ANALYSIS OF OFFSHORE PETITION FILINGS AND COURT ORDERS

SNAPSHOTOFFSHORE Corporate Insolvency & Restructuring Annual Review: 2017

This Snapshot Report provides our annual review of the petition filings and resultant court orders in respect of distressed companies in six* offshore jurisdictions. Throughout each year, we closely monitor company notices and petition activity across our network of offices offshore in the following categories:

■ Compulsory winding up, by shareholders or creditors;■ Conversion of voluntary liquidation to court supervised liquidation;■ Schemes of arrangement; and■ Reduction of Capital.

The key findings that emerge from our full-year, multi-jurisdictional review and analysis for 2017 are highlighted and explored further over the following pages.

Petition filings and conversion rates in each of the jurisdictions analysed are also explored in more detail, and the trends are placed in a global context.

We trust that you find our analysis useful but please don’t hesitate to get in touch with your usual Appleby contact should you wish to discuss anything in more detail.

Tony Heaver-WrenPartner | Dispute Resolution | Cayman

Tony Heaver-WrenPartner | Dispute Resolution | Cayman

SNAPSHOT

* Jersey’s corporate insolvency regime is not petition based but a summary of its insolvency and restructuring options is included.

2017 in Numbers

Winding up Petitions 3Analysis of Filings by Jurisdiction Bermuda 5British Virgin Islands 6Cayman Islands 7Mauritius 9Guernsey 9Isle of Man 10Jersey 11

Contents

Number of Offshore jurisdictions reviewed: Bermuda, British Virgin Islands, Cayman, Guernsey, Isle of Man & Mauritius.1

Total number of compulsory winding-up petitions submitted to Offshore courts, up 48% year-on-year

Total number of compulsory winding-up orders made by the Offshore courts, up 26% year-on-year

The average conversion rate of petitions to orders across the Offshore region

The typical petitions to orders conversion time in Bermuda, the swiftest recorded.

The annual increase in compulsory winding-up petitions submitted in the BVI, the highest rate of growth.

629613564%4 weeks

+88%

2Annual Review: 2017

1 The statistics quoted for the Offshore region in the report are based on these six jurisdictions

Winding Up Petitions - The International Picture

OFFSHORE

In total, across the six offshore jurisdictions reviewed, there were 296 compulsory winding up petitions filed during 2017, and 135 winding up orders were made.

Numerous complex restructuring negotiations were also underway during the year with major cross-border restructurings of oil and gas service providers in Cayman, British Virgin Islands (BVI) and Bermuda.

Bermuda and Guernsey showed steady levels of activity in line with previous years while numbers fell in Cayman and the Isle of Man. However, Mauritius and the BVI saw a notable increase in filings.This is despite the fact that in September 2017, the BVI was hit by category four and five hurricanes Irma and Maria which caused considerable devastation. The BVI Commercial Court temporarily relocated to St Lucia and impressively got back on its feet quickly in order to support the international financial services business of the BVI.

THE UNITED KINGDOM

In 2017, the UK Gazette reported a little over 5,000 petitions to compulsory wind-up companies, as submitted by a creditor, shareholder or director. Such petitions peaked at 8,300 in 2008 and since then have followed a generally decreasing trend.

THE UNITED STATES OF AMERICA

The flattening off trend in petition filings observed in most of the surveyed jurisdictions followed a similar pattern in the USA in 2017, where a slight drop was recorded in bankruptcy court petitions published by the Administrative Office of the US Courts. Business petitions, which amounted to 3% of all petitions, fell 6% to 23,109. 2015 2016 20172013 2014

243

6,015

224

6,150

235

5,460

200

5,389

296

5,111

34,892

28,319

24,985 24,45723,109

Offshore

UK

COMPULSORY WINDING UP PETITION TOTALS

USA

Key

SNAPSHOT 3Annual Review: 2017

COMPANY REGISTRY PROPORTION

The sizes of the local registries for Offshore jurisdictions vary widely but overall, compulsory petitions make up just 0.04% of their total. By comparison, the United States’ petition rate is twice that figure and the UK is as high as 0.14%.

5

COMPANY REGISTER SIZE Bermuda15,148

Guernsey19,714

Isle of Man26,822

Cayman Islands99,327

Mauritius193,785

British Virgin Islands389,459

United Kingdom3,725,610

United States of America27,626,360

Latest figures available

Winding Up Petitions - The Offshore Picture

RATES OF CONVERSION

The percentage of winding up petitions converting into orders rose in all of the Offshore centres in 2017. With plenty of restructuring options on the table, a winding up petition to the courts is generally the option of last resort and increasingly successful.

