Jersey Unreported Judgments

Companies - sanction sought by the joint liquidators to compromise various claims by and against the companies.

[2015]JRC056A

Royal Court

(Samedi)

17 March 2015

Before     :

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

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

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

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

Advocate R. O. B. Gardner for the Joint Liquidators.

Advocate S. J. Young for Mrs Crystal Neal as Administratrix.

judgment

the commissioner:

1.        At the conclusion of the hearing this morning (17^th March, 2015,) the Court announced its decision that it would grant the relief sought by Mr Adrian Rabet (of Messrs Moore Stephens) and Mr Philip Sykes (formerly of Messrs Moore Stephens and now of Baker Tilly London), the Joint Liquidators ("the Liquidators") of Anthony Investments (Esplanade) Limited ("AI(E)"), Evreux Holdings Limited ("EHL") and JCN Investments (Jersey) Limited ("JCN") (jointly "the Companies") in their Representations dated 27^th February, 2015, ("the February 2015 Representation") and 17^th March 2015, ("the March 2015 Representation") for reasons that we would set out in a reasoned judgment to be delivered later the same day.  The effect of the relief which we granted is that:-

(i)        the Liquidators can ignore the conclusions reached in a report ("the BBA Report") prepared by Messrs. BBA Accountants ("BBA") in 2011 and that they need not commission an equivalent report themselves; rather they can draw a line under any further attempt to investigate directors - fees, salaries, loan movements and/or distributions received by the Neal family members during the lifetime of the Companies; and

(ii)       the Court sanctioned the compromises reached by the Liquidators of the claims by certain members of the Neal family. 

This is our reasoned judgment setting out our detailed reasons for our decision. 

Introduction

2.        On 9^th October, 2013, the Court ordered the winding up of the three Jersey Companies under Article 155 of the Companies (Jersey) Law 1991 ("the Companies Law"), for reasons that would be given in due course ("the October 2013 order").  The Court appointed the Liquidators and made a number of ancillary orders.  The Court delivered its reasoned judgment on 12^th November, 2013, ("the November 2013 judgment"). 

3.        Although the October 2013 order was, of course, in the public domain, the Court ordered that the proceedings on that date should be private.  Likewise the November 2013 judgment was private to the parties.  By an order of 12^th November, 2013, the Court directed that privacy should expire when Ogier House, 44 Esplanade, St Helier, Jersey ("the Property") was sold or by further order of the Court.  The Property was, in circumstances which we describe hereafter, sold by a contract passed before the Royal Court on 16^th January, 2015.  Accordingly the privacy originally attaching to our November 2013 judgment, and to our subsequent judgments in this matter, no longer applies and all such judgments (including this judgment) are now in the public domain. 

The factual background

4.        This is set out in more detail in paras 2 to 8 of our November 2013 judgment, and in paras 5 to 16 of our judgment delivered on 3^rd December, 2014, ("the December 2014 judgment").  The following, updated summary will suffice for the purposes of the present application. 

5.        In November 1997 Mr John Neal established a discretionary trust ("the Trust") in Jersey, the present beneficiaries being his widow (Chrystal), 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 again 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 was thereafter incapacitated; he died in 2014.  The present trustee of the Trust is Hawksford Trustees Jersey Limited ("Hawksford" or "the Trustee").  Unfortunately the history of the Trust, at least in the years immediately preceding the liquidation, had been one of hostility, mistrust and dispute between some at least of the beneficiaries.  In particular Simon and Aida had made claims against JCN and AI(E) in 2011, which were compromised in December 2012 on terms requiring substantial payments to Simon and Aida. 

6.        The only substantial asset of the trust was the Property, which is let to Ogier Esplanade Limited and is occupied by Ogier and its former fiduciary services business now known as Elian.  The Property was owned by AI(E) and was the subject of a first charge in favour of HSBC.  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.  It was common ground between the parties to the 2013 winding up proceedings, especially after a refinancing proposal had fallen through in September of that year, that the only way forward for the Trust as a whole was for the Property to be sold and for any surplus after payment of creditors to be distributed upwards from AI(E) via JCN and EHL to the Trust for distribution among the beneficiaries. 

7.        The lease of the Property to Ogier commenced on 7^th November, 2009, and will terminate on 6^th November, 2033.  A rent review under the lease started in November 2012, with AI(E) seeking a greater uplift in the rent than the automatic uplift provided by the lease.  As at October 2013, the rent review had gone to arbitration but had not been concluded. 

8.        All parties to the 2013 winding up proceedings were agreed that the Property could not sensibly be marketed, or the best price obtained for it, unless and until the rent review had been concluded, either by an arbitration award or by agreement.  Even then, as we pointed out in our November 2013 judgment, the amount of the new rent would be but one factor in the overall picture; the amount of the yield would be another.  On the figures put before us in October 2013 we accepted that there was a real possibility that the sale of the Property might in due course generate a modest surplus for distribution to the beneficiaries.  But we added that in the ultimate analysis the Property was, of course, only worth what someone would pay for it. 

