Jersey Unreported Judgments

Companies - reasons for the order relating to the winding up of three companies.

[2013]JRC217A

Royal Court

(Samedi)

12 November 2013

Before     :

D. R. N. Hunt, Q.C., Commissioner, and Jurats Fisher and Olsen.

IN THE MATTER OF AN APPLICATION PURSUANT TO ARTICLE 155 OF THE COMPANIES (JERSEY) LAW 1991

AND IN THE MATTER OF THE REPRESENTATION OF ANTHONY INVESTMENTS (ESPLANADE) LIMITED AND EVREUX HOLDINGS LIMITED AND JCN INVESTMENTS (JERSEY) LIMITED

Advocate S. J. Young for the Representor (Stephen Neal).

Advocate F. B. Robertson for the Trustees of the John Neil Family Trust.

Advocate T. V. R. Hanson for Simon and Aida Neal.

Advocates R. O. B. Gardner and A. D. Robinson for the Liquidators.

judgment

the commissioner:

1.        On 9^th October, 2013, the Court ordered the winding up of three Jersey companies, namely Anthony Investments (Esplanade) Limited ("AI(E)"), Evreux Holdings Limited ("EHL") and JCN Investments (Jersey) Limited ("JCN") under Article 155 of the Companies (Jersey) Law 1991 ("the Companies Law"), for reasons that would be given in due course.  The Court appointed Mr Adrian Rabet and Mr Philip Sykes of Messrs Moore Stephens as Liquidators of all three companies and made a number of ancillary orders.  We now set out the detailed reasons for our decision. 

The factual background

2.        In November 1997 Mr John Neal established a discretionary trust ("the Trust") in Jersey, the present beneficiaries being himself and his wife (Chrystal Neal), his four adult sons, including Simon (married to Aida) and Stephen, and their issue.  (For the sake of convenience and without meaning any disrespect, we refer in this judgment to the various members of the Neal family by their first names.)  In February 1999 John suffered a serious stroke and has since been incapacitated.  The present trustee of the Trust is Hawksford Trust Company Jersey Limited ("the trustee"), the relevant director being Mr Michael Powell.  Unfortunately the history of the Trust, at least in recent years, has been one of hostility, mistrust and dispute between some at least of the beneficiaries.  One result of this state of affairs was an application to the Royal Court in late 2012 when the trustee sought the Court's blessing to certain decisions it had taken; the Court delivered judgment on this application on 17^th December, 2012. 

3.        The only substantial asset of the Trust is now the property at 44 Esplanade, St Helier, Jersey ("the Property"), which is occupied by the law firm Ogier.  The Property is owned by AI(E), a limited liability company registered in Jersey, and is the subject of a first charge in favour of HSBC.  The directors of AI(E) are Stephen, Mr Antony Gardner-Hillman, Mr Powell and Mr Charles Skinner (also of Hawksford).  Mr Powell has a casting vote on the board of AI(E).  AI(E) is 100% owned by JCN, JCN is in turn 100% owned by EHL and EHL is in its turn 100% owned by the Trust.  Both JCN and EHL have the same directors as AI(E).  It appears now to be common ground between the parties, especially since a refinancing proposal fell through in September of this year, that the only way forward for the Trust as a whole is for the Property to be sold and any surplus after payment of creditors distributed upwards from AI(E) via JCN and EHL to the Trust for distribution among the beneficiaries. 

4.        The lease of the Property to Ogier commenced on 7^th November, 2009, and will terminate on 6^th November, 2033, (subject to break clauses in 2021, 2025 and 2029).  The original rental was £27 per square foot, which came to £2,047,684 a year.  A rent review under the lease started in November 2012.  The lease provides for an upward only adjustment in the rent, with an automatic uplift to at least £28.50 per square foot (making a current total rent of £2,155,639 a year) but AI(E) is seeking a greater uplift.  The present state of play is that the rent review is going to arbitration and that Ogier have made a Calderbank offer; AI(E) is considering its response. 

5.        According to Stephen's Affidavits, the Property is estimated to be worth around £29,700,000, based on a rental of £2,155,639 and a yield of 7.25%.  It seems that all parties are agreed that the Property cannot sensibly be marketed, or the best price obtained for it, unless and until the rent review has been concluded, either by an arbitration award or by agreement; in particular a "fire sale" must be avoided.  On the figures put before us we accept that there is a real possibility that the sale of the Property may in due course generate a modest surplus for distribution to the beneficiaries but in the ultimate analysis the Property is, of course, only worth what someone will pay for it.  