In 2017, the average offshore conversion rate generally means that two out of every three company petitions were approved by the courts. Bermuda, BVI and Cayman have all seen a sharp rise, with only about half of all their petitions converting in 2016.

Mauritius is clearly the biggest outlier with a rate of just 15%, but lengthy reporting delays in that jurisdiction are likely to be a factor. Using previous years as a guide, we can expect the conversion rate in Mauritius to be more than one in four, following adjustments for reporting.

Bermuda BVI Cayman Isle of Man Mauritius

5

5

5

5

81% 76% 75% 71% 15%

SPEED OF CONVERSION

Once a petition has been filed, there is usually a legal requirement to advertise in the local press, followed by one or more court hearings before an order may be forthcoming. During 2017, the lag was eight weeks on average. This was a week longer than the previous year, and perhaps a reflection of the increased levels of activity seen in the courts.

Typically, a conversion will occur within two months but there are always several outliers; cases that for reasons of complexity or multiple rescue attempts take considerably longer to reach the point of a court order.

For Cayman, there are also separate figures available for the conversion rates of petitions for schemes of arrangement and reduction of capital. These follow a more intensive court process, a scheme typically requiring an initial filing, a directions hearing, advertisement, a scheme meeting, the filing of further evidence and then a sanction hearing. Unsurprisingly, these generally take longer to convert, on average about eight weeks.

Con

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ion

Rat

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eeks

to

Con

vert

SNAPSHOT 4Annual Review: 2017

N.B. Guernsey petitions are not available, so calculations of conversion rates and speed are not possible.

Analysis of 2017 Filings by Jurisdiction

BERMUDA

During the course of 2017, Bermuda witnessed 16 compulsory winding up petitions, which converted into 13 orders. Four out of five petitions converted into orders, the highest level seen amongst the offshore jurisdictions.

Petition levels dipped in 2016 as the years of economic turmoil receded and 2017 continued to reflect this new lower level of court activity. However, fluctuations in oil price have no doubt contributed to a number of energy-related firms appearing in the court records. One such example is Energy XXI, which is based in Bermuda but has its main office in Houston. The company emerged from bankruptcy in 2016 after it eliminated more than USD$3.6 billion in debt and several local subsidiaries were wound up by court order in 2017.

Petitions in Bermuda that do convert generally do so in a swift and orderly fashion, with many being processed within a month. There are, however, a few outliers as large and complex cases are dealt with, such as Scottish Re. Almost ten years after mounting losses pushed the Bermudian-headquartered company into run-off, the life reinsurance specialist started a winding-up process in May 2017 and received an order for winding up in early 2018.

Just one scheme of arrangement, for Z-Obee Holdings, was ordered by the Bermudian Court during the course of 2017, the second year in a row with just a single entry.

Notices of the reduction of share capital were up dramatically in 2016, but returned to a more typical total of 30 notices in 2017.

BERMUDA’S INSOLVENCY REGIME

The Companies Act, 1981 and the Winding Up Rules, 1982 govern insolvencies and reorganisations in Bermuda. There are two types of insolvent liquidations - voluntary and compulsory.

Compulsory liquidations are commenced by way of a petition presented to the Supreme Court in Bermuda upon which the Court will be asked to make a winding up order.

Creditors may petition for a winding up order or the company may resolve to petition to wind itself up under this procedure.

Voluntary liquidations, usually referred to as a ‘creditors voluntary’ or CVL, occur where members of a company decide to wind up the company deemed insolvent. A meeting of creditors is then convened to decide on the appointment of a liquidator. As CVL’s do not require the involvement of the courts, they are not measured in this report.

A winding up petition to the court sets out the basis for the winding up order and the appointment of a provisional liquidator. Court-supervised liquidation usually commences with the making of a winding up order after the hearing of the petition. The winding up order sets the date for evaluation of claims and appoints either a liquidator or the Official Receiver.

Restructuring options

Scheme of arrangement. The primary restructuring mechanism available under the Companies Act 1981 is a scheme of arrangement. It is a compromise or arrangement between a company and its members or its creditors. An application to, and sanction of, the court is required. Schemes can be used in various types of transactions, including acquisitions, reorganisations, and in the restructuring of complex debt arrangements. The court must be satisfied that the proposal is realistic and likely to be accepted by the creditors who will be asked to vote.