The winding-up proceedings in October 2013

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 Representations for the winding up of both EHL and JCN (each made pursuant to a unanimous resolution of its directors) were dated 3^rd October.  At the hearing on 9^th October the Representors, the Trustee and the Viscount were all represented, as were the proposed liquidators (by Advocate Gardner of Bedell Cristin Jersey Partnership).  At the outset of the hearing the Court acceded to an application by Simon and Aida to intervene in the proceedings.  The Court granted the Representors' application on the grounds that:-

(i)        on the basis of the figures set out in Stephen=s various Affidavits, and of the opinion of Mr Rabet, AI(E) was insolvent on a cash flow basis; and

(ii)       the price to AI(E), and to JCN and EHL, of further forbearance by Simon and Aida in respect of their claim made it just and equitable to wind the Companies up. 

10.      Para 3 of the October 2013 order conferred upon the Liquidators:-

"all powers as set out in Chapter 4 of Part 21 of the Law and the following specific powers:-

....

(vi)      to apply to the Royal Court for a revision or extension of any of their powers and for the sanctioning or ratification of any of their acts ..."

Chapter 4 of the Companies Law includes the following provisions:-

"170    Powers and duties of liquidator

(1)       The liquidator in a creditors' winding up may, with the sanction of the court or the liquidation committee ...

(a)       pay a class of creditors in full;

(b)       compromise any claim by or against the company.

(2)       A liquidator may, without sanction, exercise any other power of the company as may be required for its beneficial winding up."

The application in December 2014

11.      In 2012 the Neal family had approached Buckley & Co. ("Buckley"), a local firm of property agents, with a view to a possible sale of the Property.  In September 2012 both Buckley and Cushman & Wakefield LLP ("C&W"), a global sales agent, had been appointed joint agents.  The initial marketing material for the Property had been produced in November 2012 but no buyer had emerged by the time that the Companies were ordered to be wound up, due to the depressed state of the real estate market in Jersey at the time and the uncertainty caused by the ongoing rent review.  As a result of these two factors, the agents had not actively marketed the Property in 2013 and, following the winding-up order, they were asked not to do so by the Liquidators during the first half of 2014 pending the outcome of the rent review. 

12.      The rent review was concluded in early June 2014.  AI(E)'s attempt to procure an uplift in the rent greater than that provided by the lease failed; the effect of the arbitrator's award dated 6^th June was that the rent for the Property was not increased beyond the contractual rent (as automatically uplifted) applicable from 7^th November, 2012.  Later the same month the Liquidators confirmed the joint appointment of Buckley and C&W to find a purchaser for the Property.  In due course a preferred bidder emerged in the form of Standard Life Investments ("SLI"), who were willing to purchase the Property for ,27,000,000. 

13.      The Liquidators therefore applied to the Court for confirmation that they had power to sell AI(E)'s freehold interest in the Property and for the Court's approval to proceed with a sale of the Property to SLI or its designated subsidiary for £27,000,000.  The Court acceded to the Liquidators' application for the reasons set out in our December 2014 judgment and, as we have already recorded, the sale to SLI took place on 16^th January, 2015. 

The present applications

14.      By an Act of Court made on 23^rd February, 2015, ("the February 2015 order"), the Court ordered that the Liquidators' intended application should be heard on 16^th March, 2015.  The Court also made, in summary, the following directions (adopting the numbering of the order):-

"(2)      that by 27 February, the Liquidators (or their legal representatives) should by letter notify all persons (or their appointed legal representatives) who appeared to be potential creditors of the Companies of the 16 March hearing;

(3)       that any evidence to be presented by the Liquidators in support of their application should be filed by 27 February;

(4)       that permission be granted to any creditor to attend the hearing on 16 (and, if necessary, 17) March, provided that prior notification was to be provided in writing to the Liquidators and to the Court by 10 March;

(5)       that permission be granted to any creditor who wished to express a view in writing on the Liquidators= application to file and serve a response either by letter or by evidence, any such written response to be filed and served by 11 March; and

(6)       that permission be granted to any party intending to appear at the 16 March hearing to file a skeleton argument by 11 March and that any skeleton arguments filed with the Court should simultaneously be provided to any other party intending to appear at the hearing."

In each instance the deadline was 5:00 pm on the day in question.

