At present, the laws governing corporate insolvency in Guernsey are contained in the Companies (Guernsey) Law 2008 (the Companies Law). The States of Guernsey Commerce and Employment Department has been considering proposals to change the current regime for the past few years, and it is anticipated that the changes will come into effect during the course of 2019.
It has been decided not to introduce a separate insolvency law, but to amend the existing provisions in the Companies Law and introduce a set of Insolvency Rules to govern the process.
The current administration process under the Companies Law imposes minimal obligations on administrators to communicate with the company’s creditors. The reforms proposed include:
- a requirement for administrators to notify creditors of their appointment and call at least one initial meeting of creditors;
- power for the administrators to make distributions to creditors in accordance with the objectives of administration; and
- giving the Court power to permit dissolution of the company at the same point as discharging an administration order, without the need to go through the winding up process.
It is hoped these changes will give creditors more involvement with the process, whilst maintaining and enhancing administrator’s powers for a flexible and effective procedure.
The Companies Law does not currently distinguish between a solvent or insolvent winding up. The reforms aim to introduce objectives for liquidation (as is already the case with administration) to provide guidance to office holders on their duties in the process. Other proposals are:
- a requirement for an independent (or court sanctioned) liquidator in insolvent liquidations to avoid conflicts of interest and enhance the credibility of the process;
- a requirement for the liquidator to notify creditors of their appointment, call at least one initial meeting of creditors and ongoing reporting obligations for liquidators to creditors and shareholders;
- introducing rules for dealing with creditor claims in winding up, with provision for a “proof of debt” procedure, advertisement, submitting claims, and factors the liquidator should consider in determining a claim;
- an exemption to the requirement for audited accounts for companies in liquidation;
- power for a liquidator to disclaim onerous property and unprofitable contracts;
- a statutory scheme for holding of unpaid dividends; and
- power for the Royal Court to wind up an insolvent foreign company.
These reforms will increase transparency for creditors and enable a swifter and more cost-effective liquidation process.
As well as the introduction of formal insolvency rules, the reforms seek to introduce:
- a duty for administrators and liquidators to report misconduct to the relevant authorities;
- the introduction of a regime for dealing with transactions at an undervalue and setting aside extortionate credit transactions;
- power for liquidators to require a statement of affairs from a company’s directors about the company’s financial position (administrators already have this power);
- power for liquidator to obtain orders for the production of documents and information from any person with knowledge of the company’s affairs; and
- review and amendment of statutory time periods.
Given the recent high profile corporate insolvencies in Guernsey, it is hoped that these changes will provide more structure than the current regime, which will lead to better protection for those affected in the future and increase the reputation and credibility of Guernsey as a business friendly environment.