Ghost in the Machine:
Survival of the Bankruptcy
1 From the late
18th century onwards, the development of the doctrine of comity by the courts
in England stimulated progress towards cooperation by inviting courts to make
contact with each other and to develop working relationships involving cases
they had in common with other jurisdictions. Over
the years, various cases have added to those first steps in cooperation through
the recognition of overseas proceedings and the appointment of office-holders.
Their subject matter has included orders granting title to office-holders over
property, giving them powers to act within the jurisdiction, ordering
examinations and the production of documents to aid discovery, issuing
injunctions and stays to prevent piecemeal dismemberment of the debtor’s
estate, opening ancillary proceedings in aid of main procedures elsewhere, as
well as the approval of reconstructions and creditors’ schemes.
2 In the context
of the bankruptcy of individuals, judicial ingenuity came to be supplemented,
at an early stage, by cooperation measures focusing on assistance between
courts in the common-law world. This cooperation framework began with 19th-century
provisions focusing on enabling judicial notice to be taken of bankruptcy
orders and judgments, the mutual enforcement of these orders and various
procedural steps that could be taken in support of procedures taking place
elsewhere. In the first instance, such procedural cooperation focused on the
courts within the different legal jurisdictions of the United Kingdom but
subsequently permitted cooperation between the courts of the Empire (later
Commonwealth). These were joined by measures mandating assistance between the
Later measures, addressing the specific nature of corporate entities, dealt
with the issue of ancillary assistance as a form of cooperation.
3 It is likely
that the assistance provisions were first embodied in bankruptcy legislation as
a response to the growing numbers of insolvencies of persons and partnerships
affecting assets located in a number of Imperial (later Commonwealth)
jurisdictions. The assistance provisions would thus help by enabling practical
procedural steps to be taken, despite the possible existence of several pools
of assets, to effectively administer the estate as a whole. During the period
of Imperial expansion, the establishment of colonies and possessions overseas
required the establishment of courts to deal with the common law deemed to have
been “exported” as part of the settlement of overseas territories.
Various Charters of Justice set up institutions local to these colonies and
territories and gave them civil and criminal jurisdiction, bankruptcy usually
being treated as part of the ordinary civil jurisdiction of the court. However,
an early case carefully outlined the principle that the assistance provisions
could only function where the courts in question actually had jurisdiction in
4 Where this was
the case, the making of an order seeking the aid of another court would be
deemed sufficient authority to enable the other court to exercise the
jurisdiction it would have if the matter were before it for consideration.
Issues arose, of course: the use of the word “British”
as part of the definition prompted enquiries in a number of cases as to whether
particular courts were included.
Furthermore, the remit and purpose of the section were considered in Re a Debtor, in
which it was held that the definition of “bankruptcy” referred to
the judicial process dealing with insolvent persons and was to be construed in
a wide sense as the section was designed to produce cooperation between courts
acting under different systems of law.
5 Once a court
was satisfied that the request for aid fell within the ambit of the provision,
there was no general duty to scrutinise anterior proceedings unless it could be
shown that they were defective under the proper law of the court or that they
offended against public policy, thus setting a favourable trend for cooperation
measures. This did not mean, however, that courts would not set conditions on
the assistance given, particularly where there were interests within the
jurisdiction that could potentially come into conflict.
Particular difficulties existed where the foreign bankruptcy contained a
sizeable revenue debt,
which courts were quite reluctant to enforce.
6 The “export”
phase of the common law also involved the extension of statutes that were
glosses on the general law.
The view was taken that bankruptcy statutes were by the very nature, as “statutes
of general application”, exported as part of that process.
Post-settlement, however, the view was that any statutory law could not be
regarded as extended to an overseas colony or territory unless that
jurisdiction was named in the statute. The
Colonial Laws Validity Act 1865 underpinned this by providing that laws of the
colonies were effective within the territory, unless repugnant to an Imperial
statute, while Imperial statutes would have force across the Empire in any
territory specifically mentioned.