Reduction of capital. It is a fundamental principle of Bermuda company law that the share capital of a company should be maintained. However, a company limited by shares usually has the option to reduce its share capital by a resolution of its members. A company may want to reduce its share capital in order to create distributable reserves and/or eliminate losses, return surplus capital to shareholders, assist a buyback or redemption of shares, or distribute assets to shareholders. In our experience, creating distributable reserves and/oreliminating losses are the main reasons.2013 2014 2015 2016 2017

25

20

15

10

5

0

BERMUDA WINDING UP PETITIONS AND RESULTING ORDERS

Petitions

Orders

Key

SNAPSHOT 5Annual Review: 2017

Analysis of 2017 Filings by Jurisdiction

BRITISH VIRGIN ISLANDS

There were 75 applications to the BVI court to appoint a liquidator, and of these, 18 progressed no further as the companies concerned were able to resolve their situations. The other 57 applications resulted in a court order and progressed to the compulsory winding up stage.

In the BVI, the members of an insolvent company also have an alternative option to using the court and can pass a resolution appointing an eligible insolvency practitioner as liquidator of the company and, indeed, some of the biggest liquidations seen in the BVI have been shareholder driven. 31 appointments to insolvent companies were made without applications, using shareholder resolutions.

Combined, there were 88 liquidations ordered over the course of the year. This marks a high point compared to previous years, and more than double the 2016 total, with court orders in particular on the rise. The past year has seen some significant insolvencies, particularly in the natural resources sector.

Most court orders followed about nine weeks after any initial application to appoint a liquidator was announced, although a handful took longer.

Commercial litigation in the BVI invariably has an international element to it and liquidation applications are no different. Large Asian conglomerates running into financial trouble have had an effect on the statistics in the BVI during 2017. Some recent examples include:

■ The Pacific Andes Group, which saw a number of applications to put various local subsidiaries into liquidation.This followed three 2016 BVI court orders to appoint liquidators for subsidiaries of China Fishery Group, which also owns Pacific Andes. Much of China Fishery’s problems stemmed from the impact of El Niño, which led the Group to file for Chapter 11 bankruptcy in the United States in 2016. Since then, many subsidiaries of its complex international structure have been targeted by creditors.

■ China Huishan Dairy Holdings Co Ltd is preparing for provisional liquidation in a legal escalation of one of the most spectacular collapses by a one-time favourite of the Hong Kong market. This has already led to a related liquidation application being granted for BVI-registered Champ Harvest Ltd, the main vehicle of Huishan’s chairman and majority shareholder, Yang Kai.

BVI 2017 COMPULSORY LIQUIDATION APPLICATIONS AND NOTICES

BVI’S INSOLVENCY REGIME

Corporate insolvency in the BVI is governed by the Insolvency Act, 2003 and the Insolvency Rules, 2005. The effect of an insolvent liquidation is to put the affairs of an insolvent company in the hands of a professional liquidator who is required to take possession of, protect and realise the company’s assets for the benefit of the company’s creditors.

Proceedings are typically brought in the Commercial Court of the Eastern Caribbean Supreme Court in the BVI. A court application (the filing of a petition) may be made by a creditor, the company, its directors, and its shareholders, the Attorney General or the Financial Services Commission.

The grounds for appointment are that the company is insolvent, it is just and equitable that the company be wound up or it is in the public interest to wind it up. The most common ground is insolvency.

As an alternative to the court appointment of a liquidator, the members of an insolvent company may, by a majority of at least 75%, pass a resolution appointing an eligible insolvency practitioner as liquidator of the company. Liquidation marks the end of a company’s business and does not have a rescue function. Once the liquidation is complete, the company will then be struck from the register of companies in the BVI and dissolved.

Restructuring options

The BVI Business Companies Act provides two mechanisms for achieving a wide range of corporate restructurings by way of court approval:

■ Schemes of arrangement, which are equivalent to those available in England; and ■ Plans of arrangement, which are equivalent to those available in US jurisdictions.

Both mechanisms provide for compromises to be reached between a BVI company and its creditors or members.

