Flexibility and fairness have long been regarded as cornerstones of Jersey law. Both are crucial in a small jurisdiction, with limited resources and legislation, especially one which is continuing to evolve as an international finance centre. Even in these times of global economic meltdown, with increasing uncertainty and insolvency, the twin principles of flexibility and fairness have once again been deployed by the Jersey courts in order to deal with new situations.
The Belgravia Financial Services Group comprised a group of companies which acted as fund administrators and managers for certain funds into which third party investors had invested. It had come to the attention of the Jersey Financial Services Commission on the basis of concerns about its management, or rather lack of management. The Commission had in turn issued a series of directions which had the effect of restricting its and other entities' ability to act as funds administrators or managers. There were ongoing issues about the quality and completeness of the accounting records, uncertainty as to the identity, quality, and validity of the creditors and further concern that certain of the Group's balances may have arisen from fraudulent activities. Against such a background, there was always likely to be a dramatic ending and in this case it finally came when the States of Jersey Police executed numerous search warrants against the companies and others.
Such a denouement left the funds in limbo; key members of the Belgravia Group were no longer willing to be involved with the companies and the Belgravia companies were unable to fulfil their responsibilities as managers and administrators of the funds. Investors in the funds, and indeed the Jersey Financial Services Commission, were naturally very concerned.
In September 2008, the Royal Court made orders placing the Belgravia companies into just and equitable winding up, even though it was unclear whether all the companies were insolvent on a cash flow basis. The Royal Court took a broad overview of the situation and its powers. It found that the just and equitable regime was simply that, a procedure to be used when it was right so to do and it was not one that was limited to specific, identified circumstances. Moreover, the fact that some of the companies were not insolvent was not a bar to a just and equitable winding up, especially given that in this case, an investigation into the companies and their affairs was required as a matter of urgency. Overlying all of this however were the interests in the investors in the funds which needed to be protected. The only way to achieve this expeditiously was to utilise the just and equitable winding up procedure.
However, there is only one article in the Companies (Jersey) Law 1991 which deals with just and equitable winding up and it does not incorporate any of the other provisions ordinarily applicable to a creditors' winding up. Nor does it incorporate the provisions in the Bankruptcy (Désastre) (Jersey) Law 1990 which permit the Viscount to trade a business in order to sell it (albeit that this power is very sparingly used in practice). The court took this as an invitation to incorporate all those provisions that it thought relevant, and indeed, a few more. In particular, having decided that the interests of investors needed to be protected, it incorporated not only other provisions of the Companies Law (and some of those such as a moratorium on claims were intended to be binding even against non-parties) but also additional powers and duties which allowed the Belgravia companies to continue to operate. The purpose of these extended powers being to ensure that the Belgravia companies could and would continue to manage and administer the funds until a new manager could be found.
For the Jersey Court, this represented something of a departure from previous jurisprudence which had generally viewed insolvency as terminal and simply required the Viscount (or indeed, the liquidator on a creditors' winding up) to get in the debtor's assets and to liquidate the insolvent estate for the benefit of creditors as soon as practicable. In the case of the Belgravia companies, bringing the shutters down and crystallising assets and liabilities (as would normally have occurred with a désastre or creditors' winding up) would not have been in the interests of the investors in the underlying funds. Accordingly, the court took the view that the best way forward was to appoint liquidators under the just and equitable regime and to give them directions to manage the companies and to fulfil contractual responsibilities on an on-going basis. Whether this is the start of a US-style Chapter 11 regime or UK administration remains to be seen but in the current climate, flexibility in insolvency regimes must be generally beneficial for creditors and others. Indeed, at the beginning of March, the Court placed Poundworld into a just and equitable winding up rather than into a creditors' winding up to ensure that the company could continue to trade all its remaining stock (thereby maximising the return for creditors) rather than having the items seized and sold by their shipper or landlord.
Flexibility was also required when the Royal Court was tasked with dealing with issues arising in respect of an insolvent estate. Under Jersey Law, insolvent estates fall outside the provisions of the Bankruptcy (Désastre) (Jersey) Law 1990, and are required to be dealt with pursuant to the customary law. Unfortunately, insolvent estates do not appear to have been considered previously by the courts so there is no case law to help in identifying any appropriate procedure. What is however clear is that the désastre procedure was originally a court-created procedure designed to ensure fairness between multiple creditors by allowing them to bring their claims and to have them resolved in an orderly fashion.
Applying this overarching principle of fairness allowed the Court to identify and to impose a process for dealing with the insolvent estate. In this case, it ordered the executor to apply a process which largely mirrors the statutory process applied by the Viscount in the case of an ordinary désastre and imposed time limits and orders for the filing of claims and other matters which were intended to be binding even against non-parties.
Judicial creativity could not unfortunately stop there. The executor was the executor of the deceased's moveable estate. The deceased also had immoveable property. Ordinarily, creditors of a deceased person have to bring proceedings within a year and a day of the death if they wish to maintain security over the immoveable assets of the deceased. If they do not, the deceased's heirs get an indefeasible title to the immoveable property, and the creditors simply become unsecured creditors of the moveable estate. Given different entitlements under the Wills of Moveable and Immoveable property there was no obvious way to mix the moveable and immoveable estates. Conversely, proceedings against the immoveable property would have been costly and have served little purpose beyond increasing legal fees. Accordingly, the court dealt with these issues by imposing a moratorium on all claims against the immoveable estate and by accepting undertakings from the principal heir and others entitled under the Will of Immoveable property to ensure that the property would be held to the order of the court, sold, and the proceeds used to meet any shortfall in the moveable estate (in effect, decanting the immoveable property into the moveable estate so as to ensure that creditors received the full benefit of all of the deceased's assets).
Although by themselves these might appear to be relatively modest developments, in my view they signal a willingness on the part of the Jersey courts to act robustly to ensure fairness between all. The court has once again shown that it is not afraid to develop Jersey jurisprudence in appropriate cases to respond to events, all the while guided by the principle of fairness. It is to be hoped that these proactive responses will enable the Royal Court to respond appropriately to the uncertain times ahead.