SNAPSHOT ANALYSIS OF OFFSHORE PETITION FILINGS AND COURT ORDERS - OFFSHORE Corporate Insolvency & Restructuring Annual Review 2018 Current Trends ...
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SNAPSHOT
OFFSHORE Corporate
Insolvency & Restructuring
Annual Review 2018
Current Trends 2019 Jan-June
ANALYSIS OF OFFSHORE
PETITION FILINGS AND
COURT ORDERS
Tony Heaver-Wren
Partner | Head of Insolvency & Restructuring
Dispute Resolution | Cayman INSOLVENCY PETITIONS IN NUMBERS
This Snapshot Report provides an overview of the
CONTENTS
recent insolvency and restructuring petition filings 2018 2019 to date1
and resultant court orders in respect of companies Winding up Petitions
The International Picture 3 Total number of companies in Bermuda, BVI,
in six* offshore jurisdictions. Throughout the year, The Offshore Picture 4 744,255 764,765
we closely monitor company notices and petition Analysis of Filings by Jurisdiction
Cayman, Guernsey, Isle of Man & Mauritius2
activity across our network of offshore offices in the Bermuda 5
British Virgin Islands 6
following categories:
62
Cayman Islands 7
• Compulsory winding up, by shareholders or creditors;
Mauritius
Guernsey
9
9
193 Compulsory winding-up Petitions submitted to the
Offshore courts
• Conversion of voluntary liquidation to court supervised liquidation; Isle of Man 10
• Schemes of arrangement; and Jersey 11
• Court requests for a reduction of share capital.
The key findings that emerge from our full-year, multi-jurisdictional 105 26 Compulsory winding-up Orders made by the
Offshore courts
review and analysis for 2018 are highlighted and explored further over
the following pages, together with commentary on the developments over
2019 to date. Petitions against Asian enterprises incorporated offshore
have declined somewhat, although there are still a number of high-profile
62% 28%
Average conversion rate of winding-up Petitions
individual cases making their way through the offshore courts.
to Orders across the region
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 over the following pages useful.
7 weeks 5 weeks Average Petition to Order conversion time
Please don’t hesitate to get in touch with your usual Appleby contact
should you wish to discuss anything in more detail.
Tony Heaver-Wren
Partner | Dispute Resolution | Cayman
-35% -11% Fewer winding up Petitions than the previous year
or equivalent time period
* Jersey’s corporate insolvency regime is not Petition-based
but a summary of its insolvency and restructuring options
Is also included. 1
January 1st - June 1st
2
The statistics quoted for the Offshore region in the report are based on these six jurisdictions
SNAPSHOT Annual Review: 2018-2019 2
WINDING UP PETITIONS - THE INTERNATIONAL PICTURE
OFFSHORE
Across the six offshore jurisdictions reviewed, there were 193 compulsory winding up petitions presented to the local
COMPULSORY WINDING UP PETITION TOTALS
courts in the course of 2018 and a further 62 so far in 2019.
Bermuda, Isle of Man and Guernsey all showed levels of activity in 2018 in line with previous years. Cayman petition
filings in 2018 rose 50% relative to the previous year, in part due to seven local companies being liquidated after becoming 24,985
embroiled in real estate investment fraud in the United States. After an uptick in activity in 2017, Mauritius and the British 24,457
Virgin Islands (BVI) filings returned to previous levels in 2018.
The early signs are that 2019 is going to continue this easing of filings, despite widespread anticipation of a global slow- 23,109
down during the period. Given 2019 filings to date, barring a late surge, 2019 filings are unlikely to overtake 2018 totals
come year end. However, spikes in numbers are possible as the complex organisation of some corporate structures
can mean that a cascade of insolvencies can result from a single troubled group. In Guernsey for example, the court 22,103
recently issued orders against a group of nine funds and sub-funds belonging to beleaguered investment firm Belvedere
Management Group.
Key
THE UNITED KINGDOM 5,389 5,111
5,460 USA
In 2018, the UK Gazette reported a little over 5,800 petitions to compulsory wind-up companies, as submitted by a 5,816
creditor, shareholder or director. Such petitions peaked at 8,300 in 2008 and have been declining steadily until last year UK
when a significant reversal of this trend incurred with 700 more petitions than the previous year - 2019 is currently on 2,616
track to match it.
