Jersey - A guide to Bankruptcy Law
- Important Features Of The Bankruptcy (Desastre) (Jersey) Law 1990
- Additional Provisions Concerning Bankrupt Companies
- Conclusion of a Desastre
Important Features Of The Bankruptcy (Desastre) (Jersey) Law 1990
- The Application for a Désastre
- Secured Creditors
- The Matrimonial Home
- The Duties of the Bankrupt
- The Duties of the Viscount
- Pre-Désastre Transactions that can be Undone
The Application for a Désastre
The debtor himself (or a director of a debtor company) or any creditor with a claim greater than £1,000 can apply to the Royal Court for the debtor's property to be declared en désastre. If a debtor has died, his property cannot be declared en désastre. The person making the application to the Court has to give 48 hours' advance notice of the application to the Viscount: the debtor does not have to be notified if a creditor is making the application. The applicant has to complete a specified form giving some information about the debtor's assets and liabilities, and has to swear an affidavit that the debtor is insolvent but has realisable assets.
The Royal Court hears the application, usually at "ex parte" time on Friday afternoons and, unless the debtor has himself made the application, the Court only hears the creditor's side of the case. Because of this, if the debtor can show within twelve months that a désastre was wrongly declared as he was not insolvent, the creditor will have to pay damages to the debtor unless he can prove that he was acting reasonably and in good faith.
After the désastre has been declared, creditors entitled to claim in the désastre cannot sue the debtor - their only remedy is to make a claim in the désastre. A désastre can be recalled at any stage if the debtor can prove to the Court's satisfaction that there are enough assets to pay all creditors' claims in full.
As soon as a désastre has been declared, all of the property of the debtor is vested in the Viscount. Basically, the Viscount becomes legal owner of the debtor's property world-wide. Mortgages and security interests remain valid against the property they were secured upon. The debtor will now be called "the bankrupt" in this document. Property owned jointly by the bankrupt and one or more others is treated as though it is split into equal shares, and the bankrupt's share is vested in the Viscount
Secured Creditors
Jersey law generally treats immovable property and movable property very differently. "Immovable property" means, basically, lands, buildings and leases of lands or buildings for more than nine years. "Movable property" means everything else. (Until the Bankruptcy Law came into force, désastre only affected movable property.)
It is possible to mortgage immovable property. The lender obtains security by having the loan (or mortgage) registered by the Royal Court and that registration means that the proceeds of sale of that property are first applied to repay that loan. If there is more than one mortgage on a property, the mortgagees have rights based on date - an earlier mortgage ranks for repayment before a later one.
It is not possible to create a mortgage over most movable property. In England, it is everyday business to create a type of mortgage over a borrowing company's stock and other assets, but this cannot be done in this Island. The only exception to this rule of law is when a "security interest" is created under the stringent terms of the Security Interests (Jersey) Law, 1983. Under that law, a security interest can be taken over "intangible movable property other than a lease" - if you can physically touch the asset, you cannot mortgage it. For example, in a domestic context it is now quite usual for someone taking out a mortgage to buy his home to take out at the same time a life assurance policy designed to repay the mortgage automatically if he dies - the lender is given a security interest over the life assurance policy. The person holding the security interest (the lender) has similar rights to a mortgagee of immovable property.
The Matrimonial Home
An important provision in the Bankruptcy Law is that the matrimonial home can be protected by the Royal Court, even if that home is wholly owned by the bankrupt (e.g. not owned jointly by the wife). This also applies if the bankrupt and his spouse are unmarried but what amounts to marriage "by habit and repute" can be demonstrated. The spouse (this is usually the wife) has to apply to the Royal Court within three months of the declaration en désastre and the Royal Court decides, basically, whether to give all or part of the property to the wife, or to allow the wife and dependants to continue living in the property for a specified period, or to allocate part of the sale proceeds of the property to the wife. In fact, the Court has very wide powers and can devise a wide range of orders, provided that it gives "first consideration" to keeping the property available as the family home.
The Duties of the Bankrupt
The bankrupt - or a director, secretary, manager or other officer of a bankrupt company - is obliged to assist the Viscount "to the utmost of his power". He has to provide information about assets and liabilities, hand over any property still under his control - and any property he may come into during the course of the désastre, attend before the Viscount whenever called upon, and notify the Viscount immediately in writing of any change of address or employment. If he fails to do this, he commits an offence.
