Application for En Désastre Bankruptcy in Jersey
Application for en désastre
A Creditor can apply to the Royal Court as of right if:
- you have a certain claim (to which there is no arguable defence) against a debtor on a liquidated sum of not less than £3,000
- if you are the debtor
- the Jersey Financial Services Commission considers it appropriate in relation to banking, funds, insurance, financial services or foundations
The Royal Court will require to be satisfied that the debtor is insolvent on the cash flow test but has realisable assets, subject to limited exceptions, before a declaration is granted.
Who can a declaration en désastre be made against?
A declaration can be made against:
- a debtor who was ordinarily resident in the Island at any time in the 12 months leading up to the application
- a debtor who carried out business in the Island at any time in the three years leading up to the application
- a debtor who owns realisable immoveable property in Jersey
- a Jersey registered company (which may have been dissolved)
- a Limited Liability Partnership
When can an application be made?
The rules dictate that 48 hours’ notice must generally be given to the Viscount’s Department and any creditors with security over the debtor’s immoveable property.
The application is usually made on an ex parte basis in the debtor’s absence in open court, but whether it is appropriate to proceed ex parte in any particular case will depend on the circumstances.
How is application made?
The application is made by a document known as a demande.
This will be supported by an affidavit setting out, among other things, details of the applicant’s belief that the debtor is insolvent on the cash flow test but has realisable assets and, if the applicant is a creditor, details of the debt owed to him.
There is a duty to give full and frank disclosure to the Royal Court when making the application.
The Royal Court retains discretion as to whether or not to grant the relief.
The debtor can request an inter partes hearing where the matter was dealt with ex parte. He may also appeal the Royal Court’s decision to the Court of Appeal.
The debtor or the shareholders of a debtor company can apply for a recall of the désastre at any time. The Royal Court will only exercise its discretion to order a recall if satisfied that the assets vested in the Viscount are sufficient to pay all claims filed in time (applying the balance sheet test) and that a recall is in the interests of all the creditors.
The debtor has a right of action for compensation for consequential loss against an applicant who obtained a declaration incorrectly, ie where the debtor was in fact not insolvent.
The effects of en désastre declaration
If the Royal Court exercises its discretion to grant relief, the debtor’s property will automatically vest in the Viscount. There are some exceptions to this, for example property held on trust for third parties. In essence the Viscount acquires all the debtor’s powers over his property and will take measures to gather in the assets for distribution as soon as practicable amongst the creditors.
It should be noted that upon declaration, the debtor will owe a duty of co-operation and assistance to the Viscount.
Third parties may also find themselves summonsed by the Viscount to provide information or documents which will assist him.
Purpose of désastre
The purpose of the procedure is to achieve a fair distribution of the property to all creditors who will rank equally (pari passu).
Certain creditors will receive preferential treatment, namely those creditors whose debt is secured on the debtor’s property by hypothec (Jersey equivalent of a mortgage) or security interest.
Once the Royal Court has made a declaration, the Viscount will take control of the process.
The Viscount has wide statutory powers to, for example, bring proceedings in the debtor’s name. For example, he can make compromises with creditors, exercise voting rights of any shares owned by the debtor, appoint professional agents and carry on the debtor’s business.
The Viscount will investigate the circumstances which led up to the declaration. Among other things, consideration will be given as to whether the provisions relating to transactions are under value and preferences should be used to obtain court orders restoring the position for the benefit of the creditors.
He will examine and adjudicate on the creditors’ claims.
Reporting to creditors
Once the Viscount has realised all of the debtor’s assets, he must supply the creditors with a report and accounts and pay the final dividend.
If the debtor is a company, the Viscount will notify the registrar of companies. The company will thereafter be dissolved.
The Viscount has an obligation to apply for a discharge of the debtor 4 years after the declaration en désastre. At this point the debtor is released from his debts.
Costs and indemnities
The petitioning creditor will be required to give an indemnity to the Viscount against his costs and expenses.
If there is sufficient liquidated value in the debtor’s assets, these fees, as well as an additional commission, are paid first before any distributions to creditors. Depending on the complexity of the désastre, this can be a substantial sum.