235 200 296 193 62 Offshore
2015 2016 2017 2018 2019
THE UNITED STATES
to date
There were almost 50,000 business bankruptcy petitions filed back in 2011 but this figure had halved by 2015. Since then
the annual decline in bankruptcy court petitions published by the Administrative Office of the US Courts has been much
more marginal. Business petitions fell 6% for the second year running, to 22,103.
COMPANY REGISTER SIZE
Latest figures available
BVI, 402,907
UK
3,879,844
Offshore
Mauritius, 192 972
USA 764,765
27,626,360
5 Cayman, 107,309
Isle of Man, 25,995
Guernsey, 19,253
Bermuda, 16,329
SNAPSHOT Annual Review: 2018-2019 3
WINDING UP PETITIONS - THE OFFSHORE PICTURE
RATES OF CONVERSION SPEED OF CONVERSION
The rate of winding up petitions converting into orders is generally high in the Offshore region. With plenty of Over the last year the time between filing and final hearing varied between four and eleven weeks. Judging from the 2018
restructuring options on the table, winding up a companyis usually the option of last resort and frequently successful. conversion rate, petitions in Bermuda are resolved within one month, MAU and Cayman within two and BVI and Isle of
Man within three months.
Over the last year, Bermuda and BVI saw the highest rates of conversion of petitions to court orders appointing
liquidators. Typically, a final hearing 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.
Guernsey petitions are not publically available; it is only possible to review the number of winding up orders for the
jurisdiction so conversion figures are unavailable. 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. These can
be completed in 8-10 weeks with the occasional outlier taking the average up to 13 weeks.
Bermuda BVI Cayman Isle of Man Mauritius
Rate in 2018
71%
Conversion
86% 64% 63% 27%
Lorem ipsum
5
5
to Convert in 2018
Weeks
N.B. Guernsey petitions are not available, so calculations of conversion rates and speed are not possible.
SNAPSHOT Annual Review: 2018-2019 4
ANALYSIS OF 2018-19 FILINGS BY JURISDICTION
BERMUDA
BERMUDA’S INSOLVENCY REGIME
During the course of 2018, Bermuda witnessed 14 compulsory winding up petitions, ten of which converted into court
orders. 2019 looks likely to achieve a similar level, with seven petitions recorded thus far in the year. Petitions in Bermuda The Companies Act 1981 and the Winding Up Rules 1982 govern insolvencies and
that do convert generally do so in a swift and orderly fashion, with many being processed within a month, quicker than reorganisations in Bermuda. There are two types of insolvent liquidations - voluntary and
anywhere else in the offshore region. compulsory.
Petition levels have gradually declined as the years of economic turmoil have receded. Nevertheless, companies of all Compulsory liquidations are commenced by way of a petition presented to the Supreme Court
ages and sectors are susceptible to downturns - 2019 has so far seen local retailer Bluck’s of Bermuda go into liquidation in Bermuda upon which the Court will be asked to make a winding up order.
after 175 years citing lifestyle changes while 80-year-old Hong Kong construction company Hsin Chong recently filed for
provisional liquidation with the Bermuda court after over expansion on the mainland over the past few years has led to a Creditors may petition for a winding up order or the company may resolve to petition to wind
bond default. itself up under this procedure.
One of the most notable cases from 2018 concerned Noble Group which completed a $3.5 billion restructuring by using Voluntary liquidations, usually referred to as a ‘creditors voluntary’ or CVL, occur where
a provisional liquidation program approved by the Bermuda court in order to emerge as smaller, unlisted coal-trading members of a company decide to wind up the company deemed insolvent. A meeting of
business having once been Asia’s biggest commodity trader. 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.
Notices of the reduction of share capital remained at a typical level in 2018 in the mid-thirties, but 2019 looks to be much
busier, with 25 already reported so far. 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.
BERMUDA WINDING UP PETITIONS AND RESULTING ORDERS
Restructuring options
25 A scheme of arrangement is a compromise or arrangement between a company and its
members or its creditors. An application to, and sanction of, the court is required.