6.        The hostility within the Trust escalated into litigation when in about March 2011 Simon and Aida issued proceedings against JCN and AI(E) for the recovery of the sum of £623,101 which they claimed to have lent to JCN and AI(E) in relation to a joint venture for the development of properties in Spain.  Simon also issued proceedings against EHL.  This dispute was compromised by a settlement agreement ("the Confidential Settlement Agreement") dated 6^th December, 2012, under which Simon and Aida were to receive a total of ,1,214,036, inclusive of interest and costs, of which JCN and AI(E) were liable for £1,161,511 and EHL was liable for £46,443 (the balance of £6,081 being payable by the Trustee).  These sums were to be paid by the latest of 31^st May, 2013, or within two working days of a sale of the Property.  The Confidential Settlement Agreement also provided:-

(i)        that AI(E) and JCN should pay interest at 10% per annum from 1^st October, 2012, until 28^th February, 2013, and thereafter at 14.4% per annum from 1^st March to the date of payment, on the sum of £867,431.86;

(ii)       that AI(E) and JCN should make part payments in respect of this interest liability, initially at £5,000 a month and from 1^st March, 2013, at £10,000 a month; and

(iii)      that AI(E) should forthwith execute and deliver to Hanson Renouf a promissory note in the sum of £957,356.98 (or £1,214,035.72 if HSBC confirmed that AI(E) was at liberty to do so), such promissory note not to be registered before 1^st March, 2013. 

The promissory note has not yet been registered.

7.        The sum due to them not having been paid by 31^st May, 2013, (and the Property not having been sold), Simon and Aida issued proceedings in the Royal Court (under reference 2013/241) in June 2013 against JCN, AI(E) and EHL to enforce recovery of their debt.  The proceedings have since been adjourned by consent on no less than five occasions, by orders of the Royal Court made on 21^st June, 28^th June, 19^th July, 6^th September and 20^th September, 2013.  In the first Consent Order the monthly interest payments were increased to £25,000 a month, to be reviewed in December 2013.  (This obligation was honoured until 1^st October, when only £11,000 was paid rather than the full amount.)  On each of the first four occasions the costs of Simon and Aida were added to the debt already due to them and the three companies undertook not to frustrate or impede the future enforcement of Simon's and Aida's claims; in the Consent Order of 6^th September this undertaking by the companies was effective until 4pm on 20^th September, 2013.  The final Consent Order of 20^th September recorded that the proceedings were adjourned sine die with reciprocal undertakings to reappear upon 48 hours' notice being given by any party.  Finally, by a letter of 3^rd October, 2013, Hanson Renouf gave notice that the proceedings would be brought back before the Royal Court on 11^th October, when Simon and Aida "will seek judgment".  Accordingly, as Simon confirmed in his Affidavit, the proceedings by him and Aida against, in particular, AI(E) remain extant. 

8.        All parties are, it seems, agreed that the only way in which AI(E) or the other companies can satisfy their indebtedness to Simon and Aida is by a sale of the Property.  We have no doubt that that conclusion is correct. 

The procedural history

9.        The Amended Representation for the winding-up of AI(E) was made by Stephen as one of the four directors on 19^th September, 2013; the application was made on an ex parte basis and in private.  It was supported by Affidavits of Stephen and of Mr Gardner-Hillman sworn the same day.  On 20^th September, 2013, the Court, following a private hearing, adjourned further consideration of the application until 9^th October, 2013, and made certain further orders, as follows:-

(i)        that no proceedings should be commenced or continued with or against AI(E) without leave of the Court pending determination of the Representation;

(ii)       that (a) AI(E) and its directors, (b) the Trustee and (c) the Viscount be served with the Representation and the Affidavits of Stephen and Mr Gardner-Hillman;

(iii)      that there should be no change to the composition of the Board of AI(E), save by reason of any voluntary resignation which resignation shall not be procured by the shareholders or directors of the company, without leave of the Court; and

(iv)      that the parties listed in (2) above should be convened to appear before the Royal Court on 9^th October. 

The same day Stephen swore a further Affidavit in support of the Amended Representation of AI(E). 

10.      The representations of both EHL and JCN (each made pursuant to a unanimous resolution of its directors) were dated 3^rd October, 2013; again both Representations were made ex parte and in private.  Each was supported by a further Affidavit of Stephen sworn on 3^rd October.  The following day the Court made orders in relation to these two representations in similar terms to those set out in the preceding paragraph. 

11.      On 7^th October, 2013, the trustee applied for the hearing on 9^th October to be adjourned.  That application was refused by the Deputy Bailiff.  The same day Advocate Young delivered a skeleton argument on behalf of all three representors.  Also on the same day Simon and Aida issued a summons to Intervene in the representations, supported by an affidavit (then in draft) of Simon.  Finally, on 9^th October Stephen swore a further affidavit in response to the application to intervene. 

The hearing

12.      At the hearing on 9^th October, 2013, the representors appeared by Advocate Young of Bois Bois, the trustee appeared by Advocate Robertson of Appleby and the Viscount appeared by Advocate Millar.  The proposed liquidators were also represented, by Advocate Gardner of Bedell Cristin Jersey Partnership.  On the morning of the hearing the trustee served an affidavit of Mr Powell with exhibits; this required the Court to rise for some 45 minutes at the start of the hearing in order to read this new material.  Despite this late service of a considerable quantity of evidence, none of those appearing at the hearing on 9^th October sought an adjournment of the hearing. 