15.      On 27^th February, Bedell Cristin on behalf of the Liquidators duly sent a letter to each of the 14 potential creditors of the Companies, enclosing a copy of the Representation dated 27^th February, 2015, ("the February 2015 Representation"), in accordance with para (2) of the February 2015 order.  The relief sought by the February 2015 Representation is as follows:-

"1.       A declaration sanctioning the Liquidators of the Companies not to conduct a full forensic investigation into directors= fees, salaries, loan movements and/or distributions which may have been received by and/or sums which may have been received from the Neal family members during the lifetime of the Companies

2.        A declaration sanctioning the Liquidators of the Companies not to adopt the information contained in, and the conclusions reached by the BBA Report

3.        Subject to their discretion to consider where necessary: (i) the financial statements of the Companies and/or other accounting related documents and/or (ii) documentary evidence submitted by creditors during the course of the claims adjudication process, a declaration sanctioning the Liquidators not to take into account, for any purposes, directors= fees, salaries, loan movements and/or distributions which may have been received by the Neal family members from the Companies and/or sums which the Companies may have received from the Neal family members during the lifetime of the Companies."

Although, as we have just recorded, the relief sought referred to "directors' fees, salaries, loan movements and/or distributions", the Liquidators' main focus was on so-called loans from the Companies to members of the Neal family.  The Liquidators also asked that their costs of the Representation should be treated as a an expense in the winding up of AI(E). 

16.      The relevant parts of the February 2015 Representation explain the background to the present application as follows:-

"6.       On 21 October 2013 the Liquidators' advertisement was published for all creditors in each of the Companies to supply full details of their claim by 6^th December, 2013, in order to enable the Liquidators to decide whether or not any particular claim was proved.  This deadline was subsequently extended to 6^th January, 2014.

7.        Between 11^th August, 2014, and 5^th September, 2014, creditors in Anthony inspected the proofs of debt filed in the winding up of Anthony.

8.        On 23^rd December, 2014, the Liquidators requested further information from certain creditors of Anthony who had filed proofs of debt.

9.        On 5^th January, 2015, the Liquidators invited all creditors in each of the Companies to inspect the proofs of debt filed in the winding up of JCN and Evreux, with a deadline of 2^nd February, 2015, to file such objections.

10.      On various dates on and around 10^th February, 2015, the Liquidators requested further information from certain creditors of JCN and Evreux who had filed proofs of debt.

....

12.      The sale of 44 Esplanade completed by a contract passed before the Royal Court on 16^th January, 2015.  The net proceeds of sale which the Liquidators presently hold for distribution amongst the unsecured creditors is approximately £5,000,000.

13.      On 18^th February, 2015, the Liquidators sent out adjudication letters to all creditors in each of the Companies who had presented a proof of debt.  The aggregate sum of unsecured claims filed against the Companies amounts to £10,599,531.52.  The aggregate sum of unsecured claims against the Companies as adjudicated upon amount to £4,572,445.69.  It is open to any creditor to seek a review of the Liquidators' adjudications provided they do so within the requisite time period.  No requests for such a review have been received as at 27^th February, 2015.

14.      Prior to the Liquidators' appointment, [BBA] were commissioned by the Trustee to prepare [the BBA Report].  The report was published on 25^th November, 2011, and authored by Mr. Robert Behan.  At the time the BBA Report was produced, there appear to have been very significant divisions between members of the Neal family relating to how much money each had received from the Trust and the Companies.  The letter of instruction pursuant to which the BBA Report was produced has not been provided to the Liquidators.  However, it is apparent that the BBA Report is an attempt to analyse directors' fees, salaries, loan movements and/or distributions received by the Neal family members over the period 1^st January, 1995, to 31^st December, 2010.

15.      Before final dividends can be paid out to creditors in the Companies following the completion of the claims adjudication process, the Liquidators must decide whether or not they should conduct a full forensic investigation into directors' fees, salaries, loan movements and/or distributions received by the Neal family members during the lifetime of the Companies.  This information is potentially relevant to the question of what dividend the creditors in the Companies will receive.  This decision involves considering to what extent, if at all, the Liquidators should have regard to the contents of and the conclusions reached in the BBA Report.

16.      Having considered matters carefully, the Liquidators have reached a view that it would be prohibitively expensive, disproportionate and unattractive to attempt to conduct a full forensic investigation into the directors' fees, salaries, loan movements and/or distributions received by the Neal family members during the lifetime of the Companies.

17.      Furthermore, the Liquidators have also reached the view that the information contained within the BBA Report and the conclusions it purports to reach cannot be adopted by the Liquidators and relied upon as a substitute for conducting a full forensic investigation into directors' fees, salaries, loan movements and/or distributions received by the Neal family members during the lifetime of the Companies.  The Liquidators believe that the BBA Report is not fit for this purpose for a variety of reasons.

