ROYAL COURT
Samedi Division
12 March 1998
Before: FC Hamon Esq, Deputy Bailiff
and Jurats A Vibert and AP Quérée
In the matter of the application of Bristol & West plc (the Applicant)
to declare Paul Charles Henry Ostroumoff and Angela Mary Ostroumoff
(née Martland) (the Defendants) en désastre
Advocate J D Kelleher for the Applicant
Advocate A D Hoy for the Defendants
JUDGMENT
THE DEPUTY BAILIFF: This is an application by Bristol & West plc to declare the property of Paul Charles Henry Ostroumoff and Angela Mary Ostroumoff (née Martland) en désastre pursuant to Article 3 of the Bankruptcy (Désastre) (Jersey) Law 1990, as amended.
Mr and Mrs Ostroumoff obtained a mortgage from the Applicant on 28 February 1992, in the capital sum of £375,000. The mortgage was secured by a judicial hypothec registered against Mr and Mrs Ostroumoffs Jersey realty. On 25 July 1997, in the Royal Court the Applicant assigned its mortgage to Reading Mortgages plc but nothing turns on that because they are now one and the same. We need only concern ourselves with Bristol & West plc.
On 15 September 1997, the Applicant obtained a judgment on the capital sum which together with interest and incidental costs means that £625,709.72p was due on 6 March 1998, and that interest is accruing at about £150 a day.
Apparently, there have been problems with repayment since 1992
In In Re Rosedale Investments (1995) JLR 123 at 133 we said this:-
"We remain convinced that Mr Shelton and the companies are insolvent despite the forceful statement (with which we have enormous sympathy) from Mr Shelton who gave evidence before us, that the companies have a large equity potential. That does not seem to us to be relevant to exercise our duty under the law. Our reading of such English cases as In re European Life Assur. Socy. (5) and In re a Debtor (no. 17 of 1966) (3) lead us to the clearest conclusion that our duty is not to look to what might or might not be the trading potential of the companies or whether the sale of one or more of the hotels would satisfy the debt in whole or in part. The fact (which may or may not be open to question) that the corporate debtors realty is estimated to be worth £6,600,000, or that the corporate debtors assets outstrip their liabilities, or that the corporate debtors may be able to pay their debts within a reasonable time is not relevant. What is relevant is that on December 25 1994 Mr Shelton defaulted because of an acknowledged cash-flow problem. That default is compounded by the fact that it is admitted that the March 24 Quarter Day payment will also be a cause for default. That means that Mr Shelton is, within the terms of the law, insolvent. Default in paying one debt is, in our view, sufficient evidence that the debtor is unable to pay its debts as they fall due. Mr Shelton is under an undisputed obligation to pay a liquid sum. He has not paid it. The creditor has applied for a déclaration and fulfilled the requirements of r2 of the Bankruptcy (Désastre)(Jersey) Rules 1991. There is in law no reason for us not to make the order sought subject to one factor which we need to examine.
The discretion point
Article 6 of the Law reads:-
(1) The court, after considering an application and the affidavit required by paragraph (3) of Article 3 to accompany it, may make a declaration.
(2) The court may at any time adjourn the hearing of an application for such time as it thinks fit and may require the Applicant to furnish such further information as it requires."
If we are to exercise a discretion we must exercise it judicially. It seems to us that (a) we could grant an adjournment on the basis that technicalities had not been observed: or (b) we could grant an adjournment if the debtor could show to our satisfaction that the debt could be paid in full; or (c) we could grant an adjournment on a matter of dispute to allow evidence to be called so that the court had the fullest picture before it. On that basis ground (a) does not apply, nor does ground (c) which is linked to art. 6(2) which amplifies it."
The defendants own property both within and outwith the island. They have two children aged 15 and 12.
Pont du Val Farm is owned jointly by the defendants. It was purpose built by them in 1992. We have seen what we can only describe as tentative valuations but it may have a value in the region of £500,000. It is not yet on the market. Mr Ostroumoff says in his affidavit that "if such a sale were necessary" he would have sufficient equity to acquire a modest matrimonial home with the help of a mortgage based on the income that he is earning. According to his affidavit he has income in excess of £150,000 per annum from his property consultancy business which is run through companies. He also has a shareholding in a company owning a land infilling in Romsey, Kent. His financial problems began when he and his wife (we have heard nothing by affidavit from Mrs Ostroumoff) suffered losses as names at Lloyds of London between 1980 and 1989. These losses were capped at £135,000 after negotiations. There were also debts which arose under guarantees given to banks after losses in the property recession of 1990 to 1992. There is a property in Switzerland which is apparently on the market and may have a collateral of £70,000 and a meadow of some 8 vergées in St. Peter which has an annual return of £1,500 and may have a value of £20,000.
