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The Jersey Law Review - February 2004

CAN WE BE AT EASE WITH THE REMISE?

Frederick Benest and Michael Wilkins

Nature of a remise de biens[1]

1       It might be considered remarkable that under Jersey law the only form of insolvency procedure which employs a suspensory measure specifically to permit and facilitate the possible reconstruction of the affairs or rehabilitation of a debtor is the remise de biens[2].  This is an ancient procedure which developed out of the customary law of Normandy[3] and was last substantively modified by a statute passed as long ago, in its original form, as 1839: the Loi (1839) sur les remises de biens.

2       Under this procedure, the Royal Court may afford an indulgence to a debtor who may or may not be insolvent on the liquidity (cashflow) test but who is at any rate having difficulty satisfying his creditors.  Three main criteria apply before such a forbearance can be considered.  The first is that the application must be the debtor’s own (not a creditor’s).  The second is that the debtor must be fondé en héritage (that is, be a person who owns Jersey immovable property or who has the benefit of a contract lease of such property[4]).  The third is that the debtor’s property, both immovable and movable (personal) must exceed the value of the claims of those creditors having rights of security over the debtor’s immovable property.  In other words, overall there must be sufficient property to permit the payment of a dividend, no matter how small, to the unsecured creditors, for article 6 of the 1839 Law reads -

‘Si les biens remis entre les mains de la Justice ne sont pas suffisans  pour acquitter toutes les dettes et redevances, les autorisés de Justice pourront, si les héritages sont suffisans pour acquitter les rentes et hypothèques, faire vendre lesdits biens-meubles et héritages, et, après le paiement intégral des dettes privilégiées, en partager le produit entre les autres créanciers’.[5]

Making an application

3       In summary, in making an application for a remise the debtor presents to the Court a sworn schedule of all his movable and immovable property.[6]  If the Court accepts the application in principle a double-phased process is then triggered.  First, two Jurats are appointed.  The Jurats examine the schedule and verify the value of the property of the debtor.[7]  Following such consultation with creditors[8] as they deem appropriate the examining Jurats then report back to the Court (within fifteen days) as to the efficacy of a remise.[9]  Assuming that the Jurats are satisfied that a remise would have utility (namely that the value of the debtor’s property indeed exceeds the secured claims) and any objections from creditors are not found by the Court to be overriding,[10] the second phase of the process will in all probability be engaged.  Now the Court formally permits the debtor to place his property entre les mains de la Justice.  Two Jurats are then appointed as autorisés[11] for the purpose of realising sufficient of the debtor’s assets to discharge his debts.

Is there an appeal?

4       Article 2 of the 1839 Law provides that there is no appeal from the decision of the Court as to whether to grant or refuse a remise.[12]  However, a petition of doléance (i.e. a writ of complaint or grievance somewhat similar to the ancient English remedy of mandamus) could nonetheless be brought to remedy any breach of natural justice (or manifest error of law).[13]  Furthermore  a failure (e.g.) to provide a fair hearing would engage the Human Rights (Jersey) Law, 2000 (once fully implemented) for a breach of the article 6 Convention right.

Stay of proceedings

5       An automatic stay of proceedings against the debtor is effected upon his presenting to the Court his representation seeking the indulgence of a remise.  For ‘[La procédure] a pour but d’accorder……une surséance des poursuites de ses créanciers’ and ‘La loi sur la remise est basée sur un principe de justice et d’équité qui permet à un debiteur d’invoquer l’aide de la justice contre un créancier saisissant en suspendant provisoirement l’exécution d’un acte de la Cour’.[14]  In practice, the granting of a remise generally brings about a moratorium (that is, a temporary respite from legal process and execution) of up to a year and a day.

Is the debtor’s property vested in the autorisés? (or who controls the process?)

