The Appleby 2012 Offshore Round-Up: Insolvency And Restructuring

Welcome to Appleby's review of the key insolvency and restructuring decisions handed down in the leading offshore jurisdictions during 2012, compiled by members of our Litigation & Insolvency Practice Group in Bermuda, the British Virgin Islands, the Cayman Islands, Jersey, Guernsey and the Isle of Man. Equivalent updates are available in the areas of fund disputes (several of the cases in which also concern insolvency issues), company law, civil procedure and trust litigation. Copies may be obtained from our website or from your usual Appleby contact.

During the year we have seen several decisions involving who can petition to wind up a company and when, as well as a groundbreaking approach to class votes in schemes of arrangement.

Winding-Up Petitions

The Royal Court of Guernsey dealt with a number of issues arising out of a winding up petition of a Guernsey company In The Matter of Synergy Capital Limited 28/2012. Two applicants, a Mr Markovic and UBS AG Bank made a joint application to wind up the company concerned on the grounds that Mr Markovic was a creditor and/or that both applicants were 'interested parties'. In relation to the latter ground, there exists a somewhat unusual provision of Guernsey law, not present under similar statutory regimes such as in England, which allows a petition to be presented not only by the company, any director, member or creditor thereof, but also 'by any other interested party'. Mr Markovic had invested significant sums from his UBS account into another company (that he owned beneficially) which had then invested as a partner in the Synergy structure. The company challenged the standing of both parties to make the application.

On the first issue, as to whether Mr Makovic was a creditor, the Court found that, in the absence of any definition within the Companies (Guernsey) Law 2008 a 'creditor' could "be given its ordinary meaning as being a person to whom a debt is payable". The Court found that Mr Markovic was not a creditor on the basis that his investment had been made to a company (which he owned beneficially), which then invested the sums in the Synergy structure as a partner of that structure. In effect, Mr Markovic was a creditor of the company he owned beneficially and not of Synergy Capital. He did not therefore have standing as a creditor to wind up the company.

In relation to the 'any other interested party' issue, the Court reviewed a range of authorities and found that the words 'by any other interested party' should not be construed extremely broadly as this could have the effect of expanding to an undesirable extent the range of persons able to petition for the winding up of a company. It concluded that Mr Makovic was an interested party for the specific purpose of winding up Synergy Capital as that entity was able to carry on business using monies that ultimately came from him and only him. Although he was not a director, member or creditor "his interest in [Synergy Capital] is as close as anybody else could get". The Court however declined to allow UBS to be an interested party on the basis in had no direct interest in Synergy Capital and was at best "one step removed".

In the same decision, the Court also considered the approach to be taken where an application to wind up a company where the debt owed is disputed. Applying Baker Hughes Ltd v CCG Contracting International Ltd [2005] SC 65 the Court held that "...if the debt claimed is disputed in good...