Cross-Bailiwick Insolvency: Pooling of Assets and Liabilities of Insolvent Companies

By Nigel Sanders and Mathew Newman, Partners, Ogier (01/03/2016)

In related decisions published in September and October 2015 concerning the winding-up of the Huelin-Renouf Group in the Channel Islands, the Royal Courts of Guernsey and Jersey have held that, where the affairs of two insolvent companies are so intermingled that the expense of unravelling them would adversely affect distributions to creditors, it can be appropriate to treat the companies as a single entity.  The effect is to permit a consolidation of the assets and liabilities of a Guernsey company with the assets and liabilities of a related, but separate Jersey company.  


This is the first time the Guernsey Court has considered and granted such an order that has allowed a procedure which, on its face, would appear to contradict basic principles ie, separate legal personality and that creditors can only share in the assets of the company against which they are entitled to lodge a claim. Acknowledging the inevitable rise of cross-jurisdictional corporate insolvencies, the Guernsey Court confirmed the basic purpose of a liquidation was the realisation of a company’s assets for the benefit of its creditors and held that where there was a solution whereby creditors would receive more than they otherwise would, then common sense dictated that such a solution should find favour with the Court.  Whilst the Jersey Court has granted a similar application previously in the context of two Jersey companies, it was the first time that an application had considered the pooling of assets and liabilities of a Jersey company with those of a foreign company.  Furthermore, it was the first time that such an order has been made in the context of a just and equitable winding up.


Factual Background


The Huelin-Renouf Group was a leading cross-channel cargo shipper and haulier which carried approximately 21 per cent of all cargo between the United Kingdom and the Channel Islands and served as a lifeline of the Channel Islands for almost 80 years.  At the time it encountered financial difficulties in 2013, the Group employed 92 staff across its companies in Jersey, Guernsey and a sister company called Eagleway Freight Limited in the UK (‘Eagleway’). 


The winding up of Huelin-Renouf Shipping Limited (the ‘Jersey company’) and Huelin-Renouf Shipping (Guernsey) Limited (the ‘Guernsey company’) wasordered by the Jersey and Guernsey Courts in August 2013.  Insolvency practitioners from Grant Thornton in the Channel Islands were appointed joint liquidators in respect of both companies. Eagleway was placed into administration in England at the same time, the process of which had been completed.


Companies’ Operations Intermingled


The key to the recent applications in 2015 was the intermingling of the affairs of the companies.  Whilst it was apparent when the winding up orders were made that there was overlap between the companies, it was only upon investigations by Grant Thornton into the companies’ operations that the extent of it was revealed.  The liquidators concluded that the companies did not operate separately and distinctly with there being little evidence that suppliers, creditors or customers were aware of which entity they contracted with. 


In essence, the Guernsey company was dependent on the Jersey company for day to day funding and if the liquidation of the Guernsey company proceeded on a stand-alone basis (which would be the norm), there were insufficient assets to pay a dividend to any of its creditors, including preferential creditors (mostly employees).  Although the same would not be the case in Jersey, Grant Thornton concluded that, if there were separate liquidations. significant professional costs would be incurred in unravelling the inter-company position.  As a result, the likely dividend to Jersey creditors would be materially reduced as a result of those costs.  On the contrary, consolidating the assets and liabilities of the companies would avoid the need for that work with the result that the projected outcome based on a pooled liquidation would be for preferential creditors of both companies to be paid in full and unsecured creditors across both companies receiving an increased dividend.  


The Guernsey Decision


The Guernsey Court was satisfied that the application could be brought under to section 426 of the Companies (Guernsey) Law, 2008, and that there was no statutory bar to granting such an order.  The Deputy Bailiff looked at the approaches under English and Jersey law in these circumstances, following Flightlease Holdings (Guernsey) Ltd v Flightlease (Ireland) Ltd[1].  In particularly, in the Royal Court of Jersey decision in Re Corebits Services Limited (in liquidation) and Zoombits Limited (in liquidation)[2] the pooling of assets and liabilities of two Jersey companies had been approved.  The Guernsey Court held that a similar approach could be taken in respect of two Guernsey companies.  The Court was concerned to ensure that the principle of a pari passu distribution for all creditors (being the statutory requirement in Guernsey) was followed and to achieve that, the Court accepted the liquidators’ undertaking to apply Guernsey law to the claims of Guernsey creditors if pooling were to be ordered.