6       The 1839 Law places the debtor’s property in the hands of the autorisés.  However, there does not seem to be an actual vesting[15] of that property in them.  Rather, as the Court observed in Re Barker,[16] the authorisation under article 4 of the 1839 Law is paramount in that it gives an unrestricted authority to the autorisés to sell or otherwise dispose of the whole of the debtor’s assets.  Article 4 provides as follows -

‘L’Acte qui accordera la remise de biens entre les mains de la Justice contiendra, de la part de celui qui obtient ladite permission, l’autorisation aux personnes nommées par la Cour pour l’examen desdits biens de bailler, vendre, aliéner, et autrement disposer desdits biens-meubles et héritages’.[17]

And article 5 adds -

‘Celui qui aura obtenu la permission de remettre ses biens entre les mains de la Justice ne pourra agir que d’après le conseil et avis des personnnes autorisées de Justice pour l’examen dudit bien’.[18]

7       Palpably, then, a remise is a privilege granted to a debtor in exchange for which he gives up his rights and agrees to act only in accordance with the advice and counsel of the autorisés.  Pursuant to article 4 the debtor effectively gives an undertaking that he will henceforth cooperate with the Jurats in every way.  An important result of articles 4 and 5 is that the debtor is not in a position to control the autorisés, who have an extensive authority to deal with and sell his property.[19]  The power of management of the debtor’s property is thus transferred to the Jurats[20] and ‘thereafter they can manage it as fully as formerly he could manage it himself’.[21]  Accordingly, the autorisés have power to sell the debtor’s property at their discretion: thus, they normally transact and contract as such, on behalf of the debtor, and the debtor’s wishes, though they must be considered, are but one factor to be weighed with all others when a course of action is being decided upon.  It follows that, in a remise, the debtor is not free (e.g.) to conclude any transaction himself; and, conversely, nor need the autorisés join him as a party to any contract of sale.[22]  The Jurats’ wide discretion[23] extends to deciding what claims to admit or dispute or to let go to litigation.  Nonetheless, the debtor remains the owner of the property in the hands of the court while the remise is in progress: he is therefore entitled to any surplus arising after his liabilities are discharged.[24]

Do the autorisés actually administer the remise?

8       The autorisés duly superintend the realisation of the debtor’s property and the payment of his debts.  However, as suggested, they will engage experts and agents to assist them in this process.  Nonetheless, according to the evidence of JW Dupré, Attorney General, given to the Royal Commissioners in 1859, ‘nothing is done of any importance without its having been laid before the Jurats and their assent obtained’.[25] In practice, the Viscount[26] (who administers every désastre[27]) may provide back-up and certain administrative support: for example in the remises de biens of Mr M C and Mrs A J Lucas, the Court authorised the Viscount to enforce the payment, and distribute the proceeds of, a deferred purchase consideration.[28]  In practice, too, the autorisés consult with and meet the creditors and seek the directions of the Court to the extent that seems to them advisable.

Duration of a remise

9       A remise must be concluded within a fixed period prescribed by the Court, traditionally of six months, during which time the autorisés attempt to regularise the debtor’s affairs.  The proceedings may be – and generally are - extended to twelve months by the Court  but thereafter a further extension can only be granted with the agreement of the creditors because, in the words of Tomes DB in Re Barker [29] -

‘........a remise which has not been successfully concluded within a year operates, as a matter of law, as the personal cession and renunciation by the debtor of all his property to his creditors and a dégrèvement ensues’.[30]

Is an individual  debtor who owns shares in a company which itself owns immovable property, thus fondé en héritage?

10     In Re Taylor (formerly le Gac),[31] the Court accepted that a debtor owning shares in a company which itself owned immovable property was, for the purposes of an application for a remise,  fondé en héritage.

Can a company apply for a remise?

11     There have been several instances[32] when the Court has accorded a company the indulgence of a remise.  This, of course, accords with principle.  By article 9 of the Interpretation (Jersey) Law, 1954, the expression ‘person’ in any statute is to be interpreted (unless the contrary intention is apparent) to include any body of persons corporate.  Furthermore, the scope of the European Convention on Human Rights, to be given effect, as said, by the Human Rights  (Jersey) Law, 2000, is such that any natural or legal person – including a company[33] – may claim (e.g.)  the right to a fair legal process and protection of property. 