13.      At the outset of the hearing Simon and Aida, appearing by Advocate Hanson of Hanson Renouf, made their application to intervene in the proceedings.  After full argument the Court acceded to the application and allowed Simon and Aida to intervene for the reasons set out in the Court's ruling of 9^th October.  Immediately thereafter the Court heard an application by the representors, which was supported by all parties, that the proceedings should be held in private.  For the reasons given in the Court's further ruling of 9^th October, we ordered that the proceedings should be conducted in private.  That order for privacy will continue to apply to the Court's two rulings of 9^th October and to this judgment until such time as the Court decides otherwise.  For the present, therefore, the two rulings and this judgment are available to the parties to the three representations only.  We revert to this issue at the conclusion of this judgment. 

14.      Because of the recess for the Court to consider the trustee's evidence, because of the time taken to consider both Simon and Aida's application to intervene and the representors' privacy application and finally because of the need for the Court to deliver its rulings on those two applications at once, there was considerable pressure of time in relation to the hearing of the substantive issues raised by the representations.  The Court is grateful to all counsel for the way in which they responded to this pressure of time by ensuring that their submissions were succinct and to the point.  We are satisfied that in those circumstances all parties had a proper opportunity to deploy their respective cases. 

Preliminary matters

15.      We address two preliminary matters at this stage, in order to dispose of them. 

16.      The first is the complaint by Simon and Aida that the making of the amended representation in respect of AI(E) on 19^th September, and the obtaining on 20^th September of the orders set out in para.9 above, constituted a breach of the undertaking contained in the consent order of 6^th September not to frustrate or impede the future enforcement of Simon's and Aida's claims.  To this complaint it seems to us that there are at least two answers.  Firstly, the amended representation in respect of AI(E) was made not by the company but by Stephen, and Stephen is not himself a party to any of the consent orders.  Secondly, we do not in any event see how any such undertaking could override the statutory obligation of a company, or of its directors, to conduct its affairs in accordance with the law.  In particular, a company must not continue to trade while insolvent and if the directors of a Jersey company form the view that the company is insolvent, it is their duty (or that of the company itself) to apply to the Royal Court for the company to be wound up. 

17.      The second matter is that both Advocate Robertson and Advocate Hanson urged the Court to read the decision of the Royal Court delivered on 17^th December, 2012, (to which we have referred in para.2 above) which described the history and affairs of the Trust.  We declined this request for the simple reason that these matters were not, in our view, relevant to the question of whether the three companies should be wound up under Article 155 on the grounds of insolvency. 

The submissions of the parties in outline

18.      Advocate Young's submissions on behalf of the representors may be summarised as follows:-

(i)        The jurisdiction under Article 155 of the Companies Law is wide enough to encompass the particular difficulties faced by the three companies, and in particular by AI(E). 

(ii)       That jurisdiction should be exercised because:-

(a)       AI(E), and therefore EHL and JCN, were insolvent;

(b)       the cost of any further forbearance in relation to the claim of Simon and Aida was unacceptable; and/or

(c)       action by other creditors in due course was inevitable. 

Although in their skeleton argument the representors also relied on deadlock as an alternative basis for a just and equitable winding-up under Article 155(1)(a), Advocate Young indicated during his oral submissions on the intervention application that the representors no longer pursued this alternative contention.  Accordingly we say no more about this deadlock point. 

(iii)      Each of the alternatives to a just and equitable winding-up, namely (a) a creditors' winding-up, (b) a declaration of désastre or (c) a dégrèvement, would be inappropriate for different reasons.  None of the other parties argued to the contrary or espoused any of these alternative procedures.  Although the Court is not, of course, bound by this consensus between the parties on this issue, we content ourselves with saying that we also agree with the representors' point (3) for the reasons submitted by Advocate Young, in particular because a winding-up under Article 155 would allow the rent review to be pursued to a conclusion and the property sold with the benefit of that concluded review. 

19.      In a letter to Advocate Young dated 4^th October the Viscount's Department stated in relation to AI(E) that from the information supplied to them the Viscount agreed that a just and equitable winding up "would be the best insolvency option".  At the hearing Advocate Millar confirmed that this was the Viscount's view in relation to all three companies. 

20.      Advocate Robertson on behalf of the trustee made in essence three points in the first part of his submissions:-

(i)        AI(E) was not in fact insolvent by reason of the forbearance shown by Simon and Aida.

(ii)       If AI(E) was insolvent on a cash flow basis, the three companies should be wound up on just and equitable grounds.