As Mr Ostroumoff says in his affidavit of March 1998 (there is no stated day):-
"There is no danger of assets being dissipated. I have little or no cash. The property that would be subject to the désastre, namely the Jersey realty described in the affidavit, cannot be readily liquidated...." (our underlining).
If Mr Ostroumoff is declared en désastre he will cease to be a director of the Kent infilling company by operation of law and it is clearly felt by him that there are good prospects in store there. He owns 49% of the company, Romsey Land Restoration Limited.
In England, the defendants are contemplating an individual voluntary arrangement (which appears to be similar to a "concordat") and we have letters from Haines Watts which is a firm of accountants in London carrying out Corporate Advisory Services and from a chartered certified accountant in Windsor, Mr O Williams. The letters from Haines Watts of 5 March, 1998, are not to our eyes encouraging if we have regard to the immediacy of the problems facing the defendants. Subject to Mr Ostroumoffs "full co-operation" an IVA could be in place within two months (if the creditors agree) but professional valuations of all chattel assets, and the property in Jersey (including the meadow land) are still needed and they were certainly not available in Court today.
There is also mention of an "agreement" made on 11th September, 1997, reached between the Applicant and the defendants but nothing in the correspondence leads us to conclude that any such "agreement" was reached on that day. If the IVA were concluded then all the creditors other than the Applicant could receive 28 pence in the £.
The proposal for an adjournment is strongly opposed by the Applicant. Terms were suggested to the defendants (before judgment was obtained in September) on 21 August 1997. The terms of that letter were:-
"Dear Mr Ostroumoff,
Bristol & West Society & Another v Ostroumoff & Ostroumoff
I refer to my clients application for summary judgment which returns before the Court this afternoon and confirm that the same will be adjourned on the following terms:-
1.On or before 21st November 1997, the sum of £90,000 is to be paid by you to Bristol & West Plc ("B&W") representing part-payment of the arrears owed by you to B&W under the terms of your mortgage. In the event the sum of £90,000 is not received by the date specified, the summons for summary judgment will return before the Court on 25 November 1997 at 2.30 pm.
2.From 1 September 1997 (inclusive) payment of the monthly instalments due under the terms of and in accordance with your mortgage to B&W, in such sum and on such dates as notified to you by B&W, are to be re-commenced. In the event that any one of the monthly instalments due are not paid, the summons for summary judgment may be returned before the Court immediately without further reference to you;
3.The sum of £7,125, representing the legal costs and disbursements of proceeding against you to date, are paid by you in full by 15 September 1997.
Nothing was heard. The figure of £90,000 came from Mr Ostroumoffs estimate of his equity in the Swiss property at the time (it is now, according to his recent affidavit £70,000). He apparently told the Applicant that the balance should be received by 21 November 1997. There is, it appears, only a low level of interest from prospective purchasers of the property.
Of course, the English creditors have yet to receive a final version of a draft proposal which if the information were to be supplied in time could be reviewed (according to Haines Watts) by the defendants by Friday 13 March so that the final version could be sent to creditors and, if all went well, the IVA could be in place within two months.
We have every doubt that any consolation could be given to the Applicant that it would be paid off in sixty days. Post dated cheques have been met in part but the February 1998 cheque could only be presented on 6 March in order to meet cleared funds.
We do not believe that the Applicant has driven an impossibly hard bargain. The second affidavit of Gillian Hall of the Applicant says:-
"The firm of Accountants requested to conduct the review of the Debtors financial affairs (Haines Watts - a Mr Richard Rones) were employed by Mr Ostroumoff in August 1997. It was initially confirmed that the review would be completed in a short time, due to the urgency of the overall situation, but after speaking to Mr Rones this week via the telephone, only a draft outline of Mr Ostroumoffs financial affairs has been formulated. Mr Rones has confirmed that much of the documentary evidence required to verify the original facts given by Mr Ostroumoff has not been forthcoming. Mr Ostroumoff on the other hand, has indicated that it is Haines Watts which is causing the delay. Either way, the Applicant has been left without funds (other than aforesaid) and it appears that the matter will not and cannot be redressed by the Debtors."
We can appreciate that efforts have been made by the defendants; two judgments obtained by Moores Rowland and one by the parish of St. Brelade have been met, but this is of little moment in the overall scheme of things.
There is nothing in the papers before us that leads us to any anticipation that in sixty days the cash flow will have altered so dramatically that the Applicant would have its debt satisfied. If this decision leads to applications under Article 12 of the Law we will deal with these sympathetically. No application for a remise has been made, the requirements of the law and the rules have been met, we can see no reason in law to adjourn the hearing and we make the order accordingly.
Authorities
re Rosedale Investments, Ltd. (1995) JLR 123
Bankruptcy (Désastre) (Jersey) Law 1990: Articles 1-8
Bankruptcy (Désastre) (Jersey) Rules 1991