The Guernsey Court also put great weight on the fact that the Guernsey company had wholly relied on the Jersey Company for its ongoing funding with the consequence that once the Jersey company entered liquidation there was no prospect for the Guernsey company to survive.  Other key considerations in reaching its decision were that the majority of assets were held by the Jersey company, both companies had been managed by a single management team based in Jersey, there was no resident Guernsey director, invoices were issued in the name of the Jersey company, and when it came to branding, both companies portrayed themselves as if a single Channel Islands entity.


English law principles confirmed in the English Court of Appeal’s judgment in Re Bank of Credit and Commerce International SA (No. 3)[3] were followed.  These place particular emphasis on realising assets for the benefit of creditors and in following that and noting that pooling was the only way that the creditors of the Guernsey company would receive a dividend, the Deputy Bailiff held:

 If there is a way in which those creditors receive more than they otherwise would, common sense dictates that such a solution should find favour with the Court … Moreover, because of the extremely close connection between the Jersey and Guernsey companies, if there is a solution that enables them to be paid something, the injustice of declining to sanction the Joint Liquidators’ proposal becomes self-evident."[4]


The Guernsey Court also concluded that, given the potential benefit in the Jersey liquidation it would be appropriate to facilitate the transfer but, from noted that if the Jersey Court disagreed, there would be no prejudice to the Guernsey creditors because the costs of making the application would not affect a distribution that was already estimated to be zero. 


The Jersey Decision


The Jersey Court also considered the extent of its jurisdiction in the context of a just and equitable winding up and held that Article 155 of the Companies (Jersey) Law 1991 gave the Court the power to grant the order sought.  It also referred to its earlier decision in Re Corebits and Zoombits and examples in the context of the Jersey law on désastre where, in the interests of creditors, compromises involving the consolidation of assets with other entities had been sanctioned.  The Court also put great weight on the liquidators’ evidence that the affairs of the companies were inextricably intermingled and concluded that the transfer and consolidation of the assets and liabilities of the Guernsey company with those of the Jersey company would be for the benefit of all creditors of both companies.  The Court similarly accepted the liquidators’ undertaking that creditors of the respective companies would be treated in accordance with the law of their respective jurisdiction.  This would mean that preferred creditors would be paid in full and others dealt with on a pari passu basis.




The decisions represent a welcome development in cross-Bailiwick co-operation and a helpful move forwards in formulating a common approach in insolvency / restructuring law.  


In Guernsey, until the introduction of the Guernsey Companies Law there were few statutory provisions and it was mainly reliant on the customary law derived from coutume de Normandie (the customs of medieval Normandy) which still survives today.  In extending the guidelines of the Flightlease decision (which were held to be of general application to companies operating outside the financial services sector), the Guernsey Court confirmed that gaps in the statutory regime could be filled by looking to English law while for guidance on customary law procedure, it was appropriate to look to Jersey.  However, it is clear that Guernsey’s statutory regime, which is intentionally less prescriptive than those of Jersey or England, has once again enabled the Court to take a more pragmatic and flexible approach to insolvency situations as they arise.


The Jersey Court has again demonstrated that, in appropriate circumstances, it will grant orders in the exercise of the discretion conferred upon it by statute, for the benefit of interested parties, being the creditors in the case of an insolvent company.  In recent years there has been a widening of the circumstances in which the Royal Court has been prepared to order the winding up of Jersey companies on just and equitable grounds, including insolvent companies where a creditors winding up or désastre are not available.  Recognising that pooling is available in a winding up on that basis shows a further willingness of the Royal Court to develop the breadth of this area.


About the Authors

Nigel Sanders and Mathew Newman, partners of Ogier acted for the joint liquidators in Jersey and in Guernsey respectively.

[1] [2009-10] GLR 38

[2] [2011] JRC 166

[3] [1993] BCLC 1490

[4] Paragraph 22 of In the matter of Huelin-Renouf Shipping (Guernsey) Limited (In Liquidation)