18.      The Liquidators propose to draw a line under any further attempt to investigate directors' fees, salaries, loan movements and/or distributions received by the Neal family members during the lifetime of the Companies in favour of moving swiftly to the point where final dividends can be paid out to creditors in the Companies on the basis of the claims as adjudicated upon subject to any reviews which may be called for by any creditors.  The Liquidators consider that this approach is in the best interests of all the creditors and will ensure that the creditors receive as high a final dividend as is possible in an expeditious manner."

17.      In his Affidavit dated 27^th February, 2015, in support of the application (served in accordance with para (2) of the February 2015 Order), Mr Rabet summarised the position in relation to the adjudications as follows (at para 27):-

"... [I]t will be noted from the summary sheet ... that, if no reviews are made or if any reviews that are made leave aggregate creditor claims across the JCN Group unchanged, each company and the entire corporate structure is solvent.  This results from claims across the three Companies having been adjudicated down from £10,599,531.52 to £4,572,445.69.  In order to calculate the level of solvency, interest will have to be taken into account on each claim as adjudicated from 9^th October, 2013, to the date of payment.  However, even taking interest into account, this is likely to mean that cash will flow to Hawksford as the trustee of the John Neal Family Trust."

18.      The BBA report consisted of a four page letter dated 25^th November, 2011, and signed by Mr Robert Behan, to which were appended some 180 pages of spreadsheets and some occasional summaries.  As Mr Rabet explained in his Affidavit (omitting footnotes 1 and 2):-

"28.     BBA were commissioned by the trustees of the John Neal Family Trust in 2011 to produce a forensic report.  As I understand it, the broad context was that there were significant divisions between members of the Neal family relating to how much each member had received over time from the Trust and for what reason.  This meant that if the Property were to be sold and monies were to flow to the Trust, the decision of the trustee as to how to divide the net proceeds between the family members was entirely bound up with the question of what each family member had received out of the Trust over the years.  This issue was heavily disputed as between the Neal family members.  It was an issue which arose at the trust level rather than the corporate level.  Indeed representatives of the present trustees did not become directors of the Companies until mid-2013. 

29.      The BBA Report was authored by Mr Robert Behan....

30.      I refer to the first page of Appendix 1 and the first page of Appendix 3...  At the first page of Appendix 1 is contained a summary of the receipts of each member of the Neal family between 1995 and 2010.  The analysis is split between director fees, office wages, social security and loans.  By way of example it can be seen that John and Chrystal Neal received agreed loans of £3,866,024.  Further loans which they apparently disputed are stated to be £689,979.

31.      The total disputed and undisputed loans position is summarised at the first page of Appendix 3.  It can be stated as follows:-

Agreed Disputed           Total

Mr and Mrs JW Neal     £3,866,024        £689,979           £4,556,003

Mark Neal                    £760,712           £288,896           £1,049,608

Simon and Aida Neal    £314,684           £8,725              £323,409

James Neal                 £179,900           £128,655           £308,555

Stephen Neal               £132,837           £186,570           £319,407

32.      Therefore, by way of example, according to the BBA Report, Mr and Mrs J W Neal received net loans from the JCN Group of between £3,866,024 and £4,556,003 between 1995 and 2010.  The equivalent figures for Stephen and Simon/Aida are £132,837 to £319,407 and £314,684 to £323,409 respectively.  If these figures are correct, then this might suggest that these loans should be set off or otherwise applied against the family member concerned during the claims adjudication process in relation to the claims they have filed."

19.      Mr Rabet then summarised at para 33 of his Affidavit the reasons why the Liquidators are concerned about either adopting or relying on the BBA report or commissioning a similar report of their own, as follows:-

(i)        There were significant disputes between the members of the Neal family as to the conclusions of the BBA report insofar as such conclusions dealt with amounts received by other members of the family.  The likelihood is that the conclusions of any similar exercise conducted by the Liquidators would similarly be disputed.

(ii)       The BBA report, authored by the firm which was the reporting accountant to the group Companies between 2005 and 2010, itself cost in excess of £200,000.  A similar exercise commissioned by the Liquidators would, in their view, be prohibitively expensive.

(iii)      The production of a similar report commissioned by the Liquidators would be an extremely time-consuming exercise, during which none of the Neal family members who might be affected, namely Chrystal (on her own behalf and as Administrator of John's estate), Simon/Aida and Stephen, could be paid anything on their claims as adjudicated.  As adjudicated (and subject to any successful review of the adjudications) these individuals represent approximately 84% of aggregate creditor claims across the Companies.  In other words, 84% of the net cash currently available for distribution would have to be held back pending the outcome of such a review.  This would not be satisfactory. 

(iv)      The BBA Report concluded that there were significant "loan balances" outstanding from members of the Neal family to the Companies.  This conclusion cannot, however, be reconciled with the financial statements of the Companies as audited.  This brings into question whether it is proper to treat these "loan balances" as "loans" at all. 