7 Thus, although
English bankruptcy models were often transplanted into other jurisdictions as
local ordinances or laws,
they remained subordinated to legislation of the Westminster Parliament. This
situation persisted until it became accepted that the nations constituting the
Commonwealth were solely responsible for their own legislation, a situation
given effective recognition by the Statute of Westminster 1931, the passing of
which was prompted by the case of the then Dominions, but whose terms were
subsequently applied whenever other territories and colonies became
Survival of the provision
enactments occurred in colonies and territories prior to or following
independence, many of the countries now in the Commonwealth legislated in
bankruptcy and adopted frameworks modelled on the Bankruptcy Acts 1883 and
1914. Some of these also chose to provide for an assistance provision to be
The argument could be made that, as they did so, not only did the new
autochthonous legislation replace the Imperial statute, but these cooperation
measures superseded those in the latest version of the Bankruptcy Act (whether
1883 or 1914) that conceivably could have applied in the relevant colony or
In rare instances, the application of the assistance provision was continued,
as in Australia, by express mention in the local statute
until it was ultimately repealed in 1980.
9 The assumption
of this automatic supersession, however, turned out to be erroneous. As early
as 1962, it was noted in Gibraltar that s 122 extended to the territory,
its application to the jurisdiction being confirmed as part of a census of
English laws that were deemed to continue to apply to Gibraltar.
This might explain the precautionary repeal in the Solomon Islands of the
Bankruptcy Act 1914 (and the 1926 amendments to it) that states “in so
far as they form part of the law of Solomon Islands [the statutes] are hereby
This “imperial vocation” of the assistance provision, especially of
its latest incarnation (s 122), was also confirmed in a limited number of
cases, including in New Zealand
and, more recently, in Guernsey.
10 The Privy
Council also referred to the continued vitality of the section in the case of Al-Sabah,
which involved a request for assistance from the Bahamian court to the court in
Grand Cayman in the bankruptcy. In the case, which also explored the history of
the assistance provision, the panel were of the view that the repeal of the
Bankruptcy Act 1914, with a view to the consolidation of personal and corporate
insolvency provisions in the short-lived Insolvency Act 1985 (quickly replaced
by the Insolvency Act 1986) and the application of the new assistance provision
in s 426 of the latter text, could have no effect outside the United
Kingdom. The contention by the respondents that the presumption against
extra-territorial application of a statute did not necessarily affect repeals
was not considered to have much merit. The result of the case was to leave the
assistance provision with a ghostly half-life in any jurisdiction to which it
applied that had not expressly repealed it.
This would be so, in theory, even where a domestic statutory regime had been
put in place, within a bankruptcy law or otherwise, that was being used for the
purposes of assistance.
The modern-day fallout in the Channel Islands
11 Part of the
assumption for the continued survival of the s 122 provision rests on a
reading of its terms which speak of assistance being forthcoming by or to any
“British” court. As such, the section could apply to the Channel
Islands, whose laws are mixed in origin, but whose denizens have British
citizenship. The two Bailiwicks have a very different constitutional status from
colonies and territories, however, being regarded as Crown Dependencies, a
status they enjoy together with the Isle of Man. Due to their special status as
Crown dependencies and historic acknowledgment by the Crown of the special
nature of their domestic law, the extension of bankruptcy laws as statutes of
general application could not historically occur.
12 As such, the
procedure for any extension is that any laws of the Westminster Parliament sought
to be applied in Jersey or Guernsey have to be expressly extended by the terms
of the statutes or regarded as extended by necessary implication. The usual
practice, however, is to provide in the legislation for a power to make an
Order extending all or some of the provisions of the statute.
In that light, it is arguable whether the simple mention of “British Court[s]
elsewhere” would suffice to extend the bankruptcy statute expressly but
it has been accepted in both jurisdictions as being applicable.
Furthermore, any purported extension would also be subject to the text
subsequently being registered by the Royal Courts in each of the Bailiwicks to
which it was to be extended.
the position, however, is the fact that both jurisdictions have adopted their
own provision to further cross-border assistance. In Guernsey, the step taken
was to request the extension by the United Kingdom of the relevant provision of
the Insolvency Act 1986 (s 426) in reliance on a power contained in s 442
of the same Act authorising the extension of any of the statute’s
provisions to the Channel Islands. This was duly made by Order with appropriate
amendments being made.
In Jersey, the passing of the Bankruptcy (Désastre) (Jersey) Law 1990
offered the occasion for the inclusion of an art 48 (now art 49),
which used language similar to that in s 426 to craft an autochthonous
14 In this
light, the question may be asked as to what of s 122 still survives the
creation of these domestic frameworks?
15 Section 122
was canvassed recently in the case of Re
X, which involved the application by a trustee in bankruptcy in respect of
recognition of her appointment in England and Wales, her right to collect
assets belonging to the debtor located in Guernsey and to examine persons
involved in the administration of companies connected to the debtor.
