Modified Universalism: An Analysis of the Jersey Royal Court Decision

introduction

In the context of insolvency, the principle of “modified universalism” (Universalism) is defined by Lord Sumption in Singularis Holdings vs. Prince Waterhouse Coopers like:

“…a recognized principle of common law. It is based on the public interest that foreign courts exercising jurisdiction over insolvency at the place of incorporation of the company may effect an orderly liquidation of its affairs on a global scale, notwithstanding the territorial limits of their jurisdiction. The basis of this public interest is not just courtesy, but the recognition that in a world of local businesses, it is in the interest of each country that companies with cross-border assets and operations can be wound up in an orderly manner under the law of the place of their incorporation and on an internationally recognized and effective basis”.

The principle has recently come under scrutiny in the case of Investin Quay House Limited (in liquidation) v BUJ Architects LLP. While the Royal Court of Jersey (Royal Court) was primarily about whether or not to exercise its discretion to impose an interim injunction, the underlying legal issue was the application of universalism.

Fund

Investin Quay House Limited (in liquidation) (Society) was incorporated in Jersey in 2013 with the primary purpose of developing a commercial property known as Quay House (Property) purchased in 2014. Shortly after the property was sold in 2018, the Company paid its administrator, John Downer (Director), more than £22.6 million (including interest) in loan repayments. Following these repayments, the Company was left with approximately £91,000 in assets. However, he also had significant liabilities. These liabilities included a court debt in the amount of £354,000 plus interest (amounting to a total of £433,713 including interest as of 9 July 2021) in favor of BUJ Architects LLP. Other significant liabilities arising from court awards or orders included a claim of £665,300 plus interest in favor of Local London (Quay House) Limited and £180,000 plus interest under another court order. an English court in favor of TC Developments (South East) Limited. Given these liabilities, the Company was unable to pay its debts as they fell due. This eventually led to a petition for liquidation under English law being filed against the company on July 27, 2020 (Petition) by BUJ Architects LLP (Petitioner).

Application for injunction and application of universalism by the Royal Court

On September 8, 2021, the company filed an ex parte application with the Royal Court seeking an injunction to restrain the applicant from pursuing the application (Application for an interim injunction). Previously, on June 3, 2021, the Administrator convened and attended a meeting of the Company as creditor, director and shareholder where he resolved to place the Company in creditor liquidation proceedings in Jersey. The application for an interim injunction was therefore an attempt to prevent the winding up of the company in England and to allow the winding up of the company to be carried out in Jersey.

Insolvency proceedings had therefore already been opened in England and the High Court of Justice (Supreme Court) had determined that the main center of interest of the Company (COMI) was England and Wales.

The Royal Court applied the well-known principles required to obtain an injunction:

  1. that there is a serious matter to be judged between the parties;
  2. whether the damage constitutes an adequate remedy; and
  3. where the balance of commodities resides.

Firstly, the Royal Court held that the mere fact that the company’s center of main interests is in one jurisdiction does not mean that it is not managed or controlled in another. The Royal Court has confirmed that universalism is a principle recognized by Jersey law, namely that there is a presumption in favor of the court of incorporation as the place where insolvency proceedings should normally take place (c i.e. in Jersey). The Royal Court therefore considered that there was a serious question to be judged.

Second, the Royal Court recognized that damages would not be an adequate remedy for either party since the company would be put into liquidation if the injunction were refused.

However, thirdly (and in relation to the balance of convenience), following an analysis of the particular facts of this case, the Royal Court further recognized the likely harm to the Company’s creditors if this injunction were granted and if the proceedings insolvency was progressing in Jersey. As briefly detailed above, the Administrator received substantial reimbursements from the Company which would have preferred the Administrator to other creditors (Alleged preferential payments). Although the Royal Court made no finding regarding the alleged preferential payments, it acknowledged that there was evidence that the director was attempting to favor himself and frustrate the claims of his other creditors by relying on Jersey law. The alleged preferential payments were made more than one year, but less than two years, prior to the petition. This meant that an English liquidator could seek to recover these payments under the Insolvency Act 1986. However, this was outside the period in which similar relief could be sought in Jersey under the Companies (Jersey) Act 1991. tip the balance of inconvenience for the Royal Court to dismiss the application for an interim injunction and effectively allow the application to proceed in the High Court.

The application for an interim injunction was followed by an improvised judgment by the Royal Court refusing to grant the company leave to appeal and a stay of costs. In addition, on November 30, 2021, James McNeill QC (sitting as single judge) at the Jersey Court of Appeal considered the Company’s appeal against the lower court’s decision and determined that the appeal of the Company had no chance of success. Shortly before this judgment, the High Court heard the Motion and granted the winding up order against the Company on 17 November 2021.

Conclusion

The Royal Court’s decision provides considerable reassurance to creditors that it will use its inherent jurisdiction and discretion to ensure that legitimate creditors (even in a separate jurisdiction) are at the forefront of its decision-making process. Where there are issues of conflict of jurisdiction, there are strong arguments that creditors should “play the ball as it is” and that a company should be entitled to the protection afforded by the application of the law in its jurisdiction of incorporation. However, the Royal Court in this case adapted the recognized principle of universalism and gave the Company’s creditors the possibility of relying on the more favorable law of England and Wales in respect of preferential payments. In this respect, the Royal Court placed the interests of creditors ahead of its own jurisdictional influence. The Royal Court observed that its decision could have tipped the other way if Jersey’s insolvency proceedings had been initiated a year earlier.

In fact, the pragmatic approach of the Royal Court based on its inherent jurisdiction is not new. The Royal Court has for years shown its willingness to assist in the recognition of foreign insolvency proceedings. Additionally, where Jersey law lacks statutory procedures that are implemented in other jurisdictions, it has endeavored to use its relationship with foreign jurisdictions to benefit from the law of that jurisdiction. On several occasions, the Royal Court has exercised its inherent jurisdiction to issue a “letter rogatory” to the High Court requesting the administration (a procedure not available in Jersey) of a company incorporated in Jersey whose assets are located in England and Wales. The intention of this request would be to obtain a better realization for the creditors than a disaster procedure or a liquidation procedure in Jersey (see Limited OT computers ). In the context of universalism, this approach is likely to increase Jersey’s commercial attractiveness as a jurisdiction in which to do business, and reassures administrators and creditors that the Royal Court will endeavor to find the fairest outcome in case of insolvency issues.0

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