In what order is a debtor’s property realised?

12     Chronologically, and generally, the debtor’s movable property is first realised, though possibly a realisation of movable property would be deferred if the autorisés considered the debtor’s immovable property to be sufficient to discharge all liabilities, both secured and unsecured.   In Ex parte Greffier, re Mauger[34]it was held that in the case of a failure of a remise contracts for the sale of immovable property passed during its currency were null and void[35] and could not be inserted in the décret (the forerunner of dégrèvement, for more on which see below) which followed.  For this reason all disposals of immovable property within a remise traditionally took place concurrently (when it became clear that the remise would succeed).  However, in Deacon v Bower[36] the Court explained that the principle established by the Mauger case is that a contract of sale passed during a remise is merely voidable, at the suit of creditors, in the case of a non-arrangement of the debtor’s affairs, thereby mitigating - though not eradicating – the attendant anxiety.

In what order are the debts paid?

13     The secured debts are payable first (essentially out of the immovable property[37] against which they were secured).[38]  A very limited number of debts still recognised by the customary law as preferential - préférences - (such as in the case of a debtor who has died since being granted a remise, his funeral and doctor’s expenses) are then discharged pari passu with the more recent statutory priorities for unpaid social security contributions, arrears of income tax and arrears of parish rate (these two latter categories both for the year in which the remise was granted and the previous year),[39] prior to any residue being paid, again rateably, to the ordinary unsecured creditors.

Does a successful remise act as a discharge?

14     If a remise is successful to the extent that all the debtor’s debts are paid in full, the question of discharge does not arise – there simply are no debts remaining.  But where a remise is successful so  that the secured charges are paid off and a dividend, however small, is paid to the unsecured creditors, the debtor obtains a discharge from his outstanding debts in the sense that the debtor cannot be sued subsequently by a creditor who received a dividend.[40]

What happens if a remise fails?

15     If the realisation of the debtor’s property in a  remise proves insufficient to provide for the payment of at least a dividend to the debtor’s unsecured creditors within its allotted duration, the remise fails.  The immediate consequence, as said, is the cession and renunciation by the debtor of all his property in favour of his creditors, by operation of law.  A dégrèvement automatically follows.  But a dégrèvement[41] is acknowledged to be an inequitable form of discumberment which accords speculative possibilities to a tenant après dégrèvement.  The further question therefore arises:  can a debtor seek to obtain the benefit of an intervening désastre so as to avoid the effects of a dégrèvement?  Superficially, this seems an attractive proposition but one which, when tested judicially, foundered.  In Super Seconds Ltd. and others v Sparta Investments Ltd.[42]the Court of Appeal upheld a refusal by the Royal Court to grant a declaration en désastre.  It found that the cession which   automatically follows the failure of a remise also brings about the debtor’s discharge from his debts pursuant to article 10 of the Loi (1832) sur les Décrets).[43]  There was therefore no juridical basis for a declaration en désastre.  As the Court observed in  Super Seconds, it is, though, possible for a désastre to be declared after a remise has been applied for and not actually granted (i.e. in the case of a failed application for a remise): for there a dégrèvement does not automatically follow and neither is the possibilty precluded by article 5 of the Bankruptcy (Désastre) (Jersey) Law, 1990).[44]

16     It is to be noted that a remise cannot be granted, or having been granted, cannot continue where there is no prospect of a distribution to unsecured creditors.

Costs and disbursements

17     By virtue of article 10 of the 1839 Law the costs and disbursements of the autorisés in a remise are payable out of the debtor’s estate before any distribution to creditors.  In a failed remise (where there is a subsequent dégrèvement) these costs would, under the article, be payable by the tenant après dégrèvement.  Where a désastre follows a failed application for a remise, they are payable, along with the payment of the Viscount’s fees and costs, as a first charge upon on the assets in the désastre.[45]

What are the limitations of a remise?