(v)       Any attempt to produce a substitute to the BBA Report would not simply be an accountancy exercise.  It would require detailed discussions with family members to try to establish how payments should be categorised.  Ultimately, significant judgment calls would need to be made by the Liquidators about whether certain payments were properly to be categorised as "loans".  The Liquidators would need to establish how numerous historical transactions should be properly categorised, e.g. as repayable loans, trust distributions, salaries, director's fees, bonuses etc.  The main problems associated with this exercise are the lack of documentation, the lax way in which the Companies were operated as a form of bank account for the family and the apparent use of loans to pay the family money in a tax efficient way. 

(vi)      The BBA report covered the period 1995 to 2010 but the Companies have been trading since the 1970s.  It is plain from the claims adjudication process that Chrystal's position is that there were certain significant loans made by her and John in the early 1980s and again in 1992.  Any process which did not start at the beginning, but instead at some mid-point in the lifespan of the Companies, would be open to criticism that the true net picture would not be discovered.  But the further back that enquiries extend, the more controversial and uncertain the findings are likely to be, and the greater will be the cost. 

(vii)     The Liquidators did not commission the BBA Report; it was commissioned by the trustee with different motivations in mind.  Mr Rabet is not in favour of the Liquidators being asked to adopt its conclusions. 

20.      Mr Rabet's Affidavit continued as follows:-

"34.     When considering whether it is appropriate for the Joint Liquidators to adopt the BBA Report or commission a new report themselves in its stead, the motivation for any such exercise and the identity of the parties who might ultimately be affected by such an exercise, need to be considered and appreciated. 

35.      The only possible rationale for the Joint Liquidators to consider and/or to adopt the conclusions of the BBA Report, or to re conduct a substitute exercise themselves, would be to open the possibility of effecting set offs which might arise or to pursue potential cross claims against members of the Neal Family who are creditors of one or more companies within the JCN Group (Chrystal Neal, Simon Neal and Stephen Neal) and/or to potentially pursue those members of the family who are not creditors James Neal and Mark Neal).  The Joint Liquidators have significant reservations about either being able to adopt the BBA Report or commission a report in its stead in such a way as to enable them to do any of these things. 

36.      Moreover, as set out at paragraph 27 above, if no reviews are requested in relation to the claims as adjudicated, or if any reviews that are made leave aggregate creditor claims across the JCN Group unchanged, each company and the entire corporate structure is solvent and creditors can expect to be paid out in full on their claims as adjudicated upon.  This, in turn, means that cash is likely flow up to the trustee of the John Neal Family  Trust.  In these circumstances, there would seem little benefit to be gained from engaging further in an exercise which will mostly likely require significant expense and delay, but offers benefits which remain wholly uncertain. 

37.      In any event, even if the Joint Liquidators were to engage in a process which is designed to establish whether there are possible set offs and/or cross claims to be made against members of the Neal Family during the lifetime of the Companies (thereby reducing their claims as creditors), such set offs as could be established would inure to the benefit of the shareholder of each company concerned, and ultimately the Trust (as shareholder of [EHL], the holding company).  Subject to what is said below at paragraphs 38 and 39, the ultimate beneficiaries of this might be the members of the Neal family themselves.  In other words, this could be seen as a very costly and time consuming exercise in (ultimately) taking from members of the Neal family in one guise (as net debtors of the corporate structure) and giving it back to them in another (as beneficiaries of the Trust). 

38.      There are two important caveats to this point.  First, is the assumption correct that any reviews by the Royal Court on any adjudication's will leave aggregate creditor claims across the JCN Group unchanged?  This remains to be seen.  Whilst the Joint Liquidators reviewed the claims and objections very carefully, it might be that creditor claims which have been rejected in whole or in part are adjusted upwards on review.  The effect of that occurring would be to reduce or extinguish the margin of solvency for each company.  It might even be that any or all of [AI(E)], JCN or [EHL] become insolvent as a result of such reviews.  That will affect whether cash is transferred up the structure, ultimately to the trustee.  Conversely, if adjudications are reduced, this will have the opposite effect of making the company concerned more solvent. 

39.      Second, even if the trustee does receive a distribution of funds following a solvent group scenario, it remains to be seen whether, in fact, any funds will reach the Neal family members as beneficiaries.  We are aware that Alpha Bank is owed approximately £700,000 by the trustee (on a limited recourse basis) and that Hawksford and Appleby are owed £524,756 and £751,864 in fees respectively.  These fees have been rejected at the corporate level and unless those adjudications are successfully reviewed, they will remain payable at the trust level, subject to rules on trustee remuneration.  In other words, at least £700,000 in liabilities and up to a total of almost £2million in liabilities is potentially due at trust level and any liabilities that are due would fall to be discharged before beneficiaries received any funds by way of trustee distributions.  So, it must be appreciated that there are parties who rank prior to the beneficiaries of the Trust who might benefit from set offs being applied."