20 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
15 of shares, or distribute assets to shareholders. In our experience, creating distributable
reserves and/or eliminating losses are the main reasons.
Key
10
Orders
5
0 Petitions
2015 2016 2017 2018 2019
to date
SNAPSHOT Annual Review: 2018-2019 5
ANALYSIS OF 2018-19 FILINGS BY JURISDICTION
BRITISH VIRGIN ISLANDS
Across 2018 there were 37 applications to the BVI court to appoint a liquidator, and of these, just five progressed no
further as the companies concerned were able to resolve their situations. The other applications resulted in a court order BVI’S INSOLVENCY REGIME
and progressed to the compulsory winding up stage.
Corporate insolvency in the BVI is governed by the Insolvency Act 2003 and the Insolvency Rules
In the BVI, the members of an insolvent company also have an alternative option to using the court and can pass a 2005. The effect of an insolvent liquidation is to put the affairs of an insolvent company in the
resolution appointing an eligible insolvency practitioner as liquidator of the company and, indeed, some of the biggest hands of a professional liquidator who is required to take possession of, protect and realise the
liquidations seen in the BVI have been shareholder driven. 19 appointments to insolvent companies were made without company’s assets for the benefit of the company’s creditors.
applications, using member resolutions.
Proceedings are typically brought in the Commercial Court of the Eastern Caribbean Supreme
Combined, there were 51 liquidations ordered over the course of the year, much more in line with previous levels of Court in the BVI. A court application (the filing of a petition) may be made by a creditor, the
activity following 2017’s unusually high total following the collapse of several Asian conglomerates. 2018 saw fallout from company, its directors, and its shareholders, the Attorney General or the Financial Services
the energy transport sector such as the restructuring of oil & gas driller QGOG Constellation leading to the liquidation of Commission.
several BVI subsidiaries. The holding company of Primorsk International Shipping, the operator of a fleet of ice-class oil The grounds for appointment are that the company is insolvent, it is just and equitable that the
tankers in the Arctic,was another casualty. company be wound up or it is in the public interest to wind it up. The most common ground is
insolvency.
While some insolvencies are the result of unfortunate business decisions or timings, others arise out of shareholder
conflict. One recent example concerns the Russian online retail giant Ulmart (UHL). UHL shareholders Koshigi Ltd and As an alternative to the court appointment of a liquidator, the members of an insolvent company
Svoboda Corporation, both BVI-incorporated, were ordered to pay a million-dollar figure after a London tribunal found may, by a majority of at least 75%, pass a resolution appointing an eligible insolvency practitioner
they had acted, amongst other things, in concert to divert corporate opportunities away from UHL in an unfairly prejudicial as liquidator of the company. Liquidation marks the end of a company’s business and does not
manner. A judgment handed down by a BVI court upheld a worldwide freezing and asset disclosure order against the two have a rescue function. Once the liquidation is complete, the company will then be struck from the
companies. The order against Svoboda is of particular interest because it was a rare example of the BVI Court winding up register of companies in the BVI and dissolved.
what was by then a company registered elsewhere.
Restructuring options
With China still very much a wait-and-see, and most of the recent travails in the energy sector following oil price
fluctuations now resolved, 2019 has gotten off to relatively calm start. There have just been three court orders to date The BVI Business Companies Act provides two mechanisms for achieving a wide range of
with member-appointed liquidations only slightly ahead. Nevertheless, there have been some big names involved; the corporate restructurings by way of court approval:
collapse of fiduciary firm Mossack Fonseca has been well documented and its BVI-subsidiary has just received a court
liquidation order while Russian mobile broadband services provider Yota’s ill-fated investment into phone manufacturing • Schemes of arrangement, which are equivalent to those available in England; and
has recently led to insolvency proceedings. • 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
BVI COMPULSORY LIQUIDATION APPLICATIONS AND NOTICES 2018 creditors or members.