(iii)      If AI(E) was not insolvent, then provided that the necessary degree of forbearance continued to be forthcoming from Simon and Aida, the Court should maintain the status quo.  More particularly the boards of each of the three companies should be under the control of the trustee, and the property should be sold at the best price so that the creditors of the companies could be paid and any surplus distributed to the beneficiaries in accordance with the Court's decision of 2012. 

21.      Advocate Robertson having indicated that there were certain matters on which he needed to take instructions, the Court then heard from Advocate Hanson.  Although it had seemed from his submissions during the application to intervene that Simon and Aida were intending to mount a more robust defence to the representors' applications than the trustee, in fact Advocate Hanson appeared to adopt the broad thrust of the trustee's approach.  He did, however, elaborate on Advocate Robertson's point (3) in the following respects.  He submitted that the correct order would be for the Court to stay the three representations on two conditions, namely:-

(i)        that Simon and Aida would be allowed to register their promissory note; and

(ii)       that there would be further forbearance on the part of Simon and Aida, the terms of which would need to be discussed and agreed. 

22.      Advocate Roberstson then returned to the fray to argue by reference to certain of the figures for the indebtedness of AI(E) and EHL that the debts in question were not in fact owing because they were disputed, or were the subject of negotiation, or were presently being deferred, or were not presently being pursued pending sale of the property.  Finally Advocate Young made his submissions in reply. 

23.      Advocate Gardner made no submissions to the Court on these substantive issues. 

The law

24.      The material provisions of Article 155 of the Companies Law read as follows:-

"Power for court to wind up

(1)       A company, not being a company in respect of which a declaration has been made (and not recalled) under the Désastre Law, may be wound up by the court if the court is of the opinion that -

(a)       it is just and equitable to do so

....

(2)       An application to the court under this Article on the ground mentioned in paragraph (1)(a) may be made by the company or by a director ...

....

(4)       If the court orders a company to be wound up under this Article it may -

(a)       appoint a liquidator;

(b)       direct the manner in which the winding-up is to be conducted; and

(c)       make such orders as it sees fit to ensure that the winding-up is conducted in an orderly manner."

25.      There have been several cases in the Royal Court which have emphasised the width and flexibility of the jurisdiction under Article 155.  Thus in Jean v Murfitt (1996/237 and [1996] JLR N8c) Bailhache, Bailiff, said (at page 8):-

"We conclude by observing that the words "just and equitable" in Article 155 of the 1991 Law should be given a flexible interpretation.   Justice and equity cannot be confined within the four corners of specific instances."

That passage was cited with approval in the case of In the Matter of Belgravia Financial Services Group [2008] JRC 161 and [2008] JLR N36, and more recently in the case of In the Matter of Huelin-Renouf Shipping Limited [2013] JRC 164. 

26.      On the facts of the present case we have found the authority of In the Matter of Poundworld (Jersey) Limited [2009] JRC 042 and [2009] JLR N12 to be of particular assistance.  In that case the then Deputy Bailiff said as follows:-

"15.    We are of the view that the Court should be cautious before ordering a winding up under Article 155 in the ordinary case of an insolvent company.  The Law provides for the appropriate procedure and this is the one which should normally be followed.  However, as referred to earlier, the Court's jurisdiction to order a winding up under Article 155 is a wide one and we are persuaded that, in the particular circumstances of this case, it would be right to exercise that jurisdiction.

16.      We are satisfied that the best interests of the creditors would undoubtedly be served by Poundworld being able to sell its remaining stock at retail value from its outlets by means of the Company continuing to trade for the limited period necessary to achieve this.  Conversely, if the stock were to be sold at wholesale values, the recovery for creditors, other than the landlords and the shipper, would be minimal.  We are also satisfied that if the Court does not order an immediate winding up, there is a substantial risk that the shipper and/or the landlords will exercise their rights prior to the shareholders' and creditors' meetings required for a creditors' winding up and this would be to the prejudice of the creditors as a body.  Delay in the commencement of a liquidation until 16th February, would therefore be damaging to the creditors."

In short, the Court considered that it was in the interest of all parties that Poundworld should be able to continue trading, which a winding-up under Article 155 would permit. 

Discussion

27.      We now take in turn the three grounds upon which the representors asserted that the three companies should be wound up, namely:-

(i)        that AI(E), and therefore EHL and JCN, were insolvent;

(ii)       that the cost of any further forbearance in relation to the claim of Simon and Aida would be unacceptable; and

(iii)      that action by other creditors in due course was inevitable. 

(1) AI(E), and therefore EHL and JCN, were insolvent

28.      This was clearly the most important issue between the parties.  It was not suggested by any of the parties that if AI(E) was insolvent, EHL and JCN were not insolvent as well given that AI(E) was the only source of the other two companies' income.  As, however, Mr Powell clarified in his affidavit, and as appears from the wording of the resolutions of EHL and JCN to wind up those companies as set out in Stephen's affidavits, the decisions to seek the winding-up of those companies were predicated on AI(E) being insolvent.  Advocate Young contended that AI(E) was insolvent on a cash flow basis; although the highest offer for the property to date was less than the total indebtedness of AI(E), he did not seek to argue that AI(E) was insolvent on a balance sheet basis.   