18     Even today the remise works well enough in the type of case it evolved to deal with, that is where the debtor is an individual who owns immovable property in Jersey[46].  However, sales of parcels of immovable property can be delayed.  This is for two reasons.  First, there is the fear that a remise might not succeed and that any transfer of immovable property within it be set aside. (It should be possible freely to realise assets for the benefit of creditors without the possibilty of dispositions being subsequently set aside following the failure of a remise.) Secondly, opportunistic creditors (and prospective purchasers) can be tempted to wait to acquire the debtor’s property in or after a dégrèvement.  While, as seen, a remise can be obtained either by a company direct or by an individual holding shares in an eligible company, it can be particularly difficult to bring a remise to a successful conclusion within the context of (say) a group of trading companies, due to the need to respect the corporate veil and strictly to compartmentalise the assets and liabilities of different corporate entities[47].  Further, while the autorisés in a remise clearly act in an administrative (as opposed to judicial) capacity[48] the process is by definition extensively court-driven: though it might be asserted that the Court should not be burdened with the numerous issues likely thus to arise.

Is the remise adequate for 21st century commerce?

19     In 1998, a comprehensive Review of Financial Regulation in the Crown Dependencies was conducted by Andrew Edwards.[49]  The Edwards Report found that “Jersey, like the UK, has modern procedures for dealing with bankruptcies and corporate insolvencies”.[50] It recommended however that up-to-date processes for the preservation and rescue of businesses be introduced.[51]

20     During 1999 the Jersey Financial Services Commission duly published draft proposals to make available a new ‘suspensory’ procedure applicable to companies.  These would provide a process incorporating a statutory moratorium broadly similar to the then Administration procedure in England.  These proposals have yet to be debated due, it is thought, to an understandable concern that they would be harmful to the finance industry (securitisation transactions) in that they would prejudice the operation of structured finance and special purpose vehicles.  It is submitted that this is a regrettable outcome.  Demonstrably, the remise does not work well in all circumstances, and while the incidence of local trading companies (relative to investment vehicles[52]) is low, there are areas, such as the tourism sector,[53] in which complicated corporate trading arrangements and relationships exist: they would indeed potentially benefit from the availability of a modern form of suspensory procedure.

21     Another consideration is less local: this relates to developments in the evaluation, internationally, of insolvency systems, having regard to global standards and practice.  In June, 2003 The European Bank for Reconstruction and Development, through its consultants Ronald Harmer and Neil Cooper, issued an assessment of the extensiveness and effectiveness of insolvency laws in 27 countries of operation.  Jersey was not included in this initial assessment but as such initiatives develop it can expect to be the subject of similar attention.  The EBRD assessment focused on the deemed essentials of an insolvency regime, key to which is the availability of interim protective relief and associated scope for reorganisation.  As indicated, this is an aspect of Jersey’s insolvency system which is relatively weak and which would cause its bankruptcy regime, otherwise indeed modern and complete, to score low in terms of compliance when benchmarked internationally.

Concluding recommendation

22     We would accordingly suggest that the Island should now enact legislation which would provide a cheap, straight-forward and business-like moratorium procedure.  This would ideally minimise both court involvement and current management displacement so that an embarrassed debtor could apply for a short moratorium (say of 28 days, as suggested by the Edwards Report) during which a scheme of arrangement for creditors’ approval might be devised.  It seems from the recent report of the IMF that this proposal is now subject to active consideration.[54]  There is surely no reason why such legislation could not contain an opting-out provision which would make such a facility available to the generality of trading entities[55] (so as to contribute to the successful functioning of the market-place) while protecting the special needs of the securitisation industry.

23     The enactment of such a moratorium procedure would not displace the remise, which would continue to offer an efficient and effective means of protecting the individual debtor from bankruptcy in appropriate circumstances.  It would complement the remise by offering a protective mechanism for companies that find themselves in difficult trading conditions from which, with assistance, they can recover.

Frederick Benest is an advocate of the Royal Court and a partner in Benest and Syvret, 10, Hill Street, St Helier, Jersey. Michael Wilkins is a barrister and was appointed Viscount of the Royal Court in 1981 and Judicial Greffier in 1997.

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