Just & Equitable
Applications to
5 Applications did not
proceed further
BVI companies may see more “just and equitable” petitions, currently a relatively rare breed in
37
the BVI. The cases typically involve allegations that there is some deadlock in the management of
the court for the
the company, or that there has been some fraud or mismanagement. On June 14, 2018, the Court
appointment of a
of Appeal delivered a decision in Delco Participation SA v. Green Elite Ltd. Green Elite was an
liquidator
32 Court Orders to asset holding company that had sold its main asset some years before. The company opposed the
proceed issued application to wind it up on the basis that its business could include dealing with the proceeds of
51
the sale. The Court of Appeal disagreed. In its judgment, the court appears to have accepted that
Liquidations the relevant touchstone was whether the life of the company had come to an end, such that it was
proceeded “impossible” to carry on the business of the company. The court took the view that the winding-up
19
process was ancillary to the main purpose and that it was far from being part of its business and
Liquidators appointed
it has undoubtedly opened the door further to just and equitable petitions in the BVI.
directly by shareholders
SNAPSHOT Annual Review: 2018-2019 6
ANALYSIS OF 2018-19 FILINGS BY JURISDICTION
CAYMAN
After a very busy few years in the aftermath of the economic recession and legacy fund liquidations, the number of CAYMAN ISLANDS INSOLVENCY REGIME
insolvency petitions working their way through the Cayman courts were receding through 2017. 2018 reversed this trend.
The Companies Law (2018 Revision) and the Companies Winding Up Rules 2008 (as amended)
In 2018, the Cayman Islands recorded 65 petition filings across all categories (compared to 57 in the previous year), with are applicable to corporate insolvencies. The Companies Law also provides a regime for what
45 converting into orders. Although petition filings for schemes of arrangement and reductions of share capital both fell are known as arrangements and reconstructions, enabling companies to reach compromises
sharply, petitions for an order that a company be placed under court supervised liquidation or be wound up were back up to or arrangements with their creditors or members.
close to their highest levels recorded.
Whereas voluntary liquidations generally do not involve the court’s supervision, involuntary
There has been no dominant sector driving 2019 petition filings, which have been made up of a wide range of industries liquidations may be commenced by a creditor petitioning the court on the ground that the
and enterprises including a Madoff investor, the troubled smartphone manufacturer Yota (who also features in our BVI debtor company is insolvent and obtaining a winding-up order.
coverage) and the fallout of an illegal seizure of an East European TV channel.
There are two routes into a liquidation that is subject to the oversight of the Cayman Court.
The time taken for an initial petition to reach a court order varied widely in Cayman, with some taking just a matter of The first of these is a winding up petition (most commonly a compulsory process initiated by
weeks and others involving significant legal and factual disputes taking almost five months. 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
CAYMAN ANNUAL PETITION FILINGS 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
7 confirmation of the resolution.
3
6 Although a capital reduction can form part of a scheme of arrangement between an insolvent
22 company and its creditors, on a stand-alone basis, a capital reduction is not an insolvency
8 remedy and indeed will not be available when there is any risk of non-payment to the
company’s creditors.
9
24 Key
17 Scheme of Arrangment (Section 86)
18
Reduction of Share Capital (Section 15)
29 1
29 32 Court Supervision (Sections 124 & 131)
4
22
8 Winding Up Petition
2016 2017 2018 2019
to date
8
SNAPSHOT Annual Review: 2018-2019 7
ANALYSIS OF 2018-19 FILINGS BY JURISDICTION
CAYMAN CONTINUED
INSOLVENCY PETITIONS MARKET NOTE
Frequently, insolvent companies elect to enter a liquidation through the two-step approach of appointment of a voluntary One of the largest insolvency cases involved Dubai-based Abraaj Investment Management Limited, which provided
liquidator followed by a petition to convert the liquidation to bring it under the Court’s supervision. investment management services to the private equity investment group known as The Abraaj Group. Abraaj, which
claims to have managed almost $14bn in funds, was forced into liquidation last June after a group of investors
Combined with winding up applications, these two classes of Cayman petitions for Court liquidations are collectively commissioned an audit to investigate the alleged mismanagement of at least $300 million in its healthcare fund. Once
referred to as ‘insolvency petitions’ for the purposes of this report. the Middle East and North Africa’s largest private equity firm, the demise of ABRAAJ has had reverberations across the
private equity and fund finance industry. Fund managers in the Middle East can expect much closer scrutiny of their
There were 56 insolvency petitions in total over 2018, making up well over three-quarters of the total petitions filed over internal operations and governance arrangements in future.
