Background – why?

This area has been the subject of debate for a number of years.  Prior to the publication of the Draft Legislation, the Committee for Economic Development (the Committee) considered that reform was necessary to enhance Guernsey’s corporate insolvency law; in particular to make it modern and effective, ensuring that the consequences of business failure are fairer and more predictable.  Relevant considerations behind the proposed developments include:

  • exit strategies being an important consideration for new start-ups or ventures;
  • recent high profile insolvencies in Guernsey; and
  • improving the flow of credit within the jurisdiction.

It is clear from the proposals that there is also a move towards consistency between liquidation and administration, as well as harmonising the Guernsey law with that of the UK.

General Amendments

The Draft Legislation covers provisions (applying to both administrators and liquidators) to set aside, vary or otherwise restore the position relating to:

  • transactions deemed to be at an undervalue;
  • credit transactions deemed to be extortionate.

Under the current regime the legislation only allows the power to set aside a preference.

Each of these amendments would bring the statutory regime in line with the UK in terms of allowing “clawback” after a company becomes insolvent.  Other proposed changes include:

  • power for the courts to wind up foreign companies;
  • provision for ensuring continuation of supply of utilities to companies in administration or liquidation;
  • reporting duties for liquidators and administrators in relation to officer misconduct.

By granting liquidators and/or administrators additional statutory duties, it is hoped that there will be potential for closer investigations where appropriate and higher overall standards of management of insolvency situations.

Administration

The Draft Legislation would require enhanced administrator reporting requirements to creditors and include mandatory invitations to relevant meetings.  It will also enable interim distributions to creditors and an automatic dissolution of the company once the administration order has been discharged without the need to subsequently engage with the winding up process.

Liquidation

The Draft Legislation attempts to streamline the powers currently given to administrators and seeks to introduce them for liquidators, including requirements relating to the submission of statements of affairs to the liquidator, production of documents and information and a mechanism to examine company officers.

There are also new provisions relating to:

  • powers for liquidators to disclaim onerous property of the company; for example, unprofitable contracts or unsaleable real property situated outside of the Bailiwick;
  • exemptions from audits;
  • appointments of independent liquidators in insolvent liquidations.

When do the Requirements Become Effective?

The Draft Legislation is expected to move towards formal legislation during the middle part of 2019 but is currently in consultation.

Conclusions

It is considered that the amendments will provide welcome clarity in the area of corporate insolvency, particularly where there have been perceived gaps in the legislation or disparities between the powers of administrators and liquidators in the Bailiwick.  Additionally, given the improvement in mandatory communications with creditors, it would be expected that the reforms should achieve many of the objectives outlined by the Committee.

The amendments would give greater powers to office holders whilst also allowing the court to apply the law in a pragmatic and flexible manner.

Type

Insight

Locations

Guernsey

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