29.      In support of his contention that AI(E) was insolvent, Advocate Young relied principally on:-

(i)        the figures set out in Stephen's various Affidavits; and

(ii)       the opinion of Mr Rabet. 

(a) The figures set out in Stephen's various Affidavits

30.      These figures, in our view, spoke for themselves.  Without descending to unnecessary detail, the balance of AI(E)'s income over expenditure (ignoring AI(E)'s indebtedness to EHL, and to Simon and Aida) is some £239,000 a year.  This balance has to cover the administration costs of the Property, the costs of administering the Trust and the companies and the cost of servicing loans made to John and Chrystal for their living expenses and the upkeep of their house in Spain.  Plainly AI(E) does not have the resources to pay its debt to Simon and Aida out of income.  None of the other parties served any evidence contradicting the figures set out in Stephen's Affidavits. 

31.      We turn now to Advocate Robertson's argument as summarised in para.22 above that certain of the debts of AI(E) and EHL as listed in Stephen's Affidavits were not in fact owed by those companies.  As Advocate Young pointed out in his reply, Advocate Robertson's assertions in this regard were based solely on instructions given to him, apparently during the hearing; they were not supported by any documents.  Nor had Mr Powell's Affidavit addressed any of the disputed figures, notwithstanding that, as Mr Powell himself accepted, he had been on notice of the Representation of AI(E) since 23^rd September.  He had also participated in the Board meetings of EHL and JCN on 27^th September at which it had been resolved to wind up these two companies under Article 155.  As a director of each of the three companies Mr Powell would have been in a position to depose to their true financial position if he had in fact disagreed with any of the figures set out in Stephen's Affidavits.  In the absence, therefore, of any evidential foundation for Advocate Robertson's challenge to the figures in question, we reject his submissions in respect of the detailed figures. 

(b) The opinion of Mr Rabet

32.      The conclusion which we have reached in para.30 above was supported by Mr Rabet.  In an email of 3^rd October, 2013, to Stephen, Mr Rabet wrote as follows:-

"Further to our meeting of 27 September 2013 and the various e mails conversations and financial data presented to me since it is my considered opinion that [AI(E)] is cash flow insolvent.

Under the Bankruptcy (Désastre) (Jersey) [Law] 1990 the sole definition of insolvency is ... "Athe inability of a debtor to pay his or her debts as they fall due"

As stated previously in my professional capacity as a Chartered Accountant and Insolvency Practitioner [AI(E)] is already teetering on the edge of this situation and if judgment is sought against [it] it will certainly become de facto insolvent despite [AI(E)] having a valuable asset and being balance sheet solvent.

This also leaves [EHL] and [JCN] in a similar position as they are wholly funded by the cashflow of [AI(E)] and ergo if [AI(E)] is insolvent then so are [EHL] and [JCN].

....

The Article 155 application has obvious benefits as it will enable the company to trade on and carry out a rent review with hopefully an uplift in value of the property owned by [AI(E)].  The property can then be sold in an orderly manner thus ensuring not only creditors are paid in full but also there is value given back to the shareholders."

33.      On 8^th October, 2013, Mr Rabet wrote to Stephen in relation to AI(E) in more detail, as follows:-

"I have examined the cash flow and creditors listing ... provided to me on 27 September 2013 by the executive directors of [AI(E)] and I have the following comments:

[AI(E)] is currently in receipt of quarterly rentals of £564,852.  It is hoped that this will increase to £627,352 per quarter (an increase of £250,000 per annum) following a rent review.  I note that rental constitutes [AI(E)'s] only income.

[AI(E)] currently has quarterly interest payments due to HSBC plc of £177,279 dropping to £169,601 in October 2015.

[AI(E)] makes quarterly capital repayments under its HSBC plc loan facility of £115,000 rising to £120,000 in October 2014.

[AI(E)] has another HSBC short term funding agreement which has quarterly interest and capital repayments of £56,500.

[AI(E)] makes annual repayments to Acorn Finance in the sum of £43,500 rising to £45,000 in December 2014.

[AI(E)] has other current commitments in excess of £30,000 per month (£90,000 per quarter).

[AI(E)] presently has a cash balance of £456,711 and is projected to have a maximum cash balance of £562,859 at the end of December 2015.  The cash constitutes [AI(E)'s] only liquid asset.

[AI(E)] currently has total creditors of £24,314,831 including HSBC plc and Acorn Finance.

[AI(E)'s] creditors other than HSBC total £1,682,331 of which £1,117,356 is in respect of Simon and Aida Neal's settlement agreement (which I understand is a joint and several liability of [AI(E)] and [JCN])."