the period. They converted into 40 court orders. 16 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%. Grounds for Winding Up/Bankruptcy
It is an abuse of process to issue winding up proceedings on the basis of a debt about which there is a real and substantial
CAYMAN INSOLVENCY PETITIONS AND ORDERS 2018 dispute. The question of whether an alleged dispute has reached that threshold, itself comes before the courts fairly
regularly. In one 2018 case, the court was asked to consider making winding up orders in In the Matter of China Hospitals
Inc & China Healthcare Inc, in spite of both companies disputing the underlying debt, which amounted to approximately
USD175 million and was based on a final arbitration award in Hong Kong.
13 Winding Up Petitions did not
proceed In the China Hospitals case, the court decided to grant the winding up orders and refuse the adjournment applications.
The court noted that the mere fact that the final award was being appealed was insufficient to justify a conclusion that the
15
debt was disputed on substantial grounds. The petitioner was prima facie entitled to immediate winding up orders on the
Winding Up Court Orders insolvency grounds. The court confirmed that the burden was on the companies to establish the substance of the dispute
they raised and they failed to do so in this matter. The court also took the view that there was strong legal policy in favour
32 Winding Up Petitions of upholding final arbitration awards in countries which are party to the New York Convention (such as Hong Kong). The
4
judgment demonstrates that a winding up petition grounded on an unsatisfied final arbitration award will not be defeated
Provisional Liquidation unless robust evidence is produced to demonstrate a dispute on substantial grounds (e.g. very serious departures from
the rules of natural justice).
Last minute attempts to adjourn the hearing of a winding up petition were rejected by the Cayman Court in In the Matter
6 Winding Up Court Orders of Harlequin Hotels and Resorts Ltd. The background to the case involved investors attempting to recoup funds in the
Harlequin Group in connection with an alleged scam which led to a publicised Serious Fraud Office enquiry in the UK
24
Petitions for Court
and civil proceedings in England, Ireland, St. Lucia, and Saint Vincent and the Grenadines. The St Vincent member of the
Supervision (Sections
15
124 & 131) Harlequin Group issued a statutory demand against Harlequin Cayman, seeking repayment of an inter‐company debt.
Orders for Liquidation under
Although the company admitted the debt, it asserted a right to net off the debt against various other inter‐company debts
Court Supervision
without providing a credible legal or factual basis for this exercise. However, the petition appeared to be unopposed,
until the eleventh hour, when counsel appeared and sought an adjournment in order to file evidence. In the exercise of its
3
discretion, the court ordered that the company should be wound up and refused the company’s application to adjourn the
Court Supervision Petitions
did not proceed petition.
The court made clear that in the Cayman Islands there is no entitlement to an adjournment of a winding up petition as
of right, particularly at the last minute, and investigating the affairs of an insolvent group of companies may constitute
grounds for a just and equitable winding up order separate and apart from the company being insolvent.
SCHEMES OF ARRANGEMENT
The formal court process of a Scheme of Arrangement has remained at low levels since the peak years immediately
following the global economic crisis. However, numerous companies have been engaged in workout and restructuring
negotiations during the pe¬riod.
REDUCTION OF CAPITAL
Petitions for capital reductions spiked in 2016 following the return of capital to shareholders and other capital
reorganisations of solvent companies. Since then, numbers have reduced to single digit annual numbers, of which half
have successfully converted into orders.
SNAPSHOT Annual Review: 2018-2019 8
ANALYSIS OF 2018-19 FILINGS BY JURISDICTION
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; 2018
almost 200,000 (including 20,000 Global Business Companies) and therefore a higher Mauritius Petitions
insolvency figure. To date, Mauritius has reported 88 petitions, lower than in previous MAURITIUS
years, converting into 24 orders for 2018. There is often a big lag in reporting, and this
88
conversion figure is therefore likely to increase in the coming months. 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
However, even discounting the time lag, the conversion rate is expected to remain low. their charges, usually by sale of property or other assets.