Applications to the court for the appointment of a liquidator

7518 Applications did not

proceed further

57 Court Orders to proceed issued

31 Liquidators appointed directly by shareholders

88 Liquidations proceeded

SNAPSHOT 6Annual Review: 2017

Analysis of 2017 Filings by Jurisdiction

CAYMAN

In 2017, the Cayman Islands recorded 57 petition filings across all categories, converting into 43 orders.

Court filings shrunk across most categories with the exception of petitions for an order that a company be placed under court supervised liquidation.

The time taken for an initial petition to reach a court order varied widely in Cayman, with some taking just a matter of weeks and others taking several months. On average, a court order followed six weeks after the filing of a winding up petition, and took eight weeks for the conclusion of a capital reduction.

CAYMAN ISLANDS INSOLVENCY REGIME

The Companies Law (2016 Revision) and the Companies Winding Up Rules 2008 (as amended) are applicable to corporate insolvencies. The Companies Law also provides a regime for what are known as arrangements and reconstructions, enabling companies to reach compromises or arrangements with their creditors or members.

Whereas voluntary liquidations generally do not involve the court’s supervision, involuntary liquidations may be commenced by a creditor petitioning the court on the ground that the debtor company is insolvent and obtaining a winding-up order.

There are two routes into a liquidation that is subject to the oversight of the Cayman Court. The first of these is a winding up petition (most commonly a compulsory process initiated by creditors or shareholders of the company) and the second is by conversion of an out-of-court voluntary liquidation into a Court supervised liquidation, further to a petition seeking that conversion.

Restructuring options

Scheme of arrangement; a debtor company may commence a formal financial reorganisation by petitioning the court for its approval of a scheme of arrangement.

Reduction of capital; provided the Articles allow, the amount of capital held by a company can be reduced by returning capital pursuant to the authority of a special resolution of its shareholders. Once the special resolution is passed, the company petitions the Court to seek confirmation of the resolution.

Although a capital reduction can form part of a scheme of arrangement between an insolvent company and its creditors, on a stand-alone basis, a capital reduction is not an insolvency remedy and indeed will not be available when there is any risk of non-payment to the company’s creditors.

Legislative reforms are entering final stages for the creation of a new restructuring methodology in Cayman, outside of a winding up petition process. Current timing estimates for the enactment are the end of 2018/early 2019. The changes will remove the paradox and the stigma of the filing of a winding petition as the first step in a rescue process. The moratorium on creditor action against the company (that is action by unsecured creditors, as secured creditors rights are unaffected) will arise on the date of filing of the process, rather than on the date of appointment of provisional liquidators, the latter being the case under the current law. It is anticipated that once those changes are enacted, there will be an uptick in the number of restructurings in the Cayman Islands.

24 1

2015 2016 2017

2229

35

1817

249

22

8

8

3 7

CAYMAN ANNUAL PETITION FILINGS

Winding Up Petition

Court Supervision (Sections 124 & 131)

Reduction of Share Capital (Section 15)

Scheme of Arrangment (Section 86)

Key

SNAPSHOT 7Annual Review: 2017

CAYMAN CONTINUED

INSOLVENCY PETITIONS

Frequently, insolvent companies elect to enter a liquidation through the two-step approach of appointment of a voluntary liquidator followed by a petition to convert the liquidation to bring it under the Court’s supervision.

Combined with winding up applications, these two classes of Cayman petitions for Court liquidations are collectively referred to as ‘insolvency petitions’ for the purposes of this report.

There were 40 insolvency petitions in 2017, making up almost three-quarters of the total petitions filed over the year. The 40 insolvency petitions of 2017 converted into 30 court orders. 10 petitions either failed or were resolved and did not progress any further. Conversion rates for insolvency petitions over the last few years have typically hovered around 75%.

CAYMAN INSOLVENCY PETITIONS AND ORDERS

2017 MARKET NOTE

In Cayman, insolvency petitions fell away despite 2017 being a year in which some workouts in the distressed oil and gas service provider space translated to formal insolvency filings, as anticipated in last year’s petition filings review. The pain in the sector, as has been the case in previous economic downturns, did not result in the number of filings that might have been expected, as cultural resistance to formal insolvency process and the ‘amend and extend’ crisis management method contributed to moderate petition numbers. Although commodity prices have since risen from their lows, the vulnerabilities of the oil and gas sector, particularly in services, remains in play.