Procedural developments

21.      The responses from creditors to Bedell Cristin's letter of 27^th February, 2015, were as follows:-

(i)        By a letter dated 2^nd March, Simon and Aida gave notice in accordance with para (4) of the February 2015 order, supporting the relief being sought by the Liquidators and indicating an intention to attend  the hearing on 16^th March for that purpose.  By a further letter, dated 11^th March, Simon referred to certain specific issues which, he said, supported the position being adopted by the Liquidators.

(ii)       By an email dated 2^nd March, E&G Solicitors in Spain (creditors of both AI(E) and EHL) wrote supporting the relief sought by the Liquidators.

(iii)      By an email dated 2^nd March, Montagu Evans Channel Islands Limited (creditors of AI(E)) wrote confirming that they had no objection to the Liquidators' position.

(iv)      By a letter dated 2^nd March, Mourant Ozannes (creditors of both AI(E) and JCN) wrote supporting the relief sought by the Liquidators.

(v)       By three letters dated 10^th March (one in respect of each of the Companies), Chrystal wrote on her own behalf and as administratrix of John's estate describing the Liquidators' proposal as pragmatic and consenting to it on that basis.  In addition Advocate Young of Bois Bois informed Bedell Cristin that he intended to appear at the hearing in his capacity as advisor to Chrystal, but by way of a watching brief only and not to make any submissions.

(vi)      Hawksford requested, and were provided with, a copy of Mr Rabet's Affidavit and exhibit and indicated that they proposed to attend the hearing.

(vii)     Appleby likewise requested, and were provided with, a copy of Mr Rabet's Affidavit and exhibit, but confirmed by telephone that they were not taking any position and would not be attending the hearing.

22.      On 11^th March, 2015, Advocate Gardner served the Liquidators' skeleton argument as required by para (6) of the February 2015 order.

The hearing

23.      At the hearings on 16^th and 17^th March the Liquidators were represented by Advocate Gardner of Bedell Cristin.  Advocate Young appeared for Chrystal.  Simon and Aida appeared in person, as did Stephen.  Also present were Hawksford (in the persons of Mr Powell and Ms Le Meur) and Mr Rabet. 

The adjudications

24.      It seems to us that the adjudications form an important backdrop to the present application and we therefore address this issue at the outset.

25.      On 18^th February, 2015, the Liquidators sent letters to all those who had made claims against the Companies, setting out the Liquidators' adjudications on such claims.  Each of the letters to members of the Neal family referred to the BBA report, summarised the findings of the report in relation to the family member in question but indicated that the Liquidators did not feel able to rely on the BBA report.  Each letter also contained a statement along the following lines (taken by way of example from the letter to Simon and Aida relating to their claim against AI(E)):-

"Accordingly, your claim against [AI(E)] is adjudicated in the sum of £1,390,634.26 conditional upon the Royal Court directing the Joint Liquidators not to conduct a full forensic audit or to seek to establish on any other basis that the adjudication should be altered by reference to all transactions of the Companies over a particular period of time."

26.      The combined effect of Article 31(7) of the Bankruptcy (Désastre)(Jersey) Law 1990, Article 166(1) of the Companies Law and Rule 7 of the Bankruptcy (Désastre) Rules 2006 is that the recipients of the letters from the Liquidators had 21 days, i.e. until 11^th March, 2015, to seek a review of any adjudication.  In the absence of any request for review within that time, the claims would stand as adjudicated.  No such request for review was made by any member of the Neal family.  Subject, therefore, to the Court acceding to the Liquidators' representation, the claims of members of the Neal family as adjudicated are as follows:-

AI(E)               JCN                  EHL

John/John and Chrystal £342,390           £1,559,493        £400,000

Simon and Aida                        £1,390,634

Stephen Neal                           £28,438 £4,993              £106,102.

27.      On the basis of the current adjudications, the agreed claims in respect of AI(E) total £2,264,508.32, those in respect of JCN total £1,704,576.56 and those in respect of EHL total £603,360.81.

28.      Of the other creditors of the Companies, only Hawksford and Appleby have sought a review of their adjudications. 

(i)        Appleby made a number of claims against the Companies, the outcome of the adjudications being as follows.

(a)       Their claim for £460,945.95 against AI(E) and JCN was admitted subject to a 15% reduction, divided as to £297,771.08 against AI(E) and £94,032.98 against JCN.

(b)       They claimed £108,526.01 against the Companies in respect of their legal fees incurred on behalf of Hawksford in opposing the winding up application in 2013.  The Court ordered that the costs incurred by Hawksford in this regard should be paid by the Companies by way of liquidation expenses, to be taxed on the standard basis if not agreed.  In effect, therefore, this claim is for the balance of Appleby's costs over and above what will be allowed to Hawksford by agreement or on taxation.  This claim has been rejected in its entirety.

