The Jersey Law Review - June 2002

SHORTER ARTICLES AND NOTES

ARTICLE 48 APPLICATIONS IN BANKRUPTCY - A PRACTITIONERS' GUIDE

Melanie Cavey.

The issue of applications made under Article 48 of the Bankruptcy (Désastre) Jersey Law 1990 (“the Bankruptcy Law”) was touched upon in an article that appeared in this Review^[1] in October, 1999 dealing with the obtaining of evidence in Jersey.  It is also addressed in Jersey Insolvency Law in Practice.^[2] However, in recent months the Viscount’s Department^[3] has dealt with an increasing number of such applications and various decisions have been made during this time both formally by the Royal Court (“the Court”) and informally by the Department with regard to their format and content. The purpose of this note is to give practitioners and those who might be considering making such an application an appreciation of the practical issues to be addressed and also the benefit of recent decisions of the Court.

Article 48 provides -

“(1)      The court shall assist the courts of such countries and territories as may be prescribed in all matters relating to the insolvency of any person to the extent that it thinks fit.

(2)        For the purposes of paragraph (1), a request from a court of a prescribed country or territory for assistance shall be sufficient authority for the court to exercise, in relation to the matters to which the request relates, any jurisdiction which it or the requesting court could exercise in relation to these matters if they otherwise fell within its jurisdiction.

(3)        In exercising its discretion for the purposes of this Article the court shall have regard in particular to the rules of private international law.”

Prescribed country or territory

Perhaps the first point to note is that under Article 48 applications for assistance from foreign courts in relation to insolvency or bankruptcy matters can only be submitted to the Court by applicants from a “prescribed country or territory”. Currently there are five such prescribed countries or territories, namely: the United Kingdom; the Isle of Man; Guernsey; Australia and Finland, the last being the most recent to be granted prescribed status.^[4] All other applications for assistance fall to be dealt with under the common law and as matters of comity.^[5] Two decisions of the Court this year dealing with applications for assistance noted that the statutory provisions of Article 48 were of no assistance where the country had not “been so designated” and that the matter of assistance was accordingly “for the discretion of the court”^[6].

            In reality there appears to be little difference in the approach of the Court based on the provisions of Article 48 or on the basis of reciprocal assistance or comity.  However it is a technicality that should be noted for applicants have contacted the Department referring to their wish to file “an Article 48 application” when the country in question has not been prescribed. It is recommended that an application should clearly state whether it is being made under the Article 48 procedure or otherwise. In addition, non-prescribed jurisdictions may wish to consider whether there are special benefits to be gained from qualifying under Article 48.^[7]

Applications to be notified to the Viscount’s Department

One recent development arising from a Court direction in 2000^[8] is that all applications for assistance in bankruptcy and insolvency matters should first be notified to the Viscount’s Department for comment. In practice this direction extends to applications for assistance both under Article 48 and the common law. The result of this direction is that the Department’s officers are able to advise on the suitability of the application and on the detailed information that should be provided before its presentation to the Court.

It goes without saying that the majority of foreign practitioners are familiar with neither Jersey law (or legal terminology) nor the judicial process in the Island. The ability of the Department to advise on the content, format and ambit of applications is likely to reduce the time of both practitioners and the Court when dealing with them. In addition, as a matter of policy, the Court will ask for the Viscount’s view when considering an application for assistance. Consequently, therefore, when the advice of the Department is sought, the Viscount will advise that the applicant should refer in the application to the fact that the contents of the application have been discussed with the Department. If the Viscount is concerned on any matter a letter detailing those concerns will be sent to the applicant. This letter is copied to the Bailiff’s Judicial Secretary prior to the hearing of the application. A representative of the Department will be present at the hearing of any application.

Applications usually “ex parte”

Applications for assistance are usually heard ex parte either during the public sitting of the SamediCourt on a Friday afternoon^[9] or at a specially convened hearing which might be in camera. The Island is due to implement the Human Rights (Jersey) Law 2000, which incorporates into domestic law the European Convention on Human Rights, in the near future. In this regard, the Department has no jurisdiction to advise other parties of the making of an application unless authorised to do so by the applicant or by the Court. It is however believed that the Court would have recourse to the convening of necessary parties where this is felt appropriate.