SCHEMES OF ARRANGEMENT

Cayman’s 2017 scheme petition filings included four pertaining to the landmark Ocean Rig case, the largest ever restructuring in the Cayman Islands. Through those schemes of arrangement, a total of USD$3.7bn of debt was restructured using four interlocking schemes. A unique characteristic of the distressed group was that all four debtors were Marshall Islands companies, having shifted their place of incorporation to the Marshall Islands to enjoy the tax tonnage breaks offered by that jurisdiction. The debtors were unable to restructure in the Marshall Islands, however, due to the lack of a restructuring regime in that jurisdiction. Prior to the filing of the petitions for schemes of arrangement, the subsidiary companies had their centre of main interest shifted to Cayman and the parent company was re-domesticated to the Cayman Islands. The schemes were vigorously challenged on a variety of grounds but were sanctioned by the Cayman Court and recognised by the US Bankruptcy Court in chapter 15 proceedings in the Southern District of New York.

REDUCTION OF CAPITAL

Petitions for capital reductions spiked in 2016 following the return of capital to shareholders and other capital reorganisations of solvent companies. In 2017, there was a rather more typical nine such petitions, all of which successfully converted into orders.

SNAPSHOT 8Annual Review: 2017

Analysis of 2017 Filings by Jurisdiction

22

18

6

11

5

14

4

Winding Up Petitions did not proceed

Petitions for Court Supervision (Sections 124 & 131)

Winding Up Court Orders

Provisional Liquidation Orders

Orders for Liquidation under Court Supervision

Court Supervision Petitions did not proceed

Winding Up Petitions

MAURITIUS

The large population of Mauritius (1.3 million) compared to most offshore locations means that there are a correspondingly higher number of active trading companies, and therefore a higher insolvency figure. To date, Mauritius reported 165 petitions, converting into 25 orders for 2017. There is often a big lag in reporting, and this conversion rate is therefore likely to increase in the coming months.

However, even discounting the time lag, the 2017 conversion rate is expected to remain low; with just over a quarter ultimately converted from the 2016 figures. Banks are now more willing to put clients into administration in a bid to rescue businesses faced with financial difficulties. The restructuring of loans has also been a popular approach, particularly with international businesses.

In view of the delays, costs and the possibility of applications being resisted by debtors, the creditors tend to reach settlements with debtors rather than pressing for court orders in Mauritius. A recent amendment to the Insolvency Act has also reduced the monies available to a liquidator for distribution among the company’s creditors, making the process less appealing.

Analysis of 2017 Filings by Jurisdiction

MAURITUS INSOLVENCY REGIME

Under Mauritian law, the main insolvency procedures are Liquidation and Receivership. Receivership enables secured creditors (such as a bank that has made a secured loan to the company) to enforce their charges, usually by sale of property or other assets.

Liquidation is the process of winding up a company unable to pay its debts by selling all or part of the business, or individual assets, in order to distribute the proceeds among the creditors and (if there is a surplus) shareholders. There are two types of liquidation for insolvent companies:

■ Compulsory liquidation by the court (measured in this report) ■ Creditors’ voluntary liquidation

As an alternative to liquidation, the Insolvency Act, 2009 introduced administration, which provides an opportunity for the company to continue in existence, or alternatively to ensure better returns for the company’s creditors and shareholders.

Mauritian law also provides for restructuring of companies outside of a formal liquidation or administration. This can be either by way of a compromise with creditors approved at a creditors’ meeting, or a scheme of arrangement approved by the Court.

GUERNSEY’S INSOLVENCY REGIME

There are two quite different corporate insolvency procedures. The first, administration, aims to provide the debtor with the chance to trade normally and survive its financial difficulties and continue as a going concern. The second, compulsory liquidation, results in the dissolution of the debtor and is more relevant where the debtor has no realistic chance of surviving.

Guernsey is currently embarking on a reform of its commercial and personal insolvency legislation.

The first phase of the reform is anticipated to include the introduction of insolvency rules; a requirement for independent office holders in an insolvent voluntary winding up; greater consultation with creditors in an insolvent winding up; and greater powers for office holders to obtain information from directors and officers.

These changes will make the insolvency regime far more robust and will enhance Guernsey’s reputation as a safe place to do business.

2017

2016

2015

2014

2013

11

10

20

14

19

GUERNSEY COURT ORDERS ISSUED AND LIQUIDATORS APPOINTED

SNAPSHOT 9Annual Review: 2017

GUERNSEY

Guernsey petitions are not publically available; it is only possible to capture the number of winding up orders for the jurisdiction. However, based on the figures we can see – namely winding up orders, registry size and population – the landscape in Guernsey appears to be very similar to that of Bermuda. It seems likely, therefore, that the number of petitions is also likely to be close to those seen in Bermuda.

