Bankruptcy - reasons for extending the désastre
Before : |
J. A. Clyde-Smith O.B.E., Commissioner, and Jurats Blampied and Pitman |
IN THE MATTER OF THE REPRESENTATION OF THE VISCOUNT OF THE ROYAL COURT OF JERSEY
AND IN THE MATTER OF DR GAIL ALISON COCHRANE, EN DÉSASTRE
Advocate O. J. Passmore for the Viscount.
judgment
the COMMISSIONER:
1. On 14th January 2021, the Court granted an application by the Viscount under Article 40(2) of the Bankruptcy (Désastre) (Jersey) Law 1990 ("the Bankruptcy Law") to extend the désastre of the property of Dr Gail Alison Cochrane for three years, namely to 24th November 2023, and we now set out our reasons.
2. By way of an application made by a creditor of Dr Cochrane, Harbour Fund II LP ("Harbour"), the Court declared the property of Dr Cochrane en désastre on 24th November 2016. All of Dr Cochrane's movable and immovable property and all powers in, over, or in respect of Dr Cochrane's property then vested immediately in the Viscount.
3. The Viscount has taken control or possession of certain realisable assets of Dr Cochrane valued at approximately £75,000 and believes that Dr Cochrane also owns further realisable assets, including an interest in certain Jersey properties and movable property located therein, and shares in various other companies. However, the ownership of such further assets of Dr Cochrane is currently the subject of proceedings in the High Court of England and Wales (CL-2017-000323) ("the English Proceedings"). The English proceedings are highly complex, involving 47 parties and numerous personal and proprietary claims. They are summarised in the judgment of the Court in Viscount v Smith [2020] JRC 043.
4. On 27th January 2020, the Court approved the decision of the Viscount to enter into a settlement agreement ("the Settlement Agreement") with certain parties to the English Proceedings for the reasons set out in Viscount v Smith. The effect of the Settlement Agreement is that if the English High Court determines that some of the assets that are subject to the Settlement Agreement fall to be distributed to any settlement party, the Viscount will realise an agreed distribution to Dr Cochrane's désastre estate. If, however, the English High Court ultimately determines that none of the assets subject to the Settlement Agreement fall to be distributed to any settlement party, then the settlement parties have agreed that the distribution scheme under the Settlement Agreement will not take effect.
5. The English High Court's pre-reading in the English Proceedings commenced on 11th January 2021, and the trial itself opened on 19th January 2021. The trial is scheduled to last for ten weeks. It is likely that judgment will be reserved at the conclusion of the trial and the outcome of the trial may not be known for a significant period following its conclusion. There is also a possibility that the first instance judgment may be appealed, which could delay matters further.
6. As a result of the uncertainty caused by the ongoing English Proceedings, the Viscount is presently unable to ascertain the value of the assets that she may ultimately realise for Dr Cochrane's désastre estate and will only be able to do so once the English Proceedings (and any appeals) are finally determined.
7. The claims filed by potential creditors in Dr Cochrane's désastre total £305,261,798.37. Due to the ongoing English Proceedings, the Viscount has not yet conducted an inspection of the creditors' claims, nor has she formally adjudicated or admitted any of them. The Viscount considers that there is no utility in adjudicating any of the creditors' claims until the present uncertainty is resolved as to whether, and to what extent, there may be any assets available for distribution in the désastre. In her view, it is also unfair to put the creditors to the cost of proving their claims in circumstances where the English Proceedings are likely to result in the effective adjudication of many of their claims, and there are presently no assets available for distribution.
8. Article 40 of the Bankruptcy Law requires the Viscount to apply for an order either discharging a debtor or extending the period of the désastre after four years from the date that it was declared:
"40 Application by Viscount for order of discharge
(1) Subject to paragraph (2), at the expiration of 4 years from the date of the declaration the Viscount shall apply to the Court for an order discharging the debtor.
(2) The Viscount, the debtor or a creditor of the debtor may apply to the Court for an order that the period referred to in paragraph (1) be reduced or extended."
9. Article 41 of the Bankruptcy Law specifies the orders that the Court may make upon hearing an application brought under Article 40(1) and in relation to an application under Article 40(2):
"41 Order of discharge
(1) .....
(2) At the hearing of an application for an order under Article 40(2), the Court shall make such orders as it thinks fit.
(3) ...."
10. Article 42 of the Bankruptcy Law provides that the effect of an order of discharge releases the debtor from all debts provable in the désastre except in limited circumstances.
11. The discharge of a declaration of désastre is not a right, but a privilege. When the Viscount applies for an extension of the period for discharge, it is relevant to consider whether the extension would protect either the creditors or the public at large (In re Young (née Cory) [1999] JLR Notes - 1b).
12. The Court must balance the conflicting interests of the debtor and the creditors. Whilst there is a public policy concern that debtors should be given the chance to put the désastre behind them and start again, the Viscount has a duty to the debtor's creditors to recover whatever she legitimately can. A désastre should only be extended for proper reasons, as for example where there is a need for the debtor to give continuing assistance in cases where there is litigation in train or where the Viscount's investigations into the affairs of the debtor may not yet be complete (In the matter of the Désastre of Delaney [1996] JLR 96).