It is clear from the above that [AI(E)] does not currently have the liquidity, and will not be in a position to generate the liquidity on any foreseeable basis (including after a rent review has been negotiated), to discharge a judgment debt in the sum of £1.4 million.  As soon as such judgment debt is called or enforced the Company will immediately become insolvent on the cash flow basis as defined in the Bankruptcy (Désastre)(Jersey) Law 1990. 

Furthermore, even if sufficient liquidity were to be unexpectedly generated in the future, any payment in full of a judgment creditor would be liable to challenge by the Viscount or a liquidator as a preference under the Désastre Law and/or the Companies (Jersey) Law 1991 if [AI(E)] was subsequently placed en désastre or into Creditors' Winding Up within 12 months of the payment."

Again none of the other parties served any evidence to contradict the views of Mr Rabet.

34.      Advocate Robertson accepted in his submissions what Stephen had said at para.43 of his Affidavit in support of the representation in respect of AI(E).  That paragraph read as follows:-

"It is clear that neither [AI(E)], JCN and/or any of the Trust's companies or the Trust have the financial resources to discharge the [£1,214,036] and if Simon were to take judgment with respect to the [£1,214,036] on 20 September 2013, AI(E) and in turn the Trust would become immediately insolvent, resulting in the forced sale of the Property."

But, he contended, the fact that Simon and Aida had thus far exercised forbearance in respect of the £1,214,036 owed to them indicated that AI(E) was not insolvent. 

35.      We start with three observations.  Firstly, under the Confidential Settlement Agreement the debt became due and payable to Simon and Aida on 31^st May, 2013.  Secondly, the forbearance of Simon and Aida since that time has been in their sole discretion; there is not, and has never been, any form of contractual agreement between them and any of the companies in respect of such forbearance.  In those circumstances the position is, in our view, more accurately described as no more than a unilateral moratorium.  Thirdly, by Hanson Renouf's letter of 3^rd October, 2013, Simon and Aida had made clear that that moratorium was at an end and that they proposed to seek judgment on 11^th October.  In those circumstances it seems to us that on a proper legal analysis the debt to Simon and Aida remained and remains immediately due and payable by, in particular, AI(E).  Accordingly we reject Advocate Robertson's submission to the contrary. 

36.      We therefore accept the Representors' submission and conclude on the evidence presented to us that as of 9^th October, 2013, AI(E) was insolvent on a cash flow basis.  In the light of this conclusion, it follows from Advocate Robertson's point (2) as set out in para.20 above that it is common ground between, at least, the Representors and the Trustee that the three companies should be wound up on just and equitable grounds.  Nevertheless we proceed to consider the Representors' additional two grounds for winding up under Article 155. 

(2) The cost of any further forbearance in relation to the claim of Simon and Aida would be unacceptable

37.      For the sake of convenience we also deal in this part of our judgment with the contention of the trustee, as supported by Simon and Aida, that the Representations should be stayed on the terms summarised in paras.20(3) and 21 above.  

38.      It is clear to us that the debt owed to Simon and Aida has been a sword of Damocles hanging over the Trust, and more particularly AI(E), for some time.  Thus the Minutes of the board meeting of AI(E) held on 27^th June, 2013, (of which only an unsigned draft was in evidence before us), at which time the indebtedness to Simon and Aida stood at some £1,240,000, recorded (at para.7.2) that Mr Powell:-

"made it clear that the Trustee ... simply recognised the commercial and legal reality of the situation, that Simon Neal has the power to put the main asset of the Company at significant risk";

and (at para.7.7) that Mr Powell:-

"stressed that Simon Neal ... has the ability to put the main Company asset at risk and can inevitably therefore put pressure on all of the directors of the Company."

39.      Furthermore simply in financial terms the cost to the three companies of Simon's and Aida's forbearance has already been considerable.  As we have already recorded, as from 21^st June, 2013, the payments to Simon and Aida alone jumped from £10,000 to £25,000 a month.  But even this was apparently not enough for their purposes.  Thus on 18^th September, 2013, Mr Powell emailed Mr Gardner-Hillman as follows:-

"Following my meeting with Simon we need to review the cashflows and revert to him with a proposal for a significant increase in the monthly payments being made - we will not know what the best deal we can agree is until we have done that.  Simon is not going to suggest a figure first.  You may feel that is a frustrating [negotiating] position but I fear we do not have time to press that point.

....

Accompanying the request that we make an offer for increased monthly payments, and provide assurances in connection with Spain, Simon is also requesting the following:

1.        Payment of his costs associated with putting in place new loans and extending existing loans as a result of his further forbearance (being legal fees, registration, stamp duty, bank or finance charges).

2.        Agreement that the monthly payments to him will repay the interest due on his loan, followed by the outstanding legal fees, followed by the loan balances, in that order.

3.        Agreement that assistance will be given by the Trustees to help Simon and Aida to extend their own borrowing for the necessary period required until repayment."