Guernsey liquidation orders in 2017 remained at a low total for the second year running, with just 11 orders made, several of which related to companies in the real estate sector. In addition, there were two Administration orders.

Analysis of 2017 Filings by Jurisdiction

ISLE OF MAN

The Isle of Man continues to see the lowest number of petitions and orders out of all the jurisdictions measured, despite its company registry being bigger than Bermuda or Guernsey. In 2016 the jurisdiction saw just seven petitions, half the total of the previous year. Five orders were made.

There are a number of factors contributing to the low petition count. The Isle of Man does not have a state-funded official receiver, so a creditor will be responsible for the costs of the winding up. Consequently, unless a debtor company has recoverable assets, or the Financial Services Authority is prepared to fund a liquidation in the public interest, then often insolvent companies will simply cease trading and eventually be struck off the Register. Moreover, as the Isle of Man’s voluntary liquidation procedure is both user friendly, comparatively inexpensive and very similar in form to that used in the UK, the vast majority of companies wound up in the Isle of Man do so voluntarily.

Finally, the common use of Manx companies for the tax efficient holding of assets means that insolvencies are inherently less frequent than for companies that trade.

CREDITORS VOLUNTARY LIQUIDATIONS

The Isle of Man’s corporate law regime is attractive to secured creditors who in most cases will exercise their rights to appoint receivers out of Court to save costs, rather than go down the court winding up route.

During 2017, there were 15 creditors voluntary liquidations, down considerably on the 49 that were recorded in 2016.

ISLE OF MAN’S INSOLVENCY REGIME

Companies in the Isle of Man can either be incorporated under the Companies Act, 1931 or the Companies Act, 2006. The primary legislation governing insolvent companies can be found in the 1931 Act and is applicable to companies incorporated under the 2006 Act.

There are two types of insolvency proceedings available:

■ Creditors’ voluntary liquidation ■ Compulsory liquidation ordered by the court

A creditors’ voluntary liquidation is frequently used by insolvent companies that are unable to pay their debts as they fall due. A debtor company can seek to wind itself up by way of a members’ voluntary liquidation, but if the directors of the company are unable to make the statutory declaration of solvency, then the company must proceed by way of a creditors’ voluntary liquidation.

Alternatively, creditors of a company can file a claim for the appointment of a liquidator (i.e. an involuntary liquidation) under the Chancery Procedure at the High Court of Justice.

Liquidation can stop the company’s creditors’ position from deteriorating and bring closure to an unsustainable position for the company’s directors. Since the directors’ powers cease upon liquidation, it is the liquidator who takes responsibility for selling the company’s assets, distributing the funds to the creditors and dealing with the company’s employees.

Restructuring options

Isle of Man law does not provide for company voluntary arrangements and administrations. Debtors can, however, use the process set out in both the 1931 Act and the 2006 Act for arrangements, mergers and consolidations.

Schemes of arrangement involve a company entering into a compromise or arrangement with its creditors or members, or both.

The majority of new Isle of Man companies are now incorporated under the highly flexible Companies Act 2006. Conversion from 1931 Act to 2006 Act is a relatively simple process that is commonly undertaken to provide access to this flexibility. Provided the 2006 Act company can meet a statutory solvency test, a reduction of share capital can take place without the need to make a Court application.

5

2Petitions to the court for an order winding-up a company7

15 Creditors voluntary liquidation

5 Court Orders to proceed issued

2 Petitions did not proceed to liquidation

ISLE OF MAN INSOLVENCY WINDING UP ACTIVITY

SNAPSHOT 10Annual Review: 2017

Analysis of 2017 Filings by Jurisdiction

JERSEY’S INSOLVENCY REGIME

Jersey’s corporate insolvency regime is not Petition based. The Bankruptcy Law applies to both personal insolvency situations and also incorporated bodies. Désastre is the procedure for the winding up of the affairs of a company or individual, and is the only process that can be instigated by a creditor. It is administered by the Viscount, who is an officer of the Royal Court in Jersey with the Viscount, in essence, performing the role of an official receiver. This is the equivalent to a court ordered compulsory winding up.

