Bankruptcy – a guide to the law
Being declared ‘En désastre’
If you are a creditor and you have sued either a person or a company and been granted judgment for the money but cannot get payment from the debtor, then you can apply to the Court for the person or company to be declared en désastre if the amount of money owed to you is more than £3000 or if you are an insolvent debtor you can apply to the Court for the Court to declare you en désastre. The directors of a company can apply for a company to be declared en désastre.
In order to request an order for a désastre, you must make an application to the Royal Court. The Viscount must be given at least 48 hours’ notice of the application. The person making the application usually needs to complete a form that asks for some information about the debtor’s assets and liabilities i.e. property and debts and they have to swear an affidavit that the debtor is insolvent but has property that is able to be sold.
Making an En Desastre Order
Désastre applications are heard before the Royal Court, usually on a Friday afternoon. It is a matter for the Royal Court to decide if the Court will order a désastre. It is not an automatic right for a debtor to be declared bankrupt just because they have got into a lot of debt or because a creditor wants their money back. For example, the Court might not make an order for a désastre if it believes that the debtor’s circumstances might change or if it thinks that the debtor does not own much property and that the creditors might be better to come to an arrangement with the debtor and possibly get back more money than if a désastre was declared.
If an order is made by the Court all the debtor’s property immediately becomes the responsibility of the Viscount and is effectively owned by them. The creditors can no longer ask the bankrupt for repayment of their debts or sue the bankrupt for repayment of them.
Instead, the Viscount has to try and sell the bankrupt’s property to raise some money to pay off as much as possible of their debts to the creditors. A bankrupt’s property includes anything that they own including a house, car, jewellery, furniture, shares, paintings or sports equipment etc. The Viscount is allowed to make a decision about what to sell and how they should sell it but there are some rules that apply, especially rules about the sale of a matrimonial home.
The Désastre process
Once the Royal Court makes a désastre order, now referred to as a bankruptcy, the Court officers give the order to the Viscount who then appoints an officer in the department to manage the désastre or bankruptcy process.
Filing a claim
The first thing the officer does is to place an advert in the Gazette section of the JEP and in any other newspapers necessary such as the London and Edinburgh Gazettes. The notice tells people that the person or company has been made bankrupt and asks anyone who believes that they are a creditor and owed money by the bankrupt person or company to write to the Viscount’s department with details of all the money they believe they are owed. This is process is known as filing a claim.
A date is given in the Gazette notice by which claims are to be filed. The date is usually 40 days from the date of the désastre declaration. If any creditor does not file a claim with the Viscount by the set date, the creditor may lose the right to claim and to get any share of any money available after the bankrupt’s property has been sold.
Public inspection of claims
After the 40 days, the Viscount’s department prepares a list of all the creditors’ claims and puts another notice in the Gazette section of the paper which gives a date when the public can go and look at the claims, known as a public inspection.
Anybody can object to any claim that has been filed within one month of the date of the public inspection. During this one-month period, the Viscount starts to collect all the bankrupt’s property and makes arrangements to sell them. Goods are usually sold at auction, but not always. If there are unusual items such as stamps or paintings, the Viscount will usually contact specialist buyers to get the best price for the items.
The order in which debts are settled
Under the Bankruptcy (Désastre) (Jersey) Law 1990, (as amended), there is an order in which creditors are paid back. Priority is given to certain creditors in order of importance and this often means that not everyone who has filed a claim will get money.
Secured creditors are paid out first.
The money raised from the sale of the bankrupt’s property is used first to repay any secured creditors, such as a bank or building society that has loaned money via a mortgage secured on the bankrupt’s property, building or land. A house may have a mortgage on it. That means that you have allowed the bank or building society to make a claim against your house or flat until you have paid back to them all the money you were loaned. Their loan is secured against the property.
If there is not enough money from the property sale to pay the bank or building society back, they will get back as much of the loan as the sale of the property makes. The secured creditor then becomes an ordinary creditor and any money still due will be treated as a claim to be repaid from the proceeds of the sale of any other property owned by the bankrupt debtor.
If not enough money is raised from the sale to pay the Viscount’s expenses, such as adverts and any additional external legal and accountancy services, any creditor who applied for the désastre to be declared may have to make up the difference. When asking for a person or a company to be declared en désastre, it is necessary to keep this in mind and consider whether the person or the company owns enough property to make the désastre worthwhile.