Finally, as Simon and Aida indicated in the final sentence of Simon's Affidavit, and as spelt out by Advocate Hanson in his submissions on their behalf, they now also require that they should be at liberty to register their promissory note and thereby secure their debt. 

40.      Advocate Young submitted that to allow Simon and Aida to register their promissory note would constitute a preference under Article 176A(6) of the Companies Law in that Simon and Aida would become secured, rather than unsecured, creditors.  Advocate Robertson rejected this contention.  He contended by reference to Article 176A(7) that there would be no subjective intention on the part of AI(E) to prefer Simon and Aida.  Our immediate reaction is that there is force in Advocate Young's submission.  But even if that view is wrong, and to allow Simon and Aida to register their promissory note would not constitute a preference in law, the practical effect of allowing them to do so would be to put them in a better position than other creditors, including other members of the family.  That, we consider, would not be an acceptable way to proceed. 

41.      Separately from the question of registering the promissory note, there is the problem that the other terms upon which Simon and Aida might be prepared to grant further forbearance are, as Advocate Hanson put it in his submissions to the Court, still "to be thought through".  It seems, therefore, that even the list of demands set out in Mr Powell's email of 18^th September may not be definitive.  And all that is before one even reaches the matter of negotiating the suggested terms with the directors and the trustee.  This, in our view, is not a basis upon which the Court could conclude that a stay of the representations on the terms suggested by the trustee was even feasible, let alone desirable. 

42.      For the reasons discussed in the preceding paragraphs, we also conclude as submitted by the Representors that even if, contrary to the view we have expressed under (1) above, AI(E) is not technically insolvent, AI(E) should still be wound up under Article 155 because the price to AI(E), and to JCN and EHL, of further forbearance by Simon and Aida makes it just and equitable to do so. 

(3) Action by other creditors in due course was inevitable

43.      Advocate Young submitted that other creditors, especially trade creditors, were already waiting in the wings and that it was inevitable that in the near future one of them would seek to enforce their claim, especially if Simon and Aida were seen to be allowed to register their promissory note.  Once that happened, other creditors would jump on the bandwagon.  Nor was the problem necessarily confined to trade creditors.  Mention was made in particular of the position of Chrystal; as the curator of her husband John, she might be obliged to enforce any claims that she or John might have in order to ensure that John can continue to receive the care he needs. 

44.      We consider that there is considerable force in this submission.  That said, we would not have been minded to order the winding-up of the companies on this ground alone but this point does lend considerable support to the decision which we have already reached on the basis of grounds (1) and (2) above. 

Other matters

45.      Advocates Robertson and Hanson both argued that the grant of a winding-up order in respect of AI(E) would have the disadvantages of saddling the companies with the cost of the Liquidators and would run the risk of depressing the sale price of the Property.  We recognise that the cost of the Liquidators (which Mr Rabet indicated in an email to Mr Powell dated 1^st October would be some £10,000 a month) is a relevant factor but on the other hand the companies will save the cost of directors' fees; in those circumstances it does not seem to us that this factor is of great weight. 

46.      We accept that the winding-up of AI(E) will certainly not assist in getting the best price for the Property.  On the other hand we do not think that too much weight should be attached to this factor.  It seems to us that the position is fairly summarised in an email dated 7^th October, 2013, from Mr Thibault of Cushman & Wakefield LLP to Mr Powell, in which Mr Thibault said as follows:-

"My initial comment stands that an owner who is in "administration" is not a positive influence to a sales process.  The danger obviously exists that people believe the company is under pressure and therefore believe that the property can be bought at a lower price.

To say this in isolation however is far too simple.  A far more important issue in the sales process is creating competitive tension.  If more than one and preferably several parties are keen to purchase a property then the desire to be the winning bidder is far stronger [than] any issue that may concern the historic ownership of the property.

....

I suspect that in the current situation too much [importance] might be placed on the issue of administration."

47.      In summary, our conclusion is that in circumstances where, as we have already concluded, AI(E) and the other two companies are insolvent so that it would be just and equitable to wind them up, neither of these factors individually or collectively could justify our not making an order under Article 155.  

Postscript

48.      We record for the sake of completeness that following the hearing Hanson Renouf, by a letter to the Court dated 11^th October, 2013, sought on behalf of Simon and Aida to re-open the Court's decision of 9^th October.  In particular Hanson Renouf wished to argue that although EHL and JCN might have been insolvent, AI(E) was not.  Simon and Aida also wished to raise other matters, not put before the Court at the hearing, which militated against the winding-up of AI(E).  Advocate Young, not surprisingly, objected to this course.  By an email of 11^th October the Court refused to accede to Hanson Renouf's application.  As for Advocate Hanson's main point, this had echoes of Advocate Robertson's approach which we have rejected in para.31 above; we reject Advocate Hanson's point for substantially the same reasons.  Furthermore if it would be right to wind up JCN and EHL on the grounds that they were insolvent, we consider that it would be just and equitable to wind up AI(E) as well under Article 155 even if AI(E) was not itself technically insolvent, if only to ensure that Simon and Aida were not able to put themselves in a more favourable position than other creditors.  As for the other matters which Simon and Aida wished to raise, some had already been aired at the hearing; none of them would have affected our decision in any event.  The email of 11^th October accordingly confirmed that the order of 9^th October stood. 

