Jersey Unreported Judgments

Liquidation - reasons for authorising the appointment of Cash Assets to the Receiver General.

[2019]JRC148

Royal Court

(Samedi)

26 July 2019

Before     :

J. A. Clyde-Smith, O.B.E., Commissioner, and Jurats Crill and Pitman

 

IN THE MATTER OF THE REPRESENTATION OF HSBC GLOBAL ASSET MANAGEMENT (INTERNATIONAL) LIMITED (IN LIQUIDATION)

AND IN THE MATTER OF ARTICLE 186A OF THE COMPANIES (JERSEY) LAW 1991 (AS AMENDED)

Advocate B. J. Lincoln for Representor.

judgment

the COMMISSIONER:

1.        On 29^th May, 2019, the Court authorised the Representor (referred to as ("AMJE") in the Representation and affidavits sworn in support thereof) to appoint certain assets to the Respondent ("the Receiver General").

2.        In summary the background to this representation is as follows:-

(i)        AMJE is a Jersey company and was incorporated on 16^th August, 1964.  Since incorporation it has been a wholly owned subsidiary of the HSBC Group of companies.  It was placed in liquidation, to be wound up summarily, by a special resolution dated 7^th June, 2018, and Mr Andrew MacFarlane Wood and Mr Andrew Paul Isham, both of Deloitte LLP, were appointed Joint Liquidators.

(ii)       Prior to being placed in liquidation, AMJE was registered with the Jersey Financial Services Commission ("JFSC") as a registered person and authorised as a Fund Services Business and an Investment Business.  Whilst trading, AMJE provided discretionary wealth management services to clients under its terms and conditions.

(iii)      AMJE stopped providing discretionary wealth management services during the course of 2016.  At that time, AMJE had 449 clients and held assets worth circa £454 million.  AMJE wrote to its clients on or about 12^th February, 2016, to inform them that it would stop providing discretionary wealth management and nominee holding services, invited instructions as to what clients would like to do with their assets, and informed them that if no response was received it would proceed to sell the assets with a view to the proceeds being remitted to them.

(iv)      In the vast majority of cases clients were successfully contacted and their portfolios were dealt with according to their instructions.  However, issues have arisen in relation to a comparatively small number of clients whom AMJE has not been able to identify ("the Unknown Clients").

(v)       AMJE has sold all the equities that it held on behalf of Unknown Clients, in accordance with its terms and conditions, and in so doing has sought to realise their cash values.

(vi)      As at 21^st May, 2019, AMJE held cash assets ("the Cash Assets") of the Unknown Clients as follows:-

(a)       £223,009.78; and

(b)       US$5,009.74

3.        The issue that now arises in what to do with the Cash Assets held on behalf of the Unknown Clients.

Efforts to contact clients

4.        AMJE has undertaken the following steps to attempt to contact the clients:

(i)        Writing to and calling the clients using their last known contact  details;

(ii)       Where it transpired that contact details may be incorrect, conducting a search of HSBC's customer directories, the internet, and social media sites to try and find updated contact information;

(iii)      In the case of corporate clients whose affairs were administered by a regulated entity, contacting that entity's administrator seeking information as to the ultimate beneficial owner or successor of that entity; and

(iv)      Where contact details have been found, AMJE has written or spoken to those clients directly with a view to ascertaining their instructions.

Consideration of additional options to find and contact Unknown Clients

5.        AMJE has conducted enquiries to seek to ascertain who the Unknown Clients might be, but to no avail. In doing so, AMJE has also considered additional options including instructing tracing agents to trace the Unknown Clients, advertising in the media, and placing a notice in the Gazette.  It has not, however, taken these additional steps given that there are only a small number of Unknown Clients that could be living in any given country, international clients are unlikely to be familiar with the Gazette, and it would not be cost effective to instruct tracing agents given significant internal resources would have to be deployed in carrying out due diligence on any third party tracing agent identified as a potential service provider, especially as any such engagement would involve the handling of sensitive data.

