Jul 05 2012
The States of Guernsey has announced the recommendations from the consultation carried out on proposed changes to the Companies (Guernsey) Law 2008. This coincides with a judgment from the Royal Court highlighting the timely nature of proposed changes.
The 2008 Law was the result of a wholesale revision and consolidation of the corporate legal framework. Whilst its focus was on corporate law it also encompassed the insolvency regime in Guernsey. The consultation exercise was to determine what, if any, changes may be required now that the 2008 Law had been in place for some time.
In terms of insolvency law (and pending specific and standalone revision of the insolvency regime in Guernsey) the consultation has recommended a number of amendments. The most significant changes relating to insolvency are as follows:
(1) The introduction of express provision for the restoration of companies that have been dissolved on completion of a winding up.
The laws of other jurisdictions, particularly England and Wales, influence the development of Guernsey Company Law and make express provision for this. It was seen in Guernsey that an express provision would remove any uncertainty about the extent of the Court's power to order restoration in circumstances where it was just and appropriate – for example to permit the disposal of an asset of a company that has come to light after completion of the winding up.
(2) To provide that the Guernsey Financial Services Commission must be given not less than seven days notice of any winding up application.
At the moment notice is only required under certain circumstances and this amendment is considered necessary in order to ensure that an application for winding up does not impact upon any regulatory action being taken or contemplated by the GFSC.
(3) The introduction of an express power for the Court to provide a release and discharge to a liquidator on the completion of a winding up.
This removes what had been an uncertain and grey area in relation to the Court's jurisdiction in the process of a winding up. There is no Official Receiver in Guernsey and it is important that experienced insolvency practitioners are prepared to come forward and act as liquidators of Guernsey companies. The absence of an express power for the Court to release and discharge a liquidator on completion of a winding up is perceived as a potential disincentive in attractive suitable qualified practitioners.
This question of release and discharge was addressed for the first time by the Royal Court recently in the cases of Amazing Global Technologies Limited (in liquidation) and Kingston Management (Guernsey) Limited (in liquidation). These cases were heard together and concerned applications for a release and discharge by a liquidator made under section 426 of the 2008 Law. That section enables a liquidator to seek the Court’s directions in relation to any matter arising in relation to a winding up and gives the Court power to “make such order as it thinks fit”.
In his judgment on 11th June 2012, shortly after the outcome of the consultation on company law changes was published, the Deputy Bailiff held that the wording of section 426 was not broad enough to enable a liquidator to apply for such an order. In his view the natural meaning of the section merely enabled a liquidator to seek assistance from the Court in relation to how to deal with something that has arisen during the course of a winding up and which needed to be resolved as part and parcel of the liquidation.
The Deputy Bailiff further addressed the established practice of the Guernsey Courts in developing Guernsey’s insolvency framework by drawing from principles established in English law. Whilst noting that the Court was free to adopt equitable principles supplementing the legislative framework of England, he held that it would not adopt something set out in English statute – the ability of a liquidator in England to seek a release and discharge is provided for specifically under the provisions of the Insolvency Act 1986.
The Deputy Bailiff also noted that a review of the corporate insolvency regime in Guernsey was ongoing and the Court should exercise caution as a result when considering section 426. The Royal Court has, therefore, clarified an area of doubt and made clear that the current law does not provide for a release and discharge of a liquidator upon completion of the winding up. The good news for prospective liquidators, though, is that the States of Guernsey will legislate shortly to provide for such applications and rectify what might otherwise have been considered a shortfall in the insolvency regime in Guernsey.
We will provide a full briefing note on the Company Law changes in due course but in the meantime if you have any questions arising from this alert please do not hesitate to contact either Alasdair Davidson or Jon Barclay.