The Viscount has a wide discretion as to how much to allow a personal bankrupt to keep of his wages etc during the course of a désastre. The personal bankrupt has to hand over any surplus income, as decided by the Viscount, until he receives a discharge.
A personal bankrupt commits an offence if he borrows more than £250 in total without informing his potential lender of the désastre. During the course of the désastre, a personal bankrupt cannot be a company director or sit on a jury, and suffers from various other legal "disabilities".
The Duties of the Viscount
The Viscount advertises in the Jersey Evening Post (Gazette section) and in any other publications he thinks necessary (such as the London and Edinburgh Gazettes) for creditors to file their claims with him by a set date. That date is usually forty days from the date of the désastre declaration. If any creditor fails to file a claim with the Viscount by the set date he, effectively, loses his claim and gets nothing.
At the end of the claims period the Viscount makes the creditors' claims available for public inspection - that inspection is advertised in the same publications as shown above. Any interested person can object to any claim within one month. Some time after the end of that month, the Viscount examines the claims, decides upon disputed claims and gives notice to creditors and objectors as to his decisions. If a creditor's claim includes interest (there will have been a contract of some sort between the creditor and the bankrupt covering this), the Viscount may reduce the rate of interest claimed if he considers it to be extortionate. The Viscount's decisions will be reviewed by the Royal Court if a person affected by them so requests.
The Viscount can summon before him for interview anybody he believes capable of providing information about the bankrupt, or anyone he thinks has property or documents belonging to the bankrupt. It is an offence to fail "without reasonable excuse to come before the Viscount at the time appointed" or to lie to, or attempt to mislead, the Viscount. The interviewee can refuse to answer questions if the answers "may incriminate or tend to incriminate him or his spouse".
During the course of the désastre, the Viscount attempts to find out if any offences have been committed and whether a director of a bankrupt company has become personally liable to pay any of the company's debts. If the Viscount finds evidence of any offences, he reports the facts to the Attorney General who decides how the matter should be dealt with.
The Viscount gathers in the bankrupt's assets and sells them. The Viscount can "disclaim certain onerous property" - if a contract or other asset is likely to cost more to perform or maintain than it is worth overall, the Viscount can abandon it. Mortgagees get paid from the net sale proceeds of the property against which their debts were secured. If insufficient cash is realised from the sale of mortgaged property to pay off all mortgages in full, the mortgages lapse and do not run against the new owner of the property. In that event, the mortgagees become ordinary, unsecured creditors for the unpaid part of their mortgages.
Cash is kept in an interest-bearing account for the benefit of the désastre. The Viscount may give progress reports to creditors, but in a straightforward case he will usually only make one report at the end of the case. The Viscount takes any necessary action in the Courts, such as suing to recover debts due to the bankrupt.
Pre-Désastre Transactions that can be Undone
The five years prior to a désastre declaration are important in deciding whether anybody has received an unfair benefit from a bankrupt's assets. If the Viscount thinks that someone has received an unfair benefit as set out below, he can ask the Royal Court to make orders restoring matters to what they would have been if that unfair benefit had not been obtained
Within the year
leading up to the désastre
UNDUE PREFERENCE: A
future bankrupt pays off a creditor, or a guarantor of a debt, or
makes other arrangements of advantage to that person, intending to
make sure that that person will be better off in the forthcoming
désastre than he would otherwise have been. The future bankrupt
is insolvent at the time of the transaction, or becomes insolvent
because of it.
Within
two years leading up to the désastre
TRANSACTION AT AN UNDERVALUE: A future bankrupt gives assets away or sells
assets at significantly less than their true value.
Between
three and five years prior to the désastre
TRANSACTION AT AN UNDERVALUE WHILST INSOLVENT: A future bankrupt gives assets
away or sells assets at significantly less than their true value and is at
the time insolvent or becomes insolvent as a result of that transaction.
