Insolvent Jersey Companies: A Creditor's Options

There was a ripple of concern in both Jersey and the UK after the High Court's decision in HSBC Bank v Tambrook Jersey Limited [2013] EWHC 866 (Ch). The High Court held that section 426 of the Insolvency Act 1986, which allows the English Court to assist a Jersey Court, was not triggered because the Jersey Court was not acting "in its function as an insolvency court" by issuing a letter of request to the English Court.

The High Court held that without the Royal Court determining insolvency proceedings, it was not entitled to seek assistance from the English Court. The decision threatened to dismantle a developed practice by which creditors had been able to prompt Jersey companies to be placed into administration in the UK.

On HSBC's appeal, the Court of Appeal overruled the lower court's decision. Accordingly, it confirmed the established practice that a creditor could petition the Royal Court to issue a letter of request to the English Court, further to which, the English Court would appoint an administrator and the debtor company would be placed into administration. It stated that by hearing HSBC's representation and issuing the letter of request, the Royal Court had exercised its insolvency jurisdiction and therefore did fall within the provisions of section 426. It is therefore confirmed that formal insolvency procedures are not required in both jurisdictions for the purposes of section 426.

The facts in the Tambrook case are very similar to the other cases which have used this route. The company was insolvent on both cashflow and balance sheet tests. The vast majority of the company's assets and creditors were situated in the UK, as was the focus of the company's business.

Letter of Request

The procedure in Jersey for applying for a letter of request to be issued is relatively straightforward. The creditor brings a representation before the Royal Court, on notice to the debtor company, and having first liaised with the Viscount. The creditor sets out in an affidavit the parlous financial state of the company and why he believes that an administration in the UK offers the best outcome in the circumstances. Usually an opinion from leading English counsel is also exhibited setting out the legal advantages of administration.

Advantages of Administration

The Royal Court, upon hearing the representation, will consider all the relevant facts in the matter. In particular, whether the company has a sizeable connection to the UK, where the...