Engagement with the Her Majesty's Receiver General, ("the Receiver General"), the Comptroller of Taxes, and the JFSC

6.        The Joint Liquidators have engaged with the Receiver General given the difficulties facing AMJE.  The Receiver General first confirmed that he would be willing to accept the transfer of Cash Assets during a meeting in March 2017.  A procedure has been agreed with the Receiver General in the event that an Unknown Client comes forward and wants to recover its assets, as  follows:

(i)        The client contacts HSBC Bank plc (Jersey Branch) ("HSBC");

(ii)       HSBC will then pass the Receiver General's contact details on to the client and email the client's details to the Receiver General, with copies of such correspondence being sent to the Joint Liquidators.  The client can then contact the Receiver General to request payment over of its/their property.

(iii)      The Receiver General will then write to the client to complete customer Know Your Client ("KYC") and Anti-Money Laundering ("AML") requirements to verify the client's identity;

(iv)      Subject to appropriate KYC and AML information being provided, the Receiver General will transfer over the relevant assets to the client; and

(v)       The Receiver General will levy an administration fee in respect of all claims to recover property, being the greater of £500 or 5% of the value of the asset transferred.  Any withdrawals would thus be subject to deduction of the relevant administration fee.

7.        The JFSC has approved these arrangements and the proposed appointment to the Receiver General.  AMJE's licence was accordingly revoked with effect from 25^th January, 2018.  AMJE has also liaised with the Comptroller of Income Tax, who has raised no objection.

Applicable Law

8.        This representation is brought to obtain directions from the Royal Court pursuant to Article 186A of the Companies (Jersey) Law 1991 ("the Law"), the relevant part of which is in the following terms:-

"(1)     The following persons, namely -

(a)       the company, in a summary winding up;

(b)       the liquidator or a contributory or creditor of the company, in a creditors' winding up,

may apply to the court for the determination of a question arising in the winding up, or for the court to exercise any of its powers in relation to the winding up."

9.        The Court has discretion under this article to determine questions referred to it under the Law by the relevant party in relation to any matter arising in the course of proceedings for which they are responsible and has wide powers to make appropriate orders (see Jersey Insolvency and Asset Tracing 5th edition by Anthony Dessain and Michael Wilkins at paragraph 5.4.3,1 and 5.12.)

10.      The wording of Article 186A of the Law suggests that, in a summary winding up, the appropriate applicant for determination of a question arising is the company (i.e. AMJE), rather than its liquidators.  This representation was accordingly brought by AMJE, acting by its Joint Liquidators.

11.      There is no reported instance of the Royal Court dealing specifically with the problems faced by the Joint Liquidators and AMJE in the current circumstances.  The closest analogous decision is Representation of Salamanca Corporate Services [2016] 108A.  In that case the Court directed that it was appropriate for the Receiver General to be appointed surplus monies in a liquidation, where the shareholders of the company were no longer in existence.  The Receiver General gave an indemnity whereby funds would be held for a period of 10 years or until the company could no longer be reinstated.  After that point, the monies would be claimed by the Crown absolutely.

12.      In addition, the legislature has acknowledged that there is a public interest in banks being empowered to close dormant accounts, and for the funds to be eventually utilised.  The Dormant Bank Accounts (Jersey) Law 2017 ("the Dorman Accounts Law") entered into force on 17^th July, 2017.  The Dormant Accounts Law requires banks to transfer the balance of any dormant account into a new fund ("the Jersey Reclaim Fund").  In the event that clients come forward to seek their funds, banks will be required to compensate them and subsequently seek compensation from the Jersey Reclaim Fund.  The Cash Assets do not, however, fall within the remit of the Dormant Accounts Law, given that AMJE is not registered to accept deposits and the Cash Assets are not held in clients' bank accounts.

