Remise de biens:
A Procedure of (un)Certain Value
article examines two recent cases highlighting the operation of the remise de
biens procedure in Jersey, both of which focus on the issue of value for the
purposes of entry to and exit from the process. The cases illustrate that remise
de biens continues to have a modest, yet important, part to play in the canon
of bankruptcy law on the island.
1 Jersey has one
of the oldest insolvency frameworks still in operation in Europe, where
procedures transplanted from continental Normandy in the mediaeval period and
lightly reformed by statute since continue to be used to the present day for
the insolvency of companies and individuals. A remise de biens is a method for a debtor experiencing financial
difficulties to ask for the protection of the court, which can only be granted
on strict conditions being satisfied.
These conditions include the pre-requisite of holding immoveable property
and the prospect of the payment of the secured debt in full with a dividend (no
matter how slender) for the unsecured creditors.
2 The granting
of an order results in the affairs of the debtor being placed in the hands of
the court for a fixed period, usually six months. The
period may be extended, although extensions beyond a year generally require the
creditors to consent to the proposed order.
During this time, two Jurats appointed
by the court attempt to discharge debts by realising the debtor’s
property. The utility of this procedure is to avoid a fire-sale of the
debtor’s assets with a view to obtaining a better price over the duration
of the procedure than could be obtained were the sale conducted in haste. If
the debts are paid in their entirety, any unsold property or surplus value is
returned to the debtor.
3 A remise de biens is useful for a debtor
at risk of losing any surplus value in their immovable property through the
foreclosure that happens during the dégrèvement
process as part of the transfer of the property into the hands of one of their
creditors. As a result, a debtor who might otherwise be obliged to apply for a cession de biens or who might be the
subject of an adjudication de
renonciation at the creditor’s behest has every interest to explore
the possibility of a remise de biens,
especially given that an application may be made at any stage of the dégrèvement process up to
the moment the property is transferred into the hands of the tenant après dégrèvement. This also has the effect of enabling a
discharge to occur despite the rule in Birbeck
affecting the availability of a discharge for debtors who have been subject to
an adjudication de renunciation.
Similarly, a remise de biens is
useful when compared to a désastre,
because the costs of the procedure are usually less than the fees charged by
the Viscount in that procedure. Furthermore, in a remise de biens procedure, the debtor retains ownership of his property,
although obliged to co-operate with the Jurats who exercise a power of
management over the property.
4 Remise de biens is the only Jersey
procedure of a suspensory type specifically to enable the rehabilitation of the
debtor because it results in a discharge if successful. It is also fairer for
the debtor, when compared to other possible procedures, because only so much of
the debtor’s property is realised as is necessary to satisfy the
creditors. In fact, prior to the inclusion of immovables within the scope of désastre proceedings,
it was the only equitable method for dealing with a debtor with immovable
property. As a result, it has remained in use until modern times, albeit case
law, reported or unreported, on the operation of its provisions is sparse.
For this reason, the production of two judgments within the space of five
months in 2017 dealing with aspects of the process is of some interest.
The facts of the
In re GG and Tygres
5 This case involved two investment companies, each holding a
property used as a guesthouse.
Both companies had applied for a remise
de biens. The issue in both cases involved determining whether the value of
the assets of the companies, including the properties in question, would be
sufficient to pay off the secured creditors and offer a dividend to the
unsecured creditors, an essential pre-requisite to the granting of an order. In
both instances, the asset values were estimated on the basis of property
valuations which fluctuated. In the case of the first company (Tygres), the
lowest estimate was close to the amount due to the secured creditors.
Taking into account the likely costs of realisation, there would not be
sufficient to offer the unsecured creditors a dividend, thus defeating the
rationale of the process.
6 In the case of the second company (GG), the estimates fell
somewhat short of the amounts owed the secured creditors. There was also the
issue of an inter-company loan, payment of which depended on the first company
being able to realise its property at a higher value. The
valuations were objected to by the beneficial owner of the companies, who
contended that the court should take into account the existence of an offer in
respect of the first company and the likelihood of planning permission being
available which would alter the value of the properties considerably.