13. Dr Cochrane is a doctor and partner in a local medical practice, where she works part-time. Under Article 9 of the Bankruptcy Law, the Viscount can claim any property acquired by the debtor since the date of the declaration for division amongst the debtor's creditors and pursuant to this Article Dr Cochrane's income from the practice is paid into an account held by the practice to the order of the Viscount for the benefit of Dr Cochrane's creditors, subject to payments made to or for the benefit of Dr Cochrane covering her medical professional indemnity insurance, her personal living costs, rent and certain other payments that have been agreed with the Viscount.
14. The Court was provided with a copy of the account covering the period from the date of the désastre, which shows that over the four-year period from the désastre, out of some £360,000 received into the account, some £308,000 has been distributed to or for the benefit of Dr Cochrane.
15. The Viscount informed the Court that Dr Cochrane had cooperated with the Viscount to some degree, although the information provided to the Viscount was less fulsome than the Viscount would have anticipated. Furthermore, she had applied unsuccessfully to the Court of Appeal for an extension of time to appeal her désastre, an application rejected by the Court of Appeal for the reasons set out in its judgment of 14th August 2020 (Cochrane v Harbour Fund II LLP and the Viscount [2020] JCA 168). The Court of Appeal found that Dr Cochrane's conduct was unreasonable and justified an award of indemnity costs against her in favour of Harbour.
16. At the convening hearing on 30th October, 2020, the Court ordered the Viscount to give notice of the application to Dr Cochrane and to the creditors. Six creditors have responded either supporting the application or resting on the wisdom of the Court; none of them objected. No response at all has been received from Dr Cochrane and she did not appear at the hearing.
17. The Court agreed that the désastre should be extended for three years, for the reasons put forward by Advocate Passmore for the Viscount, namely:
(i) The Viscount has not yet completed her investigations into the affairs of Dr Cochrane or the claims that have been filed by her creditors and until the English Proceedings are finally determined, including any appeals, it remains unclear whether and to what extent there will be any assets available to meet these claims.
(ii) The English Proceedings are likely to provide an effective adjudication of many of the creditors' claims.
(iii) In the event that Dr Cochrane was discharged from her bankruptcy prior to the English Proceedings being finally concluded, she will theoretically be entitled to participate in the English Proceedings in her own right and deal with any property in which she is ultimately found to have an interest (some of which is not currently vested in the Viscount) as she chose fit. Such participation may be to the detriment of the creditors who have not yet had their claims determined and also to the settlement parties in the English Proceedings; in short, it would undermine the Settlement Agreement as Dr Cochrane is not a signatory.
18. The Court agreed that three years was an appropriate period of time to extend the désastre by, as until the English Proceedings are fully determined, including any appeals, it remains uncertain whether and to what extent there will be any assets available for distribution to meet any of the creditors' claims. The Viscount will also need time to realise any assets that she may be entitled to receive under the Settlement Agreement, adjudicate the creditors' claims, make any distributions to those creditors and complete her administration of the désastre.
19. Advocate Passmore informed us that the Viscount had considered seeking alternative orders to allow Dr Cochrane to be discharged from bankruptcy while allowing certain assets to remain vested in the Viscount, so that those assets might be realised at some point in the future, and any proceeds distributed among her creditors at a later date. However, the Viscount did not consider that this was a practical solution in the present case, due to the complex nature of the English Proceedings and the various different claims that are being made as to ownership of the assets, as well as the very real risk of a potential dispute arising between the Viscount, Dr Cochrane and third parties, as to which assets should remain vested in the Viscount.
20. In the event that it might subsequently become feasible for Dr Cochrane to be discharged from the bankruptcy prior to 24th November, 2023, the Viscount proposed to bring the matter back before the Court in order to seek an earlier discharge of the désastre as appropriate. It was also open to Dr Cochrane to make such an application.
21. An extension of three years will impact upon Dr Cochrane, not least because her earnings as a doctor during that period will continue to be claimed by the Viscount as after-acquired property, pursuant to Article 9 of the Bankruptcy Law over that period. In the case of Désastre Delaney, reference was made by counsel for the debtor to an extension potentially being a form of financial enslavement. The Court was concerned, therefore, to ensure that her interests were weighed properly in the balance. The following points were relevant:
(i) Under the current arrangements, which would continue, a very substantial proportion of her earnings as a doctor would be paid to or for her benefit.
(ii) The arrangements with the Viscount had been in place over four years, and as we understand it, have given rise to no complaint on the part of Dr Cochrane.
(iii) Dr Cochrane had been given clear notice of the application and had not made any observations or raised any objections to the extension, and she did not appear at the hearing.
22. An extension of three years would bring the duration of this désastre to seven years, a very considerable period, but it needs to be borne in mind that one way or another, Dr Cochrane has involved herself in financial transactions and dealings which have given rise to claims against her of some £305 million and to her involvement in complex proceedings in England, now conducted in her name by the Viscount. The extension had been put forward by the Viscount for proper reasons and, given the fairness of the arrangements over her earnings as a doctor, the balance of justice came firmly down on the side of granting the extension, so that the English Proceedings can resolve both what assets will be available to meet the claims of her creditors and the effectively adjudicate many of their claims. Such was the complexity of the English Proceedings that three years was sensible and fair to allow that process to be completed.
23. For all these reasons, the Court extended the désastre until 24th November 2023.
Authorities
Bankruptcy (Désastre) (Jersey) Law 1990.
Viscount v Smith [2020] JRC 043.
In re Young (née Cory) [1999] JLR Notes - 1b.
In the matter of the Désastre of Delaney [1996] JLR 96.
Cochrane v Harbour Fund II LLP and the Viscount [2020] JCA 168.