(c)       Their claim for £751,864.30 against the Companies in respect of fees rendered to Hawksford was rejected in its entirety.

(d)       Their claim against JCN for £7,093.72 was admitted subject to a 15% reduction.

(e)       Their claim against EHL for £78,464.17 was likewise admitted subject to a 15% reduction.

Appleby have sought a review in respect of claims (b) and (c) above.

(ii)       Hawksford made the following four claims against the Companies.

(a)       Their claim against AI(E) for £134,050.70 in respect of unpaid invoices for services rendered to AI(E) was adjudicated down to £97,953.00.

(b)       They claimed against the Companies the sum of £524,756.08 as trustee.  The Liquidators rejected this claim in its entirety.

(c)       Their claim against JCN for £17,278.25 was adjudicated down to £15,659.75.

(d)       Their claim against EHL for £17,875.77 was adjudicated down to £15,165.22.

Hawksford have sought a review in respect of claim (b) against all the Companies. 

29.      As matters now stand, therefore, the maximum of the potential claims against AI(E), including tax (thought to be of the order of £100,000) and interest (estimated at no more than £330,000), is some £3,890,000.  Since the balance of the proceeds of the sale of the Property belong to AI(E), it follows that AI(E) will be solvent irrespective of the outcome of the reviews of the Hawksford and Appleby claims.  But if both the Hawksford and Appleby claims were to stand in full, the claims against JCN would exceed the balance payable to JCN after the liquidation of AI(E), and the creditors of JCN would not, therefore, be paid in full; and by the same token, the creditors of EHL would receive nothing. 

The Joint Liquidators' case

30.      Not surprisingly Advocate Gardner's submissions on the merits of the Liquidators' case in relation to the February 2015 Representation mirrored his skeleton argument.  He emphasised that nobody was opposing the course proposed by the Liquidators.  As Advocate Gardner's skeleton argument made clear, the Liquidators were seeking to invoke the power granted by para 3(vi) of the October 2013 order.  We indicated at the hearing yesterday that, while we found the Liquidators' reasoning as set out in Mr Rabet's Affidavit persuasive, we were concerned to ensure that the relief sought by the Liquidators achieved its objective of unlocking the process of distributing the assets of the Companies by allowing the Liquidators to pay the admitted claims, initially in respect of AI(E) and in due course (subject to the outcome of the reviews) in respect of JCN and EHL, as soon as possible, while at the same time protecting them from subsequent criticism.  In this regard it seemed to us that the relief sought in the February 2015 Representation did not go far enough.  Whilst drawing a line under the past was an essential step in the process leading to the Liquidators' conditional adjudications on the claims by members of the Neal family, the February 2015 Representation did not address the legal implications of the underlying arrangements pursuant to which sums had been lent to members of the Neal family.  In the ultimate analysis it seemed to us that what the Liquidators proposed to do was to compromise all the claims of members of the Neal family on terms that the Companies abandoned any claims that they might have had against such family members arising out of the loan arrangements.  In the absence of any liquidation committee, therefore, the Liquidators also required the Court's sanction of the proposed compromises under Article 170(1)(b) of the Companies Law.  No one else present in court yesterday had anything to add to Advocate Gardner's submissions. 

31.      Following a short break in the hearing yesterday morning to enable Advocate Gardner to discuss the position with the members of the Neal family, the hearing was adjourned until today with a view to the Liquidators issuing, with the consent of all concerned, a further Representation seeking the Court's sanction of the proposed compromises.  The Liquidators duly issued such further Representation ("the March 2015 Representation") today. 

32.      The relevant parts of the March 2015 Representation read as follows:-

"14.     If the Orders sought in the 27 February, 2015, Representation are granted, the conditionality attaching to the adjudications of the Neal Family members will be lifted.  The effect of this is that the Joint Liquidators will not pursue, or take into account, claims against the Neal Family members by the Companies on so called "loan" balances for any purposes and the conditional adjudications will stand without being reduced by set off or cross claims. 

15.      In totality, this arrangement may represent: (a) a compromise of potential claims which may vest in the Companies against the Neal family members and/or (b) a compromise of claims against the Companies as filed by the Neal family members such that sanction may be required under Article 170(1)(b) of the Companies (Jersey) law 1991."