Additional Provisions Concerning Bankrupt Companies
Disqualification of Directors
If the Attorney General forms the opinion that the conduct of a director of a bankrupt company was such that he is unfit to be involved in the management of another company, he can ask the Royal Court to make an order disqualifying that person for up to fifteen years from taking part in the management of a company.
If someone directly or indirectly takes part in the management of a company whilst he is disqualified, he (i) commits an offence, and (ii) becomes jointly liable with the company for the company's debts. Thus, if the company he is involved with is declared en désastre, he will have to make good any deficiency out of his own pocket.
Wrongful Trading
If a director allows a company to continue to trade when he knows, or should know, that the company will probably be declared en désastre at some time in the future, unless he takes reasonable steps to minimize potential losses to the company's creditors, he becomes personally liable for the company's liabilities arising from then onwards.
Fraudulent Trading
If a business has been carried on with intent to defraud creditors, the Companies Law allows the Royal Court to order that persons, who were knowingly parties to the carrying on of the business, make such contributions to the company's assets as it thinks proper.
Conclusion of a Desastre
- Distribution of Funds
- Debts given a priority
- The Viscount's Report to Creditors
- Discharge of Personal Bankrupts
- Further Information
Distribution of Funds
As shown above, mortgagees are paid (so far as possible) out of the property their debts were secured upon.
The Viscount's fees and expenses are deducted. The Viscount's fee is generally 10% of the value of assets realised, plus 2½% of the funds distributed to creditors. If insufficient assets are realized to pay the Viscount's expenses (such as adverts and bought-in legal and accountancy services), the creditor who applied for the désastre to be declared will be called upon to reimburse the shortfall.
If there are insufficient funds to pay out all debts with a priority, the available funds are shared "pro rata" between creditors with such claims. Ordinary creditors share "pro rata" any funds remaining after creditors with priority claims have been paid in full.
Debts given a priority
-
Arrears of wages or salary owing to an employee for up to six months before the désastre was declared, plus holiday pay and bonuses due to that date. The maximum amount payable preferentially to an employee is £2,000; if the amount due is greater, the employee will receive any ordinary dividend on the balance.
- The full amount due to the Social Security Department.
- Income Tax due for the year in which the désastre was declared, and for the preceding year.
- Arrears of rental with reference to common law rules.
- Any judgments of the Royal Court or Petty Debts Court granted more than ten days before the declaration en désastre.
- Parish rates for up to two years.
The Viscount's Report to Creditors
When the Viscount has completed the case, he supplies all creditors and the Judicial Greffier with a report and accounts relating to the désastre. At the same time, he pays any final dividend.
If the bankrupt is an individual, the désastre continues until he receives a discharge (about which there is more below). If the bankrupt is a company, the Viscount notifies the Registrar of Companies that he has concluded the case and the Registrar proceeds to dissolve the company.
Discharge of Personal Bankrupts
Four years after an individual has been declared en désastre, the Viscount brings an application to the Royal Court for an order concerning the discharge of the bankrupt. The Viscount, the bankrupt or a creditor can ask the Court to reduce or extend the normal four year period. The Court has very wide discretion as to whether to grant a discharge immediately, to make it conditional, to delay it, or to refuse it outright. If the discharge is refused, the Viscount, the bankrupt or a creditor can re-apply to the Court "from time to time".
However, in the majority of straightforward cases, the Royal Court orders the discharge which means that the bankrupt is no longer liable to pay the debts dealt with by the désastre (unless the debts were run up by a fraud to which the bankrupt was party), and the various legal disabilities he has been subject to cease to apply.
For Further Information
Contact the Viscount's Department at Morier House, St Helier, Jersey, JE1 1DD, by telephone on +44 (0)1534 502400, by facsimile on +44 (0)1534 502417 or by E-mail: viscount@gov.je for a fuller Guide to the Bankruptcy Law.
The Bankruptcy (Désastre) (Jersey) Law 1990 and its associated rules, can be obtained from the Bookshop, States Greffe, Morier House, St Helier, Jersey, JE1 1DD at a cost of £11.40 plus any necessary postage and packing.
The publication "Jersey Insolvency Law in Practice" provides the only authoritative guide to the unique procedures of désastre, dégrèvement, cession, remise des biens as well as the more modern company winding up provisions, July 1998 (5th Edition).
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