These are paid out after the secured debts if any money is left.
- amount overdue of employees’ wages or salaries for up to six months before the désastre was declared plus holiday pay and bonuses due to that date
- the full amount due to Customer and Local Services for Social Security, Income Tax and GST due by the bankrupt person or the company for the year in which the désastre was declared and for the previous year. GST due for the year in which the désastre was declared and the preceding year and up to six months’ overdue rent to the debtor’s landlord provided there are enough goods on the rented premises to cover these arrears.
- Parish rates due for up to two years.
If there is not enough money raised to pay out all debts with a priority, the money available is shared out pro-rata between creditors with a priority claim.
After secured and priority debts are paid back, if there is any money left the Viscount will try to pay back the ordinary creditors’ debts on a pro-rata basis. In many cases, it is unlikely that there will be enough money made from the sale of the goods and property to meet these ordinary claims. Notice pay and redundancy pay are currently ordinary claims.
The Viscount’s Department has said that it would not be unusual for a priority creditor to receive less than half of what they are owed and it could take from six months to a year to receive the money, although the Viscount can make interim payments where possible and appropriate part payments as the bankruptcy progresses towards being finished. Normally, the whole désastre process takes about 18 months from start to finish.
The Royal Court has the discretion as to whether or not to grant a désastre to someone who owns no goods or property and has only the future possibility of money coming in e.g. retirement pension or a long term benefit such as incapacity pension.
The Acting Batonnier will grant Legal Aid for a person seeking a social désastre provided they have been in touch with the Viscount’s Department before attending the Legal Aid Office.
When considering an application to the Royal Court for a social désastre, the Court makes a moral judgment on the debtor. A responsible debtor, who has made every effort to repay their creditors and who may have incurred the debts because of circumstances beyond their control, may be granted a social désastre . However, an irresponsible debtor, who has spent borrowed money on luxuries, will likely be refused.
A Liquidator is a person who works for a private company who has been given the legal right to manage the affairs of a company that is failing to meet its debts or pay its bills.
A company is insolvent when it cannot meet its debts as they fall due.
Creditors’ winding up
Shareholders are people who hold shares in a company. They effectively own the company as each share has a value, the total of which is called the par value of the company. That is different to what the company may be worth, which might be more, or less, than its par value.
The shareholders of an insolvent company can, if the company’s creditors agree, have the company’s affairs wound up by a liquidator. The procedure is governed by Chapter 4 of the Companies (Jersey) Law 1991, as amended, and is very like the procedure for a désastre application. The creditors are called to a meeting to agree on the money they are owed and the claims they wish to make. Some of them may be asked to sit on the creditors’ winding-up committee to make sure that creditors’ interests are being considered when decisions are taken.
Any costs, charges and expenses as a result of the winding-up, including the payment to the liquidator for their services, are payable first out of the company’s assets before all other claims. This can be costly and sometimes there is not enough money to be brought in from the sale of goods to justify doing a liquidation.
After the Liquidator has been paid, the same rules apply with regard to the rights of secured and unsecured creditors to debts payable and to the order of payment of debts (Article 166) as applicable in a désastre.
Other insolvency proceedings
For more information, see ‘A Guide to the Bankruptcy Law’ published by the Viscount’s Department.
A Cession means the transfer of a debtor’s property to their creditors. The method is described in the Loi  sur les Decrets and by common law.
The procedure, known as cession de biens or cession générale, can only be started if a debtor is facing prison. The debtor swears an oath that he does not have enough money or assets to pay their creditors and the Judicial Greffier will tell all the creditors of the date and time of a Royal Court hearing. The Court hears both from the debtor and the creditors and if it decides to grant a cession it will also rule on any claims which are not agreed.
The actual method of sale of the debtor’s property varies but any money raised is given out pro-rata to the creditors. If the Court is happy that the debtor has acted in good faith, they receive complete discharge from their debts.
A cession usually happens when someone has fallen on hardship through no fault of their own. The point of doing a cessation is for the debtor to avoid being declared en désastre, which might have a serious effect on their future employment or credit history.
The last cession was heard by the Court in 1994.
Individual Voluntary Agreements
IVAs are a debt solution available in the UK, but there is currently no equivalent in Jersey. Citizens Advice Jersey’s debt service works in a similar way, offering a proportion of disposable income to creditors depending on the proportion of a client’s debt they hold, however creditors have no legal obligation to accept our offer.