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02 August 2018
As a jurisdiction, Jersey is at the heart of cross-border insolvency and restructuring. Inevitably, situations arise where insolvent companies' assets or important evidence are located overseas, or an overseas liquidation regime would be best for creditors. Conversely, there will be situations where a foreign insolvency process requires steps to be taken in Jersey.
The Bankruptcy (Désastre) (Jersey) Law 1990 contains an assistance provision which gives the Royal Court discretion to assist the courts of prescribed jurisdictions (ie, British Isles jurisdictions, Western Australia and Finland). Further, as a matter of comity, the court has consistently shown itself to be willing – where appropriate – to assist overseas liquidators or other appointed officers by recognising those office holders in Jersey. Examples of recognised office holders have included liquidators, administrators and receivers from various jurisdictions.
Successful applications have also been made to the court for the grant of letters of request to the English courts to place a Jersey company in administration where creditors' interests would be best served, thereby 'passporting' the insolvency of the Jersey company to England. In 2017, for the first time in almost 40 years, Jersey's viscount (the official insolvency office holder) successfully obtained two letters of request to be issued to the English court to seek recognition in England to administer a major cross-border insolvency case.
The high-profile insolvency(1) of Jersey company Orb arl and its sole shareholder Gail Cochrane, a local general practitioner, has firmly placed Jersey's insolvency regime in the spotlight.
The matter commenced in late 2016 and has continued to build throughout 2017 and 2018, with related proceedings in the British Virgin Islands and before the UK High Court and interested parties ranging from the Serious Fraud Office to law firms.
The proceedings related to the theft of around £35 million from a company called Izodia by Cochrane's former husband, Gerald Smith, in late 2002; most of the proceeds of the theft were misapplied to the benefit of Orb. Once the theft had been discovered, Orb sold a substantial proportion of its assets to a third party, who transferred them into a complex structure.
It was asserted that there was an oral agreement between Orb and the third party – not reflected in the sale agreement – that Orb would continue to benefit from the assets that it had sold and the proceeds of their development.
Following an investigation by the UK Serious Fraud Office, Smith pleaded guilty to several charges, was sentenced to an eight-year prison term and was the subject of a £41 million confiscation order.
Jersey Royal Court proceedings
The proceedings before the Jersey Royal Court arose from litigation funder Harbour Fund's efforts to recover money and assets from Cochrane and Orb.
The matter has gone before the Jersey court three times and the court's judgments have shown a clear desire to promote the capability of Jersey's insolvency regime and its ability to deal with complex cross-border matters. The judgments issued in this saga are as follows.
In the first proceedings, the Royal Court found that there was no advantage to using English administration in favour of désastre and did not accept that Orb had substantial connections with England. The court considered that the majority of assets, listed by an accountant, were situated outside England and Wales. Accordingly, the Royal Court held that initiating the English administration process over a Jersey company that had no substantial connection to England was unjustified.
The second proceedings concerned a claim that was filed in the English courts by Cochrane and Orb against Harbour Fund for a sum of £73 million. Cochrane and Orb instructed Jersey advocates to assist with resisting Harbour's application for a declaration en désastre on the basis that they had a significant claim against the creditor in England. The Royal Court refused to allow Cochrane and Orb to frustrate the Jersey désastre process by engaging in English proceedings that it considered to be a 'last gasp' attempt to avoid bankruptcy.
In the third proceedings, the Royal Court granted an application by the viscount for the issue by the Royal Court of letters of request, pursuant to which the viscount sought recognition in England to administer the désastres of Cochrane and Orb. The court was prepared to make a wide request for assistance, including asking the English court to authorise the viscount to exercise her powers and functions as may be necessary, including the power to:
The saga is ongoing and there will undoubtedly be further judgments and authority arising from this interesting and complex insolvency. What is clear from the tenor of the judgments issued to date is that the Royal Court will not lightly permit Jersey's insolvency regime to be circumvented in favour of other jurisdictions. It is a clear indication to the international insolvency community that Jersey is confident in its ability to conduct complex cross-border insolvency matters of this nature.
For further information on this topic please contact Nicola Roberts or Leon Hurd at Ogier by telephone (+44 1534 514 000) or email (email@example.com or firstname.lastname@example.org). The Ogier website can be accessed at www.ogier.com.
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