In re RBS Intl
7 The bank lent moneys to the O’Neills to purchase
shares in a company, Millbrook, whose sole asset was a property in Jersey.
The bank’s loan was secured by a security interest in the shares of the
company. The O’Neills subsequently borrowed a further sum from the Le
Cornus, which was guaranteed by the company and secured by means of a hypothèque (real property
security) over the property.
When the O’Neills’ business failed in 2014, they fell into arrears
on the loan from the Le Cornus, who in turn pursued a claim to judgment for the
8 On the basis
of the judgment being obtained, the Le Cornus then sought the opening of an adjudication de renonciation which would
result in foreclosure of the property interest. The company then applied for a remise de biens, which was granted in
During the procedure, the property was sold for a sum which paid off the Le
Cornus and other creditors, leaving a surplus. The
issue in the case was the destination of the surplus, which normally would be
returned to the debtor company. In the instant case, the bank sought an order
that the moneys be paid directly to it in satisfaction of its outstanding loan,
on which the O’Neills had also defaulted.
In re GG and Tygres
9 In both cases,
the request for a remise de biens
procedure to be opened was rejected. In
the case of the first company, the court accepted the higher of two valuations
obtained by the Jurats based on the continued use of the premises as a
guesthouse from which had to be deducted the estimated costs of the realisation
On this basis, there was a shortfall on the payment of the secured debts and no
prospect of a dividend for the unsecured creditors. In
dealing with the objections to the valuation, the court accepted the evidence
of a surveyor as to the likely value with planning permission obtained, for
which an application had been made (but also the risk of it not being granted),
which would result in a much lower sum than the continued use of the property
in its current form.
10 The offer,
such as it was, from a third party, was not held to be realistic given that the
only confirmation of its existence was a letter from an estate agent stating
the offer had been made and no further steps had been taken, such as by means
of a preliminary agreement for sale or an exchange of letters between lawyers.
For the court, using the test of whether there was likely to be a surplus
following payment of the secured debts and whether that surplus was likely to
be more than marginal, as the rule in Re
required, did not leave the court confident that the pre-requisites for the
opening of a procedure had been satisfied.
with the likely costs of dealing with the property, such as repairs and
insurance, as well as the costs incidental to obtaining planning permission,
still to be incurred without funds being available to the Jurats to undertake
these steps, the court was motivated to deny the application on the ground that
the tight margins, even on the basis of a more optimistic valuation, left no
room for manoeuvre for the Jurats and it would not be expedient to require them
to undertake these costs with the possibility of a shortfall being incurred.
12 In the case
of the second company, the court was not much exercised by the possibility of
development, which were not yet at application stage, and which left matters to
be determined on the property valuations. As
in the first case, the gulf between the valuations left the prospect of a
considerable shortfall, given the much higher secured debt burdening the
property. The existence of an inter-company loan, payable by the first company
but dependent on its ability to realise its own property values, was not a
factor the court felt could be taken into account when assessing the overall
value of the assets available to the second company.
13 As in the
case of the first company, an independent surveyor’s valuation was
obtained. Though it was somewhat higher than the estimates obtained by the
Jurats, it did not come anywhere near the value of the secured debt.
The beneficial owner’s more ambitious plan of a development project by
combining interests with a neighbouring property was, for the court, not based
on any firm footing, there being, as with the first company, an absence of
underpinning documentation that would indicate the project was sufficiently
advanced so as to offer a realistic prospect of success. The
fact of the neighbour’s recent demise, noted by the court, added a
further complication that would not ease matters.
14 As such, the
court felt that the venture was much too speculative and declined to order a remise de biens, given the question over
the availability of a dividend for the unsecured creditors and also the likely
time within which a dividend could be paid, even if it were possible, which on
the development plans put before the court would take the procedure beyond the
normal period for a remise de biens.