The first two orders were granted without much ado, while the third, the
subject of the judgment, was said to be “more controversial”.
For reasons of speed, the trustee sought to avoid the letter of request route
and asked the court to exercise powers to permit the examination.
The court was concerned as to the source of these powers, whether the law of
Guernsey or indeed of England and Wales, where the order could have been made
(but might have been limited by concerns over service out of the jurisdiction),
or whether it was necessary to invoke its inherent jurisdiction to grant the
16 Counsel for
the trustee based his initial argument on the effects of Singularis,
which, given that the facts were dissimilar as to any differences in powers
between the courts, supported the contention that the only issue for the
Guernsey court to determine was whether it would be contrary to Guernsey public
policy to make such an order.
The similarity between the two courts and the powers they had available was
supported by the way that the Guernsey court had previously authorised the use
of its inherent jurisdiction to make an order in similar terms in furtherance
of corporate insolvency law, holding that to do so was part of the “broad
supervisory power” the court had in relation to the administration of
The court was not particularly moved by the analogies to be drawn with
corporate insolvency in Guernsey but more the lack of similarity between
Guernsey and English bankruptcy law. In the court’s view, this prompted
greater consideration of the public policy choice involved in recognising a
power for which there could be no parallel in Guernsey, given that personal
insolvency in Guernsey could be said not to have any equivalent to the regime
in England and Wales.
17 Two further
arguments made in a similar vein, seeking to persuade the court that statutory
frameworks could be extended by analogy, ultimately did not find favour. One of
these sought to rely on the fact that the debt-collection mechanism available
through the local procedure of désastre,
in support of which the law contained powers to investigate in cases where
doubt existed over the cooperation of the debtor in surrendering property and
papers, could authorise the extension of similar powers in the case of a debtor
subject to proceedings elsewhere but whose conduct in Guernsey was under
18 The other
argument, more relevant to the subject matter of this article, relied on the
powers in s 122 extending the orders-in-aid procedure to all British
courts overseas, including potentially Guernsey. Counsel’s enquiries had
elicited the fact that the Bankruptcy Act 1914 had been registered in Guernsey
in 1961, ostensibly “so that Her Majesty’s subjects . . .
may have notice of the said Act being passed”. Curiously, this phrase was
preceded by a statement that registration of the Statute was not “essential
to its operation” on the Island.
This could suggest there was perhaps no fundamental intention to affect the
local law on debt collection and bankruptcy but would not impede the
application of such provisions as were expressly or impliedly extended, such as
s 122, through the qualification of its application to “British”
argument, however, was that the effect of the registration, the views of the
Privy Council in Al-Sabah and the
absence of any repealing Order, the repeal in the United Kingdom being ineffective
overseas, all combined to suggest that the 1914 legislation remained in effect
The court understood the argument as being essentially two-fold, in other words
whether the registration effected (i) the transfer of the entirety of the
statute, including the useful powers sought to be used in the instant case, or
(ii) only s 122 was applicable but by necessary implication of its first
limb (the injunction on assistance) read into the assistance provision had to
be powers that were necessarily supportive of the application.
20 At this
point, the court had recourse to the report of an amicus curiae, who had
been appointed early in proceedings. The report usefully summarises the process
by which legislation of the Westminster Parliament was transmitted into
Guernsey law, pointing out that providing authority for and the subsequent
making of an extension Order was seen as the desirable procedure to enable
representations to be made by the Island authorities as part of the process.
The report admitted that there was variance between the English and Guernsey
views of the necessity for registration as part of the transposition process
but that the normal procedure was to do so. In the case of the Bankruptcy Act
1914, the statute was a rare example of the legislation having direct
application, while explanation for the late registration appeared to be connected
to the fact of a 1960 case in which the issue had arisen.
21 For the amicus curiae, however, the registration process, as the Order itself
mentioned, simply had the effect of notice. It served merely to alert local
residents of the existence of the legislation but could not “operate
dispositively” to apply the legislation other than in terms the statute
As a result, the registration had the effect of notifying the extension of s 122,
because the provision itself was intended to apply, whether expressly or
implicitly, but the registration could not operate to apply the entirety of the
statute whose extension wholesale could be regarded as being contrary to the
conventions by which the United Kingdom legislated for Guernsey.
