Vol 12 (2015) - Issue 2

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Insolvency Law Reform in Guernsey

Introduction
In October 2014 the States of Guernsey's Commerce & Employment department published a consultation paper ('Paper') in order to seek views from industry in relation to potential reforms and policy options for company and personal insolvency laws in Guernsey. This paper concentrates on the potential policy changes and reforms which affect Guernsey- incorporated corporate structures. All views stated are those of the author.

A brief history
Guernsey corporate insolvency law is based on English companies legislation dating back to the 1860s and, it is fair to say, the current provisions relating to companies primarily contained in the Companies (Guernsey) Law, 2008 ('Companies Law') provide a fairly basic framework but nothing further. Corporate insolvency includes liquidation (both voluntary and compulsory) and administration plus a procedure known as 'receivership' for cells of protected cell companies. Very brief insolvency provisions also exist for limited partnerships and limited liability partnerships. Guernsey law does not have the concept of an administrative or fixed charge receiver and nor does it currently recognise formal company voluntary arrangements other than schemes of arrangement between a company and its creditors and/or members. Wholesale reform, mainly by way of supplementing what Guernsey already has, rather than fundamentally changing current insolvency procedures, is needed in order for Guernsey to maintain its competitiveness in the offshore world. This is recognised in the Paper which was put together following a number of consultations with leading Guernsey based insolvency lawyers and accountants.

General policy considerations
The Paper acknowledges that whilst the insolvency provisions in the Companies Law are brief, this has not 'created any significant difficulties for the island's financial services industry' although insolvency practitioners do ordinarily have to seek the Court's directions on matters that in other jurisdictions are provided for in legislation. One of the fundamental policy questions is whether all insolvency provisions should be consolidated together in one piece of legislation, or whether the insolvency provisions relating to different types of entity should remain within the legislation dealing with that type of entity – i.e. should company insolvency law remain within the Companies Law and partnership insolvency law remain within the relevant partnership legislation or should it all to be consolidated? It is the author's view that consolidation is not necessary, has the potential to lead to confusion and would be inappropriate when Guernsey primary legislation already adequately provides a framework for an insolvency regime in relation to different types of vehicles.
Further, there is now impetus to develop a set of procedural rules to govern the day to day operation of an insolvency, specifically on matters such as how to bring a court application, convening of creditors' meetings, proof of debts and quantification of claims, the fixing of an office holders' remuneration by the Court and even the type of investigations that an office holder can conduct. It is the author's view that rules on these types of matters are desirable as long as they are not too prescriptive. One of the advantages of a small jurisdiction is that the law (and the Courts) can be flexible to provide for just solutions to complex problems that can arise, and simply importing prescriptive and often detailed rules and regulations from larger jurisdictions into the local law can give rise to more problems than they solve.