It is possible to submit a request for an Article 48 application to be heard in camera if the content of the application is of extreme sensitivity. However, mindful of human rights considerations, the Court observed in the LeisureNetcase that justice should generally be administered in public and gave careful consideration to the issues involved before allowing the application to proceed in camera. It is suggested therefore that practitioners should be mindful of this when considering applying for an in camera hearing.^[10]

Format of the application

Applications are generally presented in the form of a representation supported by:

(i)         an affidavit from the representor (i.e. the office holder applying for the order); and

(ii)        a Letter of Request issued by the court which appointed the representor and which outlines the assistance sought; and

(iii)       a copy of the appointment document.

The affidavit, when provided, should recite the history behind the appointment, what has happened since the appointment and the reasons for seeking assistance in the Island. In appropriate circumstances the Court would consider any application that the contents of such affidavit should not be disclosed on grounds of  particular risk, confidentiality or sensitivity.  However, the onus here would fall on the representor.  It is suggested that affidavits that are to be considered in this way should be marked confidential.^[11]

The representation should refer to the affidavit, the Letter of Request and the copy appointment document (duly exhibited) and, having outlined the facts, should then list the orders sought. The first Article 48 order to be made was in 1997^[12] but during this year alone the Department has advised on ten enquiries of which three have gone to Court. If the applicant is not from a prescribed country a willingness on the part of the applicant’s jurisdiction to show reciprocity and comity to the Island for the purposes of any possible future request for the Island’s courts, is also important and should be referred to in the representation.^[13]

Examples of the subject matter of orders typically sought are -

(i)         recognition of the office holder making the application by the Court;

(ii)        disclosure of assets and/or documents;

(iii)       examination of witnesses;

(iv)       gagging orders;

(v)        freezing orders;

(vi)       use of information to be obtained ;

(vii)      time delays before publication of the existence of the order;

(viii)      costs.

The Viscount’s Department will advise generally on these issues but practitioners and applicants from overseas should note that it is advisable to obtain local legal advice and representation to assist with the drafting of an application for assistance and its presentation to the Court. However, recent hearings have provided further guidance as to how applications for assistance are likely to be received by the Court and key developments and comments are referred to in the paragraphs that follow.

Registration of the office holder by the Court

Recognition should be sought from the Court of the appointment of the office holder who is bringing the application, usually a trustee in bankruptcy or a liquidator. Applicants often believe that it is necessary merely to record the appointment of the office holder in the Rolls of the Court. However, where specific relief is sought, the procedure is more involved. What is recorded is the grant of the application, once agreed by the Court, in the form of an official Act of Court. This summarises the detail of the application and the extent of the relief granted. Accordingly, full details both of the applicant and of the relief sought must be made at the outset in order for the Court properly to consider the application.     

Disclosure of assets/documents

The breadth of the application should always be carefully reviewed. The Court will often reduce the ambit of the relief sought if it is deemed to be too general. It is suggested that the correct approach is to include in the application the essential steps required for the applicant to begin to see whether his enquiries are appropriate. A specific request asking for the applicant to be granted “liberty to apply”^[14] to extend the order at a later date should then be included.  If, for example, initial investigations have proved the existence of a relevant bank account, but insufficient evidence can be provided about its contents without calling upon someone to give oral evidence, then the applicant can if necessary revert to the Court under the liberty to apply provision for a further order.

Examination of witnesses

The application should also be specific with regard to exactly who is to be involved in the provision of the information sought in the application. In the LeisureNet casean order seeking that “an officer of the relevant institutions” be summoned before the Viscount for examination was initially regarded as “too general”.^[15] In circumstances where the detail and breadth of information to be disclosed is not at first known it is suggested that the applicant should return to Court at a later date with a further more detailed request for assistance brought under a “liberty to apply provision”.   