22 In that
light, all that applied of the statute was the assistance provision, the
registration simply confirming this and “putting it beyond doubt”,
while the repeal in the United Kingdom, together with the views of the Privy
Council in Al-Sabah, left the provision
unaffected in its application to Guernsey. As
such, the court could confidently disregard the argument that the registration
had recognised the transposition of the entirety of the statute, especially
those that allowed for the examination of debtors and connected parties.
However, whether those powers could be read in as a necessary adjunct to the
application of the assistance provision fell to be analysed. For the court,
arguments based on a broad reading of the provision could not be sustained.
This meant that the court could not, in fulfilling its assistance obligations,
“conjure for itself a jurisdiction to do anything that would be of
assistance in progressing a bankruptcy”.
23 In the end,
for the court, the issue in all of these cases was not whether public policy
prevented the extension of these powers but whether there was in fact any
inherent jurisdiction to apply such powers, from whichever source drawn, in
situations where those powers did not apply, “on the grounds simply that
the court judges the situation to be sufficiently analogous”. Thus, Singularis needed to be reconsidered.
The court noted the division in opinion before the Privy Council on whether the
power in fact existed
but referred to the collective view, which appeared to be that a court could
not “conjure for itself an inherent jurisdiction” simply because it
would be a “good idea” to do so. There would need to be a “sound
separate basis” for determining the existence of just such an inherent
jurisdiction apart from the fact that a power existed in another context, which
it might be useful to import into the one under scrutiny.
24 In the
Guernsey court’s view, powers to examine and compel discovery, which by
their nature were draconian, needed express statutory authority. Furthermore,
the customary law in Guernsey was very different from the common law at issue
in Singularis and it would be a
“step leap” too far for it to contain such a power.
Even if there were such a power, the court was not persuaded that it should be
used, as other more appropriate avenues existed, such as through the making of
a letter of request which would allow the local court to choose whether to
apply its own or the requesting court’s law. The
effect of this would be to invoke the assistance provision in its modern form,
avoiding any reliance on s 122.
25 In Jersey,
the assumption was that s 122 operated on the Island. In fact, its use has
been recorded in a number of instances. In Royco, the liquidator of a Jersey company trading
in England was recognised as having locus
standi on behalf of the company to make an application for the
company’s assets to be placed en
désastre. The proceedings arose in the context of a group of
companies conducting business in London which obtained monies fraudulently from
investors. Following an investigation by the Department of Trade and Industry,
the High Court in London appointed a liquidator to gather in monies, some of
which were held by Royco in the United States. In order to access those monies,
the authorities in New York required that there be a bankruptcy in the country
of incorporation, thus necessitating the application by the liquidator for
proceedings to be opened before the Jersey court, following which the Viscount
co-operated in recovering the monies.
the end of the recovery stage, on an application by the Viscount for authority
to transfer funds to the English liquidator, the court accepted that the
problems posed by the presence of fraud and the destruction of records made it
impossible to determine accurately the inter-company indebtedness of the group
and made it necessary to pool all the monies gathered in various proceedings
for a single distribution to all entitled creditors, wherever situated.
The court saw a need to show comity, especially as the High Court in England had reached the conclusion that the compromise
was in the interests of the general body of creditors of Royco and the other
associated companies. The judge saw no good reason to reach a different
conclusion, being similarly satisfied that the scheme of distribution proposed
was the fairest to the creditors and investors alike.
27 In In re Tucker, the
spectre of foreign revenue claims appeared where a request was made by the
United Kingdom Inland Revenue to the Jersey court to assist it in compelling
the debtor to disclose certain information, being authority for the proposition
that the court would not assist in what amounted to indirect enforcement of a
revenue claim, applying the rule at common law. Some softening of the strict position appeared in Le Marquand,
where the rule in In re Tucker was held not to extend to an application
made by the liquidator of an insolvent company who was not acting as the agent
of the foreign revenue authority and whose claim was not limited solely to the
recovery of tax, even if it were likely that the majority of proceeds would go
to satisfying the foreign revenue authority as the largest creditor.
28 Section 122 has also enabled outgoing requests for assistance. The most
famous of these was in Re a Debtor, which appeared to be the
first application for aid under the 1914 legislation from Jersey to the United
Kingdom. The Viscount had sought an order to enable the sequestration of the
debtor’s personal property in England and Wales and for his appointment
as the receiver of all the debtor’s movable property with power to
realise and sell the same. The debtor’s objections, ably put forward by
the renowned Muir Hunter, QC, were three-fold: that the Royal Court was not a
British court elsewhere, further, that the Royal Court was not a court having
jurisdiction in bankruptcy or insolvency, both stipulations of the 1914 Act,
and, lastly, that désastre
proceedings were not a matter of bankruptcy or insolvency that could fall
within the scope of the section.