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 Liquidation is the process of winding up a company unable to pay its debts by selling all or part of the business, or
approach, particularly with international businesses. 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:
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 • Compulsory liquidation by the court (measured in this report)
in Mauritius. A recent amendment to the Insolvency Act has also reduced the monies • Creditors’ voluntary liquidation
available to a liquidator for distribution among the company’s creditors, making the
process less appealing. 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
Guernsey petitions are not publically available; it is
only possible to review the number of winding up
GUERNSEY’S INSOLVENCY REGIME
orders for the jurisdiction.
There are two quite different corporate insolvency procedures available through the Companies (Guernsey)
GUERNSEY COURT ORDERS ISSUED AND Law 2008. The first, administration, aims to provide the debtor with the chance to trade normally and survive its
Since 2016 Guernsey liquidation orders have been
financial difficulties and continue as a going concern. The second, compulsory liquidation, results in the dissolution
steadily increasing and 2019 has already surpassed LIQUIDATORS APPOINTED of the debtor and is more relevant where the debtor has no realistic chance of surviving.
the total for the previous year. These recent orders
include a number of funds connected to Belvedere
2019 The States of Guernsey have published draft legislation which recommends amendments to the current corporate
Management Group, which has been accused of to date
14
insolvency legal regime in particular to make it modern and effective, ensuring that the consequences of business
financial mismanagement.
2018 13 failure are fairer and more predictable. 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
As a point of note, in the 2018 matter of Canargo 11
2017 between the powers of administrators and liquidators in the Bailiwick.
Limited, the Royal Court heard what is understood
to be the first successful application in Guernsey to 2016 10
The Draft Legislation is expected to move towards formal legislation during the middle part of 2019 but is
seek to place a company into liquidation for failure
to provide a member of the company with a set of 2015 20 currently in consultation.
accounts.
SNAPSHOT Annual Review: 2018-2019 9
ANALYSIS OF 2018-19 FILINGS BY JURISDICTION
ISLE OF MAN ISLE OF MAN’S INSOLVENCY REGIME
The Isle of Man consistently sees some of the lowest number of petitions and orders out of all the jurisdictions surveyed. Companies in the Isle of Man can either be incorporated under the Companies Act 1931 or
Over 2018 there were just eight petitions and five resulting orders. Three of the petitions were in fact inter-related asset- the Companies Act 2006. The primary legislation governing insolvent companies can be
holding companies subject to divorce proceedings. found in the 1931 Act and is applicable to companies incorporated under the 2006 Act.
There are a number of factors contributing to the low count. Unless a debtor company has recoverable assets, or the There are two types of insolvency proceedings available:
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 • Creditors’ voluntary liquidation
procedure is both user friendly and relatively inexpensive the vast majority of companies wound up in the Isle of Man do • Compulsory liquidation ordered by the court
so voluntarily.
A creditors’ voluntary liquidation is frequently used by insolvent companies that are unable
Finally, the common use of Manx companies for the tax efficient holding of assets means that insolvencies are inherently to pay their debts as they fall due. A debtor company can seek to wind itself up by way of a
less frequent than for companies that trade. 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’
In a recent development, an Isle of Man High Court decision confirmed that in cases where a company is hopelessly voluntary liquidation.
insolvent , it would generally be inappropriate for a contributory (a member of a company on the commencement of Alternatively, creditors of a company can file a claim for the appointment of a liquidator (i.e.
its winding up) to sit on the Committee of Inspection, the purpose of which is to supervise the liquidation and to fix the an involuntary liquidation) under the Chancery Procedure at the High Court of Justice.
remuneration of the liquidator. This brings the Isle of Man into line with the England and Wales Insolvency Act 1986.
Liquidation can stop the company’s creditors’ position from deteriorating and bring closure
to an unsustainable position for the company’s directors, with all the attendant anxiety and
CREDITORS VOLUNTARY LIQUIDATIONS stress. 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
The Isle of Man’s corporate law regime is attractive to secured creditors who in most cases will exercise their rights to dealing with the company’s employees.
appoint receivers out of Court to save costs, rather than go down the court winding up route.
