Jersey Unreported Judgments

[2011]JRC134

Royal Court

(Samedi)

7 July 2011

IN THE MATTER OF REPRESENTATION OF CENTURION MANAGEMENT SERVICES LIMITED

AND IN THE MATTER OF ARTICLE 155 OF THE COMPANIES (JERSEY) LAW 1991

Advocate D. R. Wilson for the Liquidator.

judgment

the commissioner:

1.        This judgment is concerned with the disposal of records by a liquidator following the dissolution of a company.  

2.        On 6^th October, 2009, and 30^th March, 2010, the Court ordered the winding up of Centurion Management Services Limited and other companies in the Centurion group ("the companies") pursuant to Article 155 (1)(a) of the Companies (Jersey) Law 1991 ("the Law") and appointed Mr Edward Shorrock as liquidator. 

3.        In general terms, the Court ordered that the winding up be conducted in accordance with the provisions of the Law relating to a creditors' winding up.  Specifically and for the purposes of this judgment, the Court ordered that Articles 165 and 194 should apply to the winding up, those articles being in the following terms:-

"165    Costs of creditors' winding up

All costs, charges and expenses properly incurred in a creditors' winding up, including the remuneration of the liquidator, are payable out of the company's assets in priority to all other claims."

"194    Disposal of records

(1)       When a company has been wound up and is about to be dissolved, its records and those of a liquidator may be disposed of as follows -

(a)       in the case of a summary winding up, in the way that the company by special resolution directs; and

(b)       in the case of a creditors' winding up, in the way that the liquidation committee or, if there is no such committee, the company's creditors, may direct. 

(2)       After 20 years from the company's dissolution no responsibility rests on the company, a liquidator, or a person to whom the custody of the records has been committed, by reason of any record not being forthcoming to a person claiming to be interested in it. 

(3)       The Commission may direct that for such period as it thinks proper (but not exceeding 10 years from the company's dissolution), the records of a company which has been wound up shall not be destroyed. 

(4)       A person who acts in contravention of a direction made for the purposes of this Article, is guilty of an offence."

4.        On 10^th December, 2010, the liquidator applied for final directions to enable him to complete the winding up of the companies.  One of the directions he sought was authorisation to dispose of the company's records.  That issue was adjourned to the hearing before us on 6^th June, 2011. 

5.        The group hitherto conducted a trust company business and accordingly maintained records in relation to its own business and the business of the entities it administered ("the client entities").  The liquidator has some 1,200 bankers' boxes of files relating to those client entities.  Of the client entities, 71 have been struck off, 99 wound up and their assets distributed to beneficiaries or shareholders and 170 transferred to new service providers.  We were informed by the liquidator that those new service providers had proved unwilling to take on the storage of the records held by the companies in relation to the entities they were now administering. 

6.        The liquidator has some £33,820 retained and has obtained a quotation of some £29,000 for the storage of all of the records of the companies for 10 years.  However, the liquidator and his legal advisers are owed at least £25,000 in outstanding fees.  

7.        Acknowledging the importance of retaining the records and in particular the records of the client entities, the liquidator proposed before us that he should be authorised to pay for this storage for ten years out of the funds he had retained, on the basis that a contribution to those costs be sought from either Jersey Financial Services Commission ("the Commission"), the creditors or the shareholders, but if that proved impracticable, then the liquidator and his legal advisers would waive their fees.  In effect, the liquidator and his advisers would be paying for the cost of the retention of these records on behalf of the companies personally. 

8.        Without wishing to be critical of the liquidator and his advisers in this public spirited gesture, in the view of the Court such a proposal was wrong in principle and undesirable as a precedent. 

9.        Although no authority was produced on the issue, it is, we believe, trite law that a liquidator, like any other fiduciary, acting properly, cannot be required to have recourse to his personal assets in discharging the obligations of the companies.  There was no question before us that the costs of the liquidator and his legal advisers had not been properly incurred and therefore, pursuant to Article 165 of the Law, those costs are payable out of the remaining assets of the companies in priority to all other claims.  In our view, that is how the remaining assets of the companies should be utilised.  That being the case, the position would be reached therefore that there are or will be no funds in the companies to pay for the retention of their records. 

10.      Under Article 194(1) of the Law, the shareholders in a summary winding up or the creditors in a creditors' winding up can give directions as to how the records of the companies may be disposed of.  However, it would seem clear that in giving such directions, they can only do so to the extent that the companies have funds to comply with those directions, unless the shareholders or the creditors are prepared to provide their own funds for that purpose.  They cannot override the provisions of Article 165 of the Law, which gives the liquidator priority over all other claims or expect the liquidator to pay for the cost of complying with those directions out of his personal funds. 

11.      Meetings of the creditors and shareholders were held on 8^th November, 2010, at which the liquidator's report on the liquidation was tabled.  That set out the steps that the liquidator was intending to take, namely applying to the Royal Court for a number of orders, including an order that upon dissolution of the companies, all of the records be disposed of.  Without going into detail, it is clear that none of those who attended those meetings focused upon this part of the liquidator's proposals and their attention was not specifically drawn to Article 195 of the Law and their power to give directions.,,

12.      In the circumstances of this case, we see no point in the liquidator now going to the expense of seeking directions from, in this case the creditors as this is akin to a creditors' winding up, as it is clear that they would have no interest in funding the retention of records on top of the losses they have already incurred. 

13.      Under Article 194(3) of the Law, the Commission can give directions that the records of the companies should not be destroyed for a period not exceeding 10 years.  Again, we would venture the view that the Commission, in giving such directions, could not override the provisions of Article 165 of the Law or expect the liquidator to meet the cost of compliance with those directions out of his personal assets. 

14.      The Commission has not issued such a direction, and it remains to be seen if it will.  Mr C Cooke, Deputy Director - Trust Company Business at the Commission, drew our attention to the obligation upon the new service providers as regulated entities to retain records (see the Codes of Practice for Trust Company Business at paragraph 3.7). 

15.      He expressed the view that it was for the new service providers to take on the records relating to the entities they were now administering.  In deciding whether or not to issue directions, the Commission will have regard to the guiding principles set out in Article 7 of the Financial Services Commission (Jersey) Law 1998 and in particular, the need to protect the reputation and integrity of Jersey in commercial and financial matters.  

16.      We agree with the views expressed by Mr Cooke.  In our judgement, the liquidator should deliver the records of the client entities that had been transferred to new service providers to those new service providers.  They are not party to this application and we cannot require them to accept those records, but we give them judicial encouragement to do so.  It is clear that their regulator, at least in the instances where that is the Commission, will expect them to do so. 

17.      If, however, and to the extent that the new service providers refuse to accept such records, then we authorise the liquidator to dispose of those records, having given the Commission twenty-one days prior notice of his intention to do so, thus allowing the Commission to issue a direction for their retention if in its discretion it determines to do so. 

18.      In relation to the other records of the companies, we authorise the liquidator to dispose of them after having given the Commission twenty-one prior days notice of his intention to do so, again allowing the Commission to direct their retention. 

19.      The liquidator shall have the costs of this application out of the remaining assets of the companies on an indemnity basis.  

Authorities

Companies (Jersey) Law 1991.

Financial Services Commission (Jersey) Law 1998.