on the above matters, the Court had a residual discretion not to dismiss the Application in exceptional circumstances (which would have to be proved by the Plaintiff). In order to satisfy the “exceptional circumstances test” the Plaintiff would have to show that the Defendant had ceased trading and, if the Application was allowed, there would be no prejudice suffered by other creditors and members of the Defendant.  

The Court in this case considered that the Defendant had satisfied the Court on the balance of probabilities that there was a serious cross-claim for which litigation had been reasonably delayed and the amount of that crossclaim exceeded the amount of the Plaintiff’s claim.  

It was not in dispute that the Defendant had ceased trading so the Court then had to be satisfied that the other creditors and the members of the Defendant would be not be prejudiced if the Application was dismissed.  

Evidence was obtained from a number of other creditors that they would be opposed to the Application, especially as the cross-claim against the Plaintiff was the only asset of any substantial value, and the amount the other creditors would receive on a liquidation was largely dependant upon the success of that cross claim.  

The Court was also persuaded by evidence that should the Application be granted, then it was unlikely that any funds would be provided to pursue the cross claim against the Plaintiff.  

The Court was of the opinion that the “exceptional circumstances test” had not been satisfied by the Plaintiff such that the winding up petition should be allowed to proceed.  

In accordance with modern practice set down in the Bayoil Case the Application was therefore dismissed (rather than stayed).