49.      We also record that by a further letter from Hanson Renouf to the Court dated 14^th October, 2013, Simon and Aida applied for the following relief:-

(i)        a stay pending a possible appeal against the Court's order of 9^th October, 2013, such stay to be for the period of seven days from the date of the ruling;

(ii)       an order that in the meanwhile the liquidators refrain from advertising for creditors in relation to all three companies; and

(iii)      leave to appeal (if required) against the Court's order of 9^th October, 2013. 

By a ruling dated 16^th October, delivered to the parties by email on 17^th October, the Court:-

(a)       refused leave to appeal (if required) against the decision of 9^th October, while recognising that it appeared to be common ground between the Representors and the Interveners that leave was not required because the Court's decision to wind up the three companies was a final order for the purposes of Article 13 of the Court of Appeal (Jersey) Law; and

(b)       declined to grant a stay of the order of 9^th October (which meant that point (2) above did not arise). 

50.      Finally, the Court distributed this judgment to all parties in draft on the morning of Wednesday 6^th November, 2013.  The covering email made clear that the draft was being distributed in accordance with Practice Direction RC10.01, save that the timetable in para.4 of the Direction was changed so that any suggestions pursuant to para.4 were to be submitted by 4pm on Thursday 7^th November.  Para.4 reads as follows:-

"A secondary purpose [of supplying the judgment in draft] is to enable the advocates to submit suggestions to the Court about typing errors, factual errors, wrong references and other minor corrections of that kind." (Emphasis added.) 

In R (Mohammed) v Secretary of State for Foreign and Commonwealth Affairs [2010] EWCA Civ 158, the Court of Appeal said as follows of the equivalent practice in England (at para.5):-

"The primary purpose of this practice is to enable any typographical or similar errors in the judgments to be notified to the court.  The circulation of the draft judgment in this way is not intended to provide an opportunity to any party (and in particular the unsuccessful party) to reopen or reargue the case, or to repeat submissions made at the hearing, or to deploy fresh ones."

The same principles apply, in our view, to draft judgments of the Royal Court supplied under Practice Direction RC10.01. 

51.      The Court duly received comments both from Advocate Young for the Representors and from Appleby for the trustee in accordance with para.4, for which the Court is grateful.  The Court also received a four-page email from Advocate Hanson.  The opening paragraph of this email read:-

"The terms of the Practice Direction are noted, ... but there are certain matters that may be described in the nature of "factual errors" or "minor corrections" upon which Simon and Aida would wish to comment."

The email continued with detailed comments on a large number of paragraphs in the draft judgment.  Even on the most relaxed interpretation of para.4 of the Practice Direction, the great majority of these comments did not refer to "typing errors, factual errors, wrong references and other minor corrections of that kind".  On the contrary, most of the comments constituted attempts to re-open or re-argue matters of substance that had been raised at the hearing.  The Court accordingly disregarded Advocate Hanson's email in its entirety. 

52.      This Court has no doubt that the overwhelming majority of advocates appearing before the Royal Court already adhere to both the letter and the spirit of Practice Direction 10.01.  We emphasise, however, that the Royal Court expects all Jersey advocates to adhere to the Practice Direction, and in particular to recognise the limited scope of para.4 as further explained in the Mohammed case. 

The detailed order

53.      At the conclusion of the hearing on 9^th October there was a short discussion about the detailed terms of the proposed order.  During the ensuing days the parties discussed the terms of the order between themselves.  It is our understanding that the terms of the order are now agreed but if there are any outstanding issues, we will hear the parties' submissions after this judgment is handed down.  

Privacy

54.      We invite all parties to make submissions to the Court after this judgment is handed down on the issues of whether the privacy ruling should extend to all parts of this judgment and of how long the privacy ruling should continue. 

Costs

55.      Again the Court will hear all parties on the issue of costs after this judgment is handed down. 

Authorities

Companies (Jersey) Law 1991.

Jean v Murfitt 1996/237.

Jean v Murfitt [1996] JLR N8c.

In the Matter of Belgravia Financial Services Group [2008] JRC 161.

In the matter of Belgravia Financial Services Group [2008] JLR N36.

In the Matter of Huelin-Renouf Shipping Limited [2013] JRC 164.

In the Matter of Poundworld (Jersey) Limited [2009] JRC 042.

In the matter of Poundworld (Jersey) Limited [2009] JLR N12.

Bankruptcy (Désastre)(Jersey) Law 1990.

R (Mohammed) v Secretary of State for Foreign and Commonwealth Affairs [2010] EWCA Civ 158.