Prior to March 2022, a creditor’s winding up of a Jersey company could be instigated only by members of the company. The only corporate insolvency process available to creditors was désastre, which led to the vesting of the assets of the company in the Viscount (the executive officer of the Court) rather than a liquidator. However, in March 2022 the process was extended to allow creditors to invoke the process, alongside the introduction of a statutory demand procedure.
The application was brought by HWA 555 Owners LLC, a special purpose vehicle which is the landlord of a substantial office building in San Francisco. The parent company of HWA 555 Owners is Vornado Realty Trust and the debtor is a Jersey company formerly known as Regus PLC, part of the IWG serviced office group. The purpose of Redox PLC was to act as a guarantor entity in respect of the rental obligations of IWG Group tenant companies to landlords. Redox PLC was expressed to be ‘dual hatted’ as it also had a registration in Luxembourg.
In January 2019, Redox made a distribution to its parent company of assets valued at GBP644 million, but the fair value of which exceeded GBP3.3 billion. Redox subsequently became insolvent in September 2020 and was placed into an insolvency procedure in Luxembourg. HWA 555 had brought a claim against Redox in California in the sum of approximately USD90 million in respect of the alleged improper termination of a lease. At the time at which the winding up application was made, HWA 555 had an unliquidated contingent claim for c.USD90 million under the guarantee, together with a costs order in the US proceedings which was partially liquidated (in the sum of c.USD100,000). The purpose of the winding up application was, among other things, to bring about an investigation by a professional liquidator of the circumstances of the 2019 distribution.
At first instance and on appeal, the winding up application was opposed by the Luxembourg trustee in bankruptcy, who had been appointed over Redox. The Royal Court had held that HWA 555 had standing to bring the application on the basis of the liquidated portion of the costs order, which satisfied the requirement under the relevant legislation (the Companies (Jersey) Law 1991) for a creditor to have ‘a claim against the company for not less than the prescribed minimum liquidated sum’. The prescribed minimum sum in Jersey is GBP3,000. The Court, however, declined to exercise its discretion to make a winding up order because it was concerned about the potential impact on the winding up proceedings in Luxembourg.
On appeal, the Court of Appeal (Bailhache, Wolffe and Matthews JJA) reversed the Royal Court on all grounds. In particular, the Court held that in the case of an application for the winding up of a Jersey company in Jersey by a creditor who meets the relevant statutory requirements, the starting point is that the order should be granted unless there is a sufficiently good reason not to do so. This will be the case even where there are insolvency proceedings underway in another jurisdiction, although the Court observed that the existence of foreign insolvency proceedings may be a relevant factor in determining whether or not a winding up order should be made in Jersey.
This is in line with English case law to the effect that ordinarily a company should be wound up in the jurisdiction of its incorporation. Amongst other things, the Court took note of the fact that the ‘look back’ period in Luxembourg for the investigation of antecedent transactions was six months, compared to a period of five years in Jersey. The Court also took into account the fact that the interests of contingent creditors might be disadvantaged in the Luxembourg process, compared to a winding up in Jersey.
The Court of Appeal also considered the meaning and effect of the wording in Article 157A of the Companies Law that in order to bring a winding up application, a creditor must have ‘a claim against the company for not less than the prescribed liquidated minimum sum’. It held (Bailhache and Matthews JJA; Wolffe JA dissenting) that this wording was sufficiently wide to encompass an application by a creditor with a contingent or unliquidated claim against the debtor, provided that the claim can be demonstrated to be of a value exceeding the prescribed amount. The Court noted that a contingent creditor could prove in a creditor’s winding up, and indeed in a désastre, in Jersey by making an estimate of the value of the claim. It was not logical that such a creditor should be unable to make a winding up application, but should have to wait for a creditor with a liquidated claim to do so, whilst the debtor company becomes increasingly mired in debt.
The proceedings had been settled on confidential terms prior to the handing down of the judgment, but the Court of Appeal took the view that the judgment should nonetheless be handed down and published in view of the useful wider guidance it provides on this fast developing area of law.
Partner Jared Dann, who led the Appleby Jersey team, said: “We are pleased to have played a part in this ground-breaking judgment. It is a very important step in the development of Jersey’s new corporate insolvency jurisdiction, which is likely to be considered and referred to widely in future.”
Mr Dann, who appeared for the appellant in the Royal Court and in the Court of Appeal, and who heads the Dispute Resolution team in Jersey, was assisted by Senior Associate Lara von Wildenrath and Legal Assistant Laura Sones. Appleby was instructed by the London office of Fried, Frank, Harris, Shriver & Jacobson, whose team was led by Partners James Barratt and Ashley Katz. They were also assisted by Marcus Haywood and Annabelle Wang of South Square.
