Insolvency: Administration By The Back Door Over A Jersey Company?

Jersey's Royal Court has recently given guidance as to the manner in which it will exercise its discretion when being asked to issue a letter of request to the High Court of England and Wales seeking the appointment of an English administrator over a Jersey registered company.

In Harbour Fund II L.P. v ORB a.r.l. & Litigation Capital Funding [2016] JRC 171, the Royal Court held that the applicant's (Harbour) application for a letter of request to be issued to the English High Court for an administration order with respect to ORB a.r.l. (ORB), a Jersey company, failed on two grounds; namely that (1) ORB did not have a substantial connection with England and Wales and (2) it could not be proven to be in the interests of the creditor that an English law administration order be made in favour of the Jersey bankruptcy process known as désastre.

Insolvency in Jersey

The English law process of administration allows, amongst other things, an insolvent company to be rescued as a going concern. Jersey law has no equivalent to the English law administration process but has its own bankruptcy process of désastre whereby the Viscount will be appointed to realise the assets of the insolvent company for the benefit of creditors. Nonetheless, the Royal Court does have the power, pursuant to its inherent jurisdiction and s 426 of the Insolvency Act 1986, to issue a letter of request to the High Court requesting that an English law administrator be appointed over an insolvent Jersey registered company, and it was upon this jurisdiction that Harbour sought to rely.

The Case

In determining whether to exercise its discretion to issue a letter of request, the Court must consider:

1. if it is in the interests of the creditors; or

2. if it is in the interests of the debtor; or

3. if it is in the public interest (albeit that this latter consideration is subordinate to the first two).

   When applying this test, the Court was required to be satisfied that:

1. Harbour was a creditor of ORB with a liquidated claim; and

2. ORB was cash flow insolvent; and

3. ORB had assets within the jurisdiction of the High Court of England and Wales such that it could be said to have "a substantial connection with England".

   The Court was satisfied on the first two points, namely that Harbour was a creditor of ORB and had a liquidated claim and that ORB was insolvent on the cash-flow basis. It was the third and final point that gave rise to problems.

   Substantial connection?

   ORB denied that the...