In re RBS Intl
court’s view was that there were really only two options open to the
bank, given the structure of the loan and comforting security. The first was to
return the surplus to the company and then ensure that the O’Neills, as
directors, declare a dividend or conduct a winding up of the company and make a
distribution to themselves as shareholders (and pay on the amount to the bank),
the second being for the bank to enforce on the security interest, appoint new
directors and procure a distribution via a winding up to the shareholders
(ultimately payable to itself).
16 The court was
informed the second option was not really open to the bank, given issues with
respect to the regulatory compliance regime to which it was subject, which made
dealing with a company subject to an insolvency process problematic. The first
option involved a risk that the bank would lose control of the money for such
time as the directors were in charge of the distribution process until payment
was made to the bank.
For that reason, the bank invited the court to “take a pragmatic
approach” to pay the surplus directly to it so as to reduce the debt owed
by the O’Neills, who in fact supported the bank’s representation.
17 The position
of the Viscount (who held the moneys for the Jurats) was that she would only
pay across the surplus on a court order being made, as in law the surplus was
the property of the debtor company.
Subject to assurances by the O’Neills that there were no other creditors
remaining to be paid out of the funds held by the Viscount, the court was
amenable to taking the step of authorising the transfer to the bank provided
the bank gave an undertaking to pay out debts due to any creditors that might
subsequently be identified.
Analysis and impact
18 For those
wishing to qualify as an advocate in Jersey, especially those from other
jurisdictions, the fact that one of the compulsory courses for qualification is
“Movable Security Law and Bankruptcy” provides a great deal of
complexity. The procedures, two of which (cession
de biens and remise de biens) are
rooted deep in the Middle Ages, are baffling because the legal sources have
been (until very recently) mostly in French and the procedures arcane. The
third of the procedures, a comparative newcomer, is désastre, which was originally created in the 18th century
as a procedural device for the concurrent marshalling of claims in the case of
multiple creditors of the same estate.
19 Désastre has now been transmuted
into a modern bankruptcy regime through the passing of the Désastre Law. The statute is not a codification by any
means, recourse to the jurisprudence being necessary on occasion to flesh out
its terms or fill in the lacunae. Similarly, the two older procedures, both the
subject of laws passed in the 1830s, require much more by way of case-law
infilling, the framework of the texts being very much bare bones. Only when we
get to the modern age is there a statute with recognisable features in the
shape of the Companies (Jersey) Law 1991 (Companies Law), which has both the
scheme of arrangement and winding up.
Would-be advocates who have studied common law frameworks, particularly those derived
from English law, are often comforted by the familiarity, until they realise
that some of the procedural steps within winding up (art 166) refer back to the
Désastre Law and that there is
no right for a creditor to initiate the process.
20 This is not
to mention the further complication of there being a hierarchy of choice,
between the procedures based in the older laws, as well as between those in
bankruptcy and company law, for those entities potentially subject to both.
This explains why art 4 of the Désastre
Law prohibits the opening of a procedure where a cession or remise is afoot as
well as the reasoning behind arts 154A and 185B of the Companies Law requiring
winding up to cede ground to a désastre
21 The one
issue, nevertheless, with these procedures is that they are overwhelmingly
orientated towards liquidation, albeit remise
de biens and désastre
offer the possibility of a surplus that could be redirected to the debtor to
use for recommencing business activity. In that light, the absence of a proper
rescue procedure on the Island, with features consonant with those of
developments taking place elsewhere and against the background of international
benchmarks in the area, has been the subject of some note. To palliate this,
courts and legal practice have explored the use of parts of the existing
toolkit to try and mimic the effect of rescue.
22 For example,
in common with other Commonwealth jurisdictions, Jersey has extended its scheme
of arrangement practice to envelop entities near the insolvency threshold.
Although Jersey schemes are often carried out in parallel with schemes of
arrangement in other jurisdictions, particularly the United Kingdom, the
case-law has also seen authority for a scheme, in conjunction with the
continuance procedure in Part 18C of the Companies Law, to avoid the
territorial bar limiting the application of the statute to Jersey companies.
