Changes to Guernsey’s corporate insolvency law and the winding up of foreign companies

15 April 2020

Written by Anthony Williams and Andrew Murphy Appleby

January 2020 saw the States of Guernsey pass the Companies (Guernsey) Law, 2008 (Insolvency) (Amendment) Ordinance, 2020 (Ordinance), an important legislative development to supplement Guernsey’s corporate insolvency regime. 

Whilst a commencement date for the Ordinance is awaited, Advocate Anthony Williams, Partner and Head of Appleby’s Dispute Resolution practice in Guernsey, and Andrew Murphy, Associate, consider some of the more specific potential opportunities it will afford.

The Royal Court’s pragmatic approach to assisting insolvency office-holders in exercising their duties has enabled Guernsey’s corporate regime to adapt with market trends in other leading jurisdictions, notwithstanding that the corporate insolvency legislation itself has remained unchanged for some years. The Ordinance will introduce an array of new measures, making Guernsey an even more attractive jurisdiction for the financial services industry.

The ramifications are wide-reaching, and include:

  • the ability for administrators to obtain the Royal Court’s approval to make distributions to unsecured creditors;
  • a streamlined process to move from administration to dissolution in suitable circumstances;
  • a distinction between solvent and insolvent voluntary liquidations, with a requirement for the appointment of an independent liquidator and a creditors’ meeting where the company being voluntarily wound up is insolvent;
  • investigatory powers for liquidators to compel the provision of information and documents from present and former officers and employees, and to call for an in-Court examination of current and former officers regarding the affairs of the company;
  • a power for liquidators to disclaim onerous property; and
  • the establishment of an Insolvency Rules Committee which in due course may make rules governing the corporate insolvency regime more prescriptively (as is the case in the UK, for example).

Winding up of non-Guernsey companies

In addition, the Ordinance introduces the ability for the Royal Court to wind up non-Guernsey companies; being overseas companies or companies otherwise not registered in Guernsey, where they have ceased carrying on business, are unable to pay their debts within the current statutory parameters or on the just and equitable basis.

Liquidators appointed over non-Guernsey companies under the new powers will be able to exercise their powers over those entities as if they were Guernsey-registered companies.

The circumstances in which the Royal Court will exercise the proposed discretion to order the winding up of non-Guernsey companies remain to be seen. However, the power is modelled on that contained in section 221 of the UK’s Insolvency Act 1986 (Insolvency Act) relating to “unregistered companies”. The parallel provisions in the Insolvency Act similarly leave the circumstances in which the UK courts will order the winding up of overseas companies open to judicial discretion. It is therefore anticipated that the Royal Court will find the approach of the UK courts persuasive, and will potentially exercise its discretion to order the winding up of non-Guernsey companies where:

  • the company has or has had a place of business in Guernsey;
  • the company has assets in Guernsey; and/or
  • the winding up application is based on non-payment of a debt incurred in Guernsey.

In addition, if the English line of authority is to be persuasive before the Royal Court, it is likely that parties seeking the winding up of a non-Guernsey company will need to demonstrate a reasonable possibility that the winding up will benefit them, and that they (or some other person potentially entitled to distributions from the company’s winding up) are situated in the Bailiwick.

Guernsey is a leading financial centre, hosting branches of numerous financial institutions. Factoring in the ever-increasing ability for those institutions to conduct work remotely and without needing to establish a separate company registered in Guernsey, the ability for the Royal Court to wind up non-Guernsey companies will provide additional flexibility for those companies and third parties dealing with them.

On the more straightforward end of the spectrum, the power will enable Guernsey-based creditors of non-Guernsey companies to seek a winding up order before the Royal Court, in suitable circumstances, on the basis of unpaid debts. This could afford those creditors a more streamlined and cost-effective route to winding up the debtor company than pursuing a winding up order in the foreign jurisdiction in which it is registered.

In addition however, the new power may enable non-Guernsey companies, or their directors/members, to seek a winding up order in the Royal Court, notwithstanding that the company in question is registered in a different jurisdiction. Bearing in mind the efficiency and resourcing of the Royal Court, in particular the greater availability of court hearing time, this is likely to be an attractive prospect where the availability of court time is more limited in those other jurisdictions.

Coupled with the additional powers to be afforded to insolvency office-holders under the Ordinance, the power to wind up non-Guernsey companies is likely to be well received by those operating in the Guernsey legal and financial services industry, and we look forward to the Royal Court developing its own body of case law in this area.

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