In earlier Z Trust decisions the Court had held that where a trust becomes ‘insolvent’ (in the sense that the assets held by the trustee are insufficient to meet the claims against those assets, applying the cash flow test), the trust should be administered under the supervision of the Court for the benefit of the creditors as a whole, rather than the beneficiaries. Although in light of the Z III Trust’s financial position the Court had previously considered the imposition of an insolvency regime to wind up the trust, it had not done so at that stage due to the possibility of a restructuring of various of the Z Trusts, which was supported by the main creditors of the trust, with a view to seeking to restore the Z III Trust to solvency. In the event, that restructuring did not prove possible and by the time the matter came back before the Court, all creditors were in agreement that the trust should be wound up.
The two principal issues which were considered by the Court were who should conduct the winding up exercise, and what kind of insolvency regime should be imposed.
- Whilst it is clear from the approach taken by the Court that it may, in appropriate circumstances, consider appointing an insolvency practitioner to undertake the winding up exercise, in the Z III Trust case the Court was satisfied that the trustee was itself fully able to undertake the process and did not appear to be in a position of conflict which might otherwise impact on its ability to undertake the process. The judgment shows that the Court was clearly concerned that the appointment of an insolvency practitioner in this case would add an additional layer of cost which would further reduce the amount of assets available for distribution to creditors. Given that the trustee was willing to undertake the exercise and had the necessary skills and resources to enable it to do so, the Court declined to appoint an independent insolvency practitioner to lead the winding up process. It seems likely that if there had been some question as to the trustee’s ability properly to undertake and resource the winding up exercise, the Court would have considered either the appointment of a new or additional trustee to facilitate the winding up exercise, or the appointment of an independent insolvency practitioner to undertake the process in conjunction with the trustee.
- The insolvency regime imposed by the Court borrows heavily from the procedure set out in the Bankruptcy (Désastre) (Jersey) Law 1990 and the rules made under that law. The regime sets out amongst other things the mechanics of advertising for and assessing creditor claims, dealing with the opposition to claims, authorising the trustee to take the steps necessary to collect in and realise the assets of the trust, making provision for the remuneration of the trustee during the process, and for the preparation of accounts and the distribution of trust assets. The regime also provides for a moratorium on claims by creditors and makes provision for either the trustee or creditors to bring matters before the Court for determination should that prove necessary.
Although the Court considered whether it might be possible to impose a less formulaic regime in the case of the Z III Trust in order to simplify the winding up process, the Court concluded that, in the interests of fairness to creditors, there was no stage in the process which could sensibly be omitted. In other words, there was no shortcut which could be taken.