While Jersey practice in this area is very well developed, the scheme itself is
a tool that is only really appropriate for financial restructurings at an early
stage of a debtor’s difficulties and benefits mostly larger entities.
for other entities, however, the courts have evolved a jurisprudence focusing
on, unusually, the just and equitable winding up provision in art 155 of the
Companies Law which has seen the development of a workout style process,
avoiding the cessation of activity inherent in a normal creditors’
winding up and thereby enabling the sale of the business as a going concern.
The workout model has also been used, particularly successfully, in the case of
entities carrying out regulated business, an area of some concern for the
financial sector on the island. Recently also, the model has been taken further
to facilitate a Jersey equivalent to the pre-pack procedure (a variant of the
administration process in the United Kingdom) in the case of a trading concern,
illustrating the potential range of business whose needs could be served by the
use of this provision.
24 For other
businesses, particularly those in the investment and property development
sectors, a passporting process has been developed, by which a letter of request
sent to the High Court in London can lead to UK administration being made
available for Jersey entities with the authority of s 426 of the
Insolvency Act 1986 (UK) being used to permit the application of a Schedule B1
This procedure has been so often used that it represents a well-trodden path
for Jersey advocates and courts alike. While the option for rescue in the
United Kingdom exists, there does not seem to be any urgency for any home-grown
initiative to take its place, or indeed for any transplanting of the
administration procedure as Guernsey has done in its Companies (Guernsey) Law
25 For financial
institutions, however, special provision has been made recently by means of the
Bank (Recovery and Resolution) (Jersey) Law 2017 to introduce recovery and
resolution procedures as options. As a result, rescue has arrived in Jersey for
select entities but not for the majority of the companies and individuals that
operate on the Island. That said, small consumer debts can be wiped out using
the procedure under the Debt Remission (Individuals) (Jersey) Law 2016, though
only in respect of qualifying debts under a threshold.
26 Overall, this means that the procedures in the law on the Island
remain relevant and, in a number of cases, the only option for some form of
rescue or rehabilitation to take place. In the case of the remise de biens, the prospect of the payment of secured debt and
some dividend for the unsecured creditors is the benchmark for admission to the
process, over and above the other pre-requisites that may be required. As such,
the debate in In re GG and Tygres
over the margins available (depending on what valuations are accepted) is not
simply about the dividends payable to creditors in various categories but goes
to the utility of the procedure itself and whether the courts, some of whose
members (the Jurats) are in charge of the process, should authorise the
expenditure of funds with view to a realisation that will offer returns to both
secured and unsecured alike.
27 That the prospect of a dividend is not simply a
theoretical possibility is illustrated by the most recent case, In re RBS Intl, where somewhat unusually
the realisation of the property left a surplus destined to be returned to the
debtor company. But for the fact that the company was a device by which the
shareholders acquired an asset using a loan from the bank concerned, the funds
would have been a true surplus, again showing the utility of the procedure as a
managed process for the realisation of property.
28 The antiquity of a procedure is not necessarily grounds
for retaining or indeed removing it. Though the remise de biens is an old procedure with roots in the Middle Ages,
and though arguments could be made that it is not completely in keeping with
the way modern insolvency frameworks are constructed, it nevertheless
demonstrates a utility in certain cases that perhaps justifies its retention as
part of the canon of insolvency law and procedures available in Jersey.
What is interesting about the trickle of jurisprudence that emerges from time
to time is the attention paid by the courts to filling in the lacunae of the
process, supplemented by the recent Practice Direction, so as to give the
procedure more clarity and render it more effective. To this end, there is
strong evidence in the reports of the cases of the willingness of the courts
(assisted by the arguments of the advocates) to innovate. This is not a bad
thing, in the absence of immediate moves towards reforms which may or may not
Paul J. Omar, of
Gray’s Inn, Barrister, Former Visiting Professor, Institute of Law,