Decision

13.      The Court agreed that it was appropriate for it to exercise its powers under Article 186A for the reasons put forward by Advocate Lincoln, which we now summarise:-

(i)        AMJE has ceased trading and has liquidated all of its investment assets.  While any surplus assets of AMJE may be paid to its beneficial owner upon its dissolution, the Cash Assets will not, given that they do not belong to AMJE.  Rather, AMJE continues to hold the Cash Assets on behalf of the Unknown Clients.

(ii)       AMJE is a solvent but dormant company which is currently serving no purpose.  It is the responsibility of the Joint Liquidators to wind-up the affairs of AMJE in a just and orderly manner, without any unnecessary delay or expense.  The liquidation cannot conclude and it is not possible for AMJE to be dissolved while it continues to hold the Cash Assets.

(iii)      AMJE, acting by its Joint Liquidators, has made all reasonable attempts to ascertain who the Unknown Clients are but has been unable to do so.  The Unknown Clients have also not made any recent attempts to contact either AMJE or HSBC, with many positions being over 15 years old (with some as old as around 30 years).

(iv)      Under the proposed mechanism agreed with the Receiver General, in the event that any of the Unknown Clients come forward not later than 10 years following the dissolution of  AMJE, they will be able to make a claim for return of their funds through the Receiver General and HSBC (subject to passing the necessary KYC and AML checks).  This is understood to be the customary practice adopted by the Receiver General when he receives unclaimed monies and will allow the Unknown Clients a further reasonable opportunity to make a claim.

(v)       In the absence of approval by the Court for AMJE's intended transfer of the Cash Assets to the Receiver General there is a risk that:

(a)       AMJE may face a subsequent claim by the Unknown Clients for disposing of the Cash Assets.  In circumstances where AMJE has acted in good faith and in full compliance with its regulatory obligations, that would be unjust;  and

(b)       The Joint Liquidators may face claims from the Unknown Clients for disposing of the Cash Assets.

14.      Outside of the Cash Assets being transferred to the Receiver General, AMJE has considered what alternative options might be available to it for the appropriate disposal of the assets that it holds, so that it is able to be wound up.  The alternative options considered by AMJE were as follows:-

(i)        Whether assets held by AMJE could be transferred and/or paid over to another entity within the HSBC group.  This was never a viable option, however, on the basis that doing so would have created KYC (Know Your Client) regulatory issues.  It was unclear how such a scenario could be managed - for instance, how long would the assets have to be kept, how would a customer know who to contact in order to seek to claim their assets and what client identification would be suitable to substantiate a claim?

(ii)       Whether cash could be paid over to a charity, namely ShareGift.  ShareGift is a UK registered charity which specialises in aggregating small shareholdings that are too small to sell or otherwise cannot be sold with a view to realising any value to be had and making charitable donations to worthy causes.  Given that the Cash Assets concerned are client-owned assets, AMJE did not consider this would be an appropriate course of action to take.

15.      In the light of these risks and the absence of any established procedure for dealing with the current situation, the Court accepted that it was reasonable and appropriate for AMJE and the Joint Liquidators to seek the comfort of a Court order approving the proposed course of action.

16.      In the view of the Court, Article 186A was designed to deal with matters just like the issues currently faced by AMJE and it was appropriate for the Court to exercise its powers and order that the Joint Liquidators be authorised to appoint the Cash Assets held by AMJE to the Receiver General in the manner and under the arrangements proposed.  No costs in respect of the representation were sought against the Cash Assets as they are not an asset of AMJE.

17.      For all these reasons, the Court authorised the appointment of the Cash Assets held by AMJE to the Receiver General.

Authorities

Companies (Jersey) Law 1991. 

Jersey Insolvency and Asset Tracing 5th edition by Anthony Dessain and Michael Wilkins. 

Representation of Salamanca Corporate Services [2016] 108A. 

Dormant Bank Accounts (Jersey) Law 2017