The Companies Law as amended is applicable to corporate insolvencies. In particular, Part 21 of the Companies Law sets out a variety of winding-up procedures: summary winding up (voluntary solvent winding up), creditors’ winding up (voluntary insolvent winding up, which can only be instigated by shareholders rather than creditors) and just and equitable winding up, which is a court-led process. Part 18 of the Companies Law allows for compromises and arrangements to be entered into with creditors or other persons.

A creditors winding up is a more frequently used procedure. The process is not court-driven but is instigated by the insolvent company itself and leading to the appointment of a liquidator.

Corporate insolvencies are also sometimes dealt with by way of an application for winding up on a just and equitable basis. This option provides great flexibility in dealing with both insolvent and solvent companies forming part of a group and also with cross border businesses. The initial application is often made ex parte.

Corporate insolvency in general and désastre proceedings in particular are relatively rare in Jersey in practice. There were only two such désastre proceedings in 2017, a fairly typical figure.

Jersey’s courts are also willing to grant recognition of overseas insolvency procedures where appropriate. In particular, recognition of foreign insolvency office holders including receivers and administrators is frequently granted, ensuring that secured creditors’ rights are protected (as they are in Jersey’s principal insolvency procedures). Secured creditors holding Jersey law security interest agreements have a number of very flexible options to enforce their security swiftly and cost-effectively without involving the courts.

By far the most frequently used winding up procedure is a summary winding up available for solvent companies on a voluntary and administrative basis backed by solvency statements made by the directors. The directors themselves may handle the winding up or liquidators may be appointed in more complex cases.

Recent case law provides helpful guidance on the winding up of insolvent Jersey trusts whereas foundations are subject to similar statutory regimes as described above. Again the frequency of such insolvencies appears very low.

Restructuring Options

In terms of restructuring, corporate schemes of arrangement in Jersey have been seen in similar numbers to the Cayman Islands over the past few years. These have increasingly been used in significant and high profile restructurings and have proved effective and flexible. They can be used in parallel with other jurisdictions on a cross-border basis as are similar insurance schemes

Capital reductions can also be carried out with, and in some circumstances without, the sanction of a court, providing a useful tool in restructuring.

11SNAPSHOT Annual Review: 2017

Contact Us

Tony Heaver-WrenPartner, Cayman IslandsDispute Resolutiontheaverwren@applebyglobal.com

Andrew WillinsPartnerGroup Head, British Virgin IslandsDispute Resolutionawillins@applebyglobal.com

Anthony WilliamsPartnerGroup Head, GuernseyDispute Resolutionawilliams@applebyglobal.com

Mark HolligonPartnerGroup Head, Isle of ManDispute Resolutionmholligon@applebyglobal.com

Malccolm MollerPartnerGroup Head, Mauritius/SeychellesDispute Resolutionmmoller@applebyglobal.com

Eliot SimpsonPartnerGroup Head, Hong KongDispute Resolutionesimpson@applebyglobal.com

John WastyPartnerGroup Head, BermudaDispute Resolutionjwasty@applebyglobal.com

RESEARCH METHODOLOGY

The data for this publication has been collected from a review of the Court filings, newspaper advertisements and Registrar notices in Bermuda, British Virgin Islands, the Cayman Islands, Guernsey, Jersey, Isle of Man and Mauritius, between 1 January 2017 and 31 December 2017.

The conversion rate is the number of initial filings that later converted into actual court orders. Some court orders may not yet have been published, so figures are subject to change as new information becomes available.

Cases have been attributed to the year that they commenced, so for example a case that began with a November 2015 petition and resulted in a January 2016 court order would be included as part of the 2015 count.

Appleby is one of the world’s leading offshore law firms. The Group has offices in the key offshore jurisdictions of Bermuda, the British Virgin Islands, the Cayman Islands, Guernsey, Isle of Man, Jersey, Mauritius, and Seychelles, as well as a presence in the international financial centres of Hong Kong and Shanghai.

With over 470 people, including lawyers and professional specialists, across the Group, Appleby delivers sophisticated, specialised services, primarily in the areas of Corporate, Dispute Resolution, Private Client and Trusts, Regulatory and Property. The Group advises public and private companies, financial institutions, and high net worth individuals, working with these clients and their advisers to achieve practical solutions, whether in a single location or across multiple jurisdictions.

Fraser RobertsonPartnerGroup Head, JerseyDispute Resolutionfrobertson@applebyglobal.com

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