33.      The relief sought by the March 2015 Representation reads:-

"2.       Simultaneous with Orders 1 to 3 of the relief being sought in the 27 February, 2015, Representation (and only if such Orders are granted), in so far as it is required, a declaration sanctioning the Liquidators of the Companies to adjudicate and/or effect a compromise of: (1) the claims filed against the Companies by each of Chrystal Neal (on her own behalf and in her capacity as Administratrix of the estate of her husband), Simon and Aida Neal and Stephen Neal (the "Neal Family Creditors") and (2) the claims of the Companies against each of the Neal Family Creditors in the following amounts (inclusive of interest to 9 October, 2013, but not including interest thereafter) in favour of the Neal Family Creditors (such that the conditional adjudications of the Neal Family Creditors' claims become final adjudications) ..."

The amounts in question are those set out in para 26 above.  All parties consented to the abridgement of time in relation to the March 2015 Representation, to service by email or the provision of hard copies and to dispensing with any further Affidavit evidence.  Again the Liquidators also asked that their costs of the Representation should be treated as a an expense in the winding up of AI(E). 

The law

34.      At paras 30 to 34 of our December 2014 judgment we analysed the nature of our jurisdiction where, as in that application, a liquidator seeks the approval of the Court to an exercise of a power conferred upon him by statute or an order of the Court.  We considered the position both in England and in Jersey under two heads, namely:-

(i)        (i) where the court's sanction is required; and

(ii)       where no sanction is required but application is made to the court by an aggrieved creditor or contributory,

and summarised the test under each of those heads.  The application which we were considering in December 2014 did not fall neatly into either of those categories.  Since we had not heard full argument on the point during the December 2014 hearing, and because we were on that occasion persuaded by the Liquidators that our conclusion on the facts would be the same whichever test we applied, we declined to express any concluded view on the test to be adopted in the particular circumstances of that application.  Advocate Gardner submitted that the February 2015 Representation gave rise to the same legal questions as discussed in our December 2014 judgment; again no sanction is required by statute but equally this is not a case in which a creditor or contributory is applying to the Court for a review of the Liquidators' decision.  Advocate Gardner submitted, therefore, that the Court should in effect adopt the same pragmatic approach on this occasion as it had in December 2014. 

35.      As for the March 2015 Representation, the position is clear.  In Branch & Manning (as joint liquidators of AAA Holdings Ltd.) v McEvoy [2009] JRC 110, the Royal Court cited with approval the judgment of Chadwick L.J. in Re Greenhaven Motors Ltd (in liquidation) [1999] 1 BCLC 635 (at p.643) as reflecting the correct approach of this Court to applications by liquidators under Article 170(1) of the Companies Law.  The Court held that the compromise of a claim proposed by a liquidator will be sanctioned by the Court if it is in the best interests of all the creditors of the company and that the liquidator's view as to the creditors' best interests will normally be given considerable weight. 

Conclusions

36.      We take first the February 2015 Representation, in two stages.  The first stage is the BBA report itself.  In our view the Liquidators are clearly correct that it would not be right for them simply to adopt or rely upon the BBA report, for the following reasons cited by Mr Rabet in his Affidavit:-

(i)        The BBA report was not commissioned by the Liquidators but by the Trustee, who had different considerations in mind. 

(ii)       The BBA report only covers the period from 1995 to 2010 but the Companies have been trading since the 1970s. 

(iii)      The conclusions of the BBA report cannot be reconciled with the financial statements of the Companies as audited. 

(iv)      The conclusions of the BBA report were the subject of considerable dispute between the members of the Neal family.

37.      The second stage is whether the Liquidators should commission an equivalent report themselves.  Again we agree with Mr Rabet that they should not.  A similar exercise would, in our view, be expensive, time-consuming and ultimately unsatisfactory; it would simply re-open long-standing disputes between the members of the family, to the benefit of no one and to the disadvantage of all concerned. 

38.      As, therefore, in our December 2014 judgment, we decline to choose between the two tests discussed in that judgment.  Whichever is the correct legal approach for us to adopt, we have no doubt that we should grant the relief sought in paras.1 to 3 of the February 2015 Representation. 

39.      Turning to the March 2015 Representation, we endorse the view of the Liquidators that the compromises of the Neal family members' claims in the form of the adjudications to which we have already referred are in the best interests of all the creditors of the Companies for the reasons we have already discussed.  Accordingly we have no hesitation in sanctioning the compromises of the Neal family members' claims proposed by the Liquidators and we grant the relief sought in para 2 of the March 2015 Representation.  

Costs

40.      There being no objection to the costs orders sought by the Liquidators, we order that the Liquidators' costs of both Representations should be treated as an expense in the winding up of AI(E). 

Authorities

Companies (Jersey) Law 1991.

Bankruptcy (Désastre)(Jersey) Law 1990.

Bankruptcy (Désastre) Rules 2006.

Branch & Manning (as joint liquidators of AAA Holdings Ltd.) v McEvoy [2009] JRC 110.

Re Greenhaven Motors Ltd (in liquidation) [1999] 1 BCLC 635.