29 The court
virtually ignored these arguments, holding that, evidence having been given of
the Island’s history and constitutional position, the Royal Court was
undoubtedly a British court at the time the legislation was enacted and that,
despite the differences there were between the English and Jersey procedures,
the words bankruptcy or insolvency ought to be construed in a wide sense, given
that the section was designed to secure co-operation between courts with
potentially different systems of law. Further, as the désastre proceedings could by definition be seen as a
judicial or administrative process for dealing with the property of a person
unwilling to pay his debts, it was indeed a bankruptcy or insolvency process.
Accordingly, the court held that the Royal Court was a court with the requisite
jurisdiction. Ultimately, the letter of request was acceded to and the court
appointed the Viscount as the receiver of the debtor’s movable property
in England and Wales, including any after-acquired property, ie property acquired by the debtor
following the date of the désastre
eventually s 122 was repealed and replaced in the United Kingdom in 1986,
the action subsequently taken by the Jersey legislative authorities to enact art 49
could suggest the view was held that the repeal in the United Kingdom left the
section as of no effect elsewhere. However, the later decision in Al-Sabah suggested that, to the extent
that no local legislation has been enacted repealing its effect, the provision
in theory would still remain in force. This would have the effect of retaining,
as far as Jersey law is concerned, the presence of s 122, given that art 50
and the Schedule of the law (as first enacted) effecting repeals do not
expressly mention s 122.
31 Views in Jersey appear to cast doubt on
this point, with Dessain and Wilkins stating that “it can hardly be
doubted that the section has no current application in Jersey”.
The view could be taken, of course, that art 49 implicitly effects the
repeal of s 122. However, the Privy
Council, in referring to the issue in Al-Sabah,
noted the adoption in Jersey of local provisions for mutual assistance “without any express repeal of section 122”.
The court also went on to state, in relation to the arguments being advanced
with respect to the survival of s 122 outside the United Kingdom:
“nor can much weight be attached to the fact that there may have
been an oversight (or a deliberate reliance on implied repeal) in subsequent
instruments affecting the Channel Islands and the Isle of Man.”
32 This suggests
that, at the very least, the issue remains open and the courts in Jersey could
continue to determine that s 122 is still operable. This would avoid the
need to wait for countries and territories to be prescribed for the purposes of
art 49. It would also permit an open system of co-operation and mutual
assistance, albeit limited to those courts that would consider themselves as
“British” and also, perhaps more importantly, only in personal
bankruptcy cases. However, this might not be necessary, given that the Jersey
courts have been evolving a customary law framework for cooperation in cases
where art 49 does not apply,
rendering the need for a revival of s 122 nugatory.
122 appears now to be largely of historical interest. The Act of which it was a
part has been superseded in practically every jurisdiction to which it applied,
having been replaced in many instances by more modern bankruptcy regimes better
suited to the present day. The assistance provision itself, however, appears to
continue to have a shadow-life, being regarded, in light of Al-Sabah, as
still out there and of potential application in any jurisdiction which has not
taken the trouble to repeal it expressly. It is a logical conclusion, comforted
by the jurisprudence, since the common law has never had a doctrine of
desuetude, as some civil law countries do, under which a law can expire when
its utility is no longer evident. Furthermore, unlike the replacement of common
law regimes by statutory ones, where the view is, if the statute occupies the
same area as the common law, it is intended to supersede it,
the supersession of legislation by legislation requires active intervention.
has not occurred in either Guernsey and Jersey, though both jurisdictions have
established their own frameworks for cross-border assistance. Although the creation of both of these domestic frameworks preceded the
decision in Al-Sabah, the invocation
of s 122 in both Bailiwicks should have alerted the authorities to the
need to consider whether and how to repeal the provision. Although not imperative, a little adjustment
of the statute book might be called for, if only on grounds of certainty,
particularly if the intention is to privilege the domestic measures and not to
have to rely on the resurrection of an old (albeit once useful) remedy.
Paul J. Omar, of Gray’s Inn,
Barrister, Former Visiting Professor, Institute of Law, Jersey.