During 2018 there were 25 Creditors Voluntary Liquidations, rather higher than the 15 that were recorded in 2017. Restructuring options
Previous years have seen as many as 70 such liquidations.
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.
ISLE OF MAN INSOLVENCY WINDING UP ACTIVITY 2018
Schemes of arrangement involve a company entering into a compromise or arrangement
with its creditors or members, or both.
25 Creditors voluntary liquidation
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 Court Orders to proceed issued
8 Petitions to the court for an order
winding-up a company
3 Petitions did not proceed to liquidation
SNAPSHOT Annual Review: 2018-2019 10ANALYSIS OF 2018-19 FILINGS BY JURISDICTION
JERSEY’S INSOLVENCY REGIME By far the most frequently used winding up procedure is a summary
winding up available for solvent companies on a voluntary and 2018 desastre
Jersey’s corporate insolvency regime is not Petition based. The Bankruptcy Law applies to both personal insolvency administrative basis backed by solvency statements made by the proceedings
situations and also incorporated bodies. Désastre is the procedure for the winding up of the affairs of a company or directors. The directors themselves may handle the winding up or
individual, and is the only process that can be instigated by a creditor. It is administered by the Viscount, who is an liquidators may be appointed in more complex cases.
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. Recent case law provides helpful guidance on the winding up of insolvent
Jersey trusts whereas foundations are subject to similar statutory
The Companies Law as amended is applicable to corporate insolvencies. In particular, part 21 of the Companies Law regimes as described above. Again the frequency of such insolvencies
sets out a variety of winding-up procedures: summary winding up (voluntary solvent winding up), creditors’ winding appears very low.
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 Restructuring Options
arrangements to be entered into with creditors or other persons.
In terms of restructuring, corporate schemes of arrangement in Jersey have been seen in similar
A creditors winding up is a more frequently used procedure. The process is not court-driven but is instigated by the numbers to the Cayman Islands over the past few years. These have proved effective and flexible,
insolvent company itself and leading to the appointment of a liquidator. and can be used in parallel with other jurisdictions on a cross-border basis as are similar insurance
Corporate insolvencies are also sometimes dealt with by way of an application for winding up on a just and schemes.
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. Capital reductions can also be carried out with, and in some circumstances without, the sanction of a
court, providing a useful tool in restructuring.
Désastre proceedings
Corporate insolvency in general and désastre proceedings in particular are relatively rare in Jersey in practice.
There were only two such désastre proceedings in 2018, and just the one published so far in 2019, a fairly typical
rate.
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.
SNAPSHOT Annual Review: 2018-2019 11CONTACT US
Click on an image below to visit individual team member biographies
RESEARCH METHODOLOGY
The data for this publication has been collected from a review of the published
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 2018 to 1 June 2019.
The conversion rate is the number of initial filings that later converted into
actual court orders. The placement of court petitions and orders for public
inspection can be an uneven process, so figures are subject to change as new
Tony Heaver-Wren John Wasty Andrew Willins information becomes available.
Partner, Head of Insolvency & Restructuring Partner Partner
Cayman Islands Group Head, Bermuda Group Head, British Virgin Islands Cases have been attributed to the year that they commenced, so for example a
Dispute Resolution Dispute Resolution Dispute Resolution case that began with a November 2015 petition and resulted in a January 2016
theaverwren@applebyglobal.com jwasty@applebyglobal.com awillins@applebyglobal.com court order would be included as part of the 2015 count.
Mark Holligon Eliot Simpson ABOUT APPLEBY
Partner Yahia Nazroo
Partner Partner, Mauritius
Group Head, Isle of Man Group Head, Hong Kong
Dispute Resolution Dispute Resolution Appleby is one of the world’s leading offshore law firms. The Group has
Dispute Resolution ynazroo@applebyglobal.com offices in the key offshore jurisdictions of Bermuda, the British Virgin
mholligon@applebyglobal.com esimpson@applebyglobal.com 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.
Anthony Williams Michael Cushing
Partner Partner
Group Head, Guernsey Jersey
Dispute Resolution Dispute Resolution
awilliams@applebyglobal.com mcushing@applebyglobal.com
Click here to visit applebyglobal.com
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