It is recommended that a phrase such as “the proper officer” (i.e. of a company) should be used to identify the person who, at a senior level, will be summoned to give evidence. It is suggested that if evidence is to be taken, then the application should seek an order from the Court that evidence should be given before an appropriate official, such as the Master of the Royal Court.

Gagging orders

On the issue of gagging orders, the Court is likely to consider whether a gagging order is in fact necessary or whether the desired protection can be achieved by other means. For example, if freezing orders are already in place (or could be applied for) on bank accounts the subject of an application for assistance then the Court is likely to take the view that there is no need for a gagging order to be placed on a respondent bank or its officers.^[16]

Freezing orders

If freezing orders are in place it is possible for the Court to make an order allowing for their extension on a subsequent application for assistance so as to allow the applicant time to consider, having gleaned some information, whether or not time is needed to prepare for the issue of substantive proceedings. If not already in place the Court may make order a freezing order as part of the initial application for assistance^[17].

Representors might also consider giving undertakings as to the extent to which assets should be frozen.  Obviously, the sum which the applicant is potentially seeking to trace or claim will be of significance here.           

Application of information obtained

In addition, the Court has, on more than one occasion, used its discretion when granting an application for assistance, to place special restrictions on how the information to be disclosed under the order is to be used and to whom it can be given.^[18]

Time delay

Orders can also be given by the Court restraining the date of publication of any decision of the Court in relation to the application until such time as the initial enquiries have been carried out, or for any other relevant reason.^[19]

Costs

If costs are sought this should be stated in the application. General practice has been that when complying with a validly obtained order a subject of the order (such as a party required to produce documentation) must bear the cost of compliance. However the issue of costs is again one to be decided upon by the Court and in the LeisureNet case the order stated that the applicants should pay the compliance costs of those assisting.

Private International Law

The Bankruptcy Law was introduced to assist in the efficient administration of bankruptcy proceedings. The old common law principles in accordance with which a désastrewas previously administered are still recognised as a support to the Bankruptcy Law in areas where the Law is silent. Similarly, the rules of private international law are applied by the Court when considering any application for assistance made under either Article 48 or the common law.

One aspect of private international law that frequently causes problems to potential applicants for assistance is the general rule that assistance is not granted by one jurisdiction to another if the applicant is a revenue authority seeking the recovery of foreign revenue. The case of Re Tucker^[20] was decided on this point prior to the introduction of the Bankruptcy Law. In Tucker the Inland Revenue was the only creditor in the bankruptcy and for this reason the application for assistance by the trustee in bankruptcy failed.  It is suggested that even if an application is brought under Article 48 the existence of a revenue element will still be a material consideration.  If there are additional claimants other than the foreign revenue authority it will be a matter for the Court to decide whether the revenue authority’s interest should affect the granting of the application.  This was a matter that arose for consideration in the recent cases of Re Hoare and in Re the representation of Carman^[21]. Accordingly, it is suggested that practitioners seeking assistance with bankruptcy matters should consider the extent to which a foreign revenue authority is a claimant in the bankruptcy.^[22]

The correct approach?

Applicants sometimes seek to use other procedures to bypass an Article 48 application where in fact, such an application is the appropriate means of obtaining assistance.  In Re Hoare the Court declined to grant the assistance sought, which had initially been presented by way of an Order of Justice, but ordered the freezing of a bank account so as to enable the applicant to prepare and present the appropriate Article 48 application for, inter alia, documentary disclosure . 

CONCLUSION

This article has sought to provide only a brief overview of what, to date, appear to have been the key issues for consideration in Article 48 applications under the Bankruptcy Law and also applications made in accordance with common law principles. It is believed that the number of such applications for assistance will increase as insolvencies with cross-border implications rise due to the global nature of modern business.  As stated above information and general advice on applications can be offered by the officers of the Désastre section of the Viscount’s Department on 01534-502400. In addition the Jersey Legal Information Board website at www.jerseylegalinfo.je provides access to a list of local law firms and other information.

Melanie Cavey LLB is a solicitor of the Supreme Court of England and Wales and is employed as the Principal Administrator of the Désastre section of the Viscount’s Department, States of Jersey.