Vol 13 (2016) - Issue 3

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Proposals for Changes to Guernsey Insolvency Law

On 11 February 2016 the States of Guernsey Commerce and Employment Department ('Department') published a consultation response document ('Response Paper') setting out proposed changes to Guernsey’s insolvency regime. Following a review of responses received from industry, legal associations, individuals and individual firms ('Respondents') the Department has divided the proposed reforms into two phases. The first phase includes those projects that the Department will be taking forward. The second phase is made up of projects that the Department would like to take forward or consider in the future.
The Department examined proposed changes to both personal and commercial insolvency provisions as well as some issues that affect both. For the purposes of this article we will focus on the key proposed changes to the commercial insolvency regime. The proposed changes represent a fairly radical amendment to the current regime and will provide greater certainty regarding procedure and process.

Creation of Insolvency Rules
One of the key proposed reforms is the creation of insolvency rules. The Department has recognised the importance of having a clear set of rules which will 'sit under' the Companies (Guernsey) Law, 2008 ('Companies Law') and offer day to day guidance on procedural matters. Currently, Guernsey relies reasonably heavily on the 'spirit' of the Insolvency Rules 1986 in England and Wales. The creation of Guernsey rules will ensure that a more uniform approach can be taken going forward and may narrow some areas of potential dispute. The Department will commence this process by creating a statutory power to make rules.
It has been proposed that any provisions concerning substantive rights should be dealt with in the relevant commercial legislation whereas procedural requirements should be contained in the rules. Due to the necessity for the rules to remain fluid a standing rules committee, including some industry practitioners, may be formed so that the rules can be reviewed and amended regularly. The Response Paper is not very specific on the exact details of the rules or what they will cover but it states that interested parties will be consulted in the first place so that the rules cover the most relevant areas. It is likely that in substance they will be fairly similar to the Insolvency Rules 1986.

Independence of office holders
There is currently no limitation on who can be appointed as liquidator or administrator of a Guernsey company. Upon an application for an administration order or winding up, the Royal Court scrutinises the suitability of proposed appointees. There is no proposal to change this position dramatically due to the potential cost and administrative burden entailed in creating a register or imposing a licensing requirement.
The Department has, however, addressed concerns regarding the fact that directors and shareholders can currently wind up their own structures. There is an inherent conflict of interest in this position which could lead to creditors in insolvent liquidation being disadvantaged. An amendment to the Companies Law will be recommended so that liquidators in an insolvent winding up must be independent of the insolvent company. This will be a useful compromise as it will address this issue without unnecessarily increasing the administrative burden.

Reporting findings or suspicions of misconduct
The Respondents unanimously agreed that there should be a statutory obligation imposed on all office holders to report to the relevant authorities if they find, or suspect, misconduct on the part of the directors or officers of a company. This is a positive move as it ought to enhance Guernsey’s reputation as a jurisdiction in which to do business and may lead to more action against directors and officers for disqualification.
In the case of licensed companies or formerly licensed companies, office holders will be obliged to report their suspicions to the Guernsey Financial Services Commission ('GFSC'). Concerns about non-GFSC licensed entities will be raised with the Guernsey Registrar of Companies. This requirement will be in addition to the current requirement for all liquidators in a compulsory liquidation to report to the Royal Court at the conclusion of the liquidation.