Citizens Advice Bureau

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LOCAL INFORMATION

4.6.0.L3
Bankruptcy - a Guide to the Law

Extent: Jersey
Updated 11 April 2018
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For a more detailed explanation of the law please see

http://www.gov.je/Government/NonexecLegal/Viscount/DesastreSection/Pages/Guide.aspx

Terms you may need to know

Affidavit a statement of facts sworn on oath before an advocate, solicitor or notary public   

A Creditor is a person or a company who is owed money

A Debtor is a person or a company who owes money 

Insolvency means the inability of a debtor to pay his / her/ its debts as they fall due. Under Jersey law you can be declared ‘en désastre’ ( or ‘bankrupt’) if you are insolvent.  Both people and companies can be insolvent.

The Viscount is the  Court’s Executive Officer (or ‘senior manager’). The Viscount has a Deputy and officers who take an oath before the Royal Court and also support staff. The Viscount’s Department is the ‘arms and legs’ of the Court. It is the Viscount’s job to enforce all orders of the Courts including collecting fines (and imprisoning offenders who do not pay fines);   serving arrest warrants; managing juries in criminal trials and managing désastre       (‘bankruptcy’) proceedings.

In the UK the person who has a similar role is called the Official Receiver.

 

Being declared  ‘En désastre’

If you are a creditor and you have sued either a person or a company and been granted judgement 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 (‘made’) ‘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 (make) 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 which asks for some information about the debtor’s assets and liabilities (ie property and debts) and he / she has 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 he / she /the company has got into a lot of debt or because a creditor wants his/her 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 ( referred to now as ‘the bankrupt’) property immediately becomes the responsibility of the Viscount and is effectively owned by him. 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 his/her debts to the creditors. A bankrupt’s property includes anything that he / she owns including a house or car, jewellery or furniture, shares, paintings or sports equipment etc.  The Viscount is allowed to make a decision about what to sell and how he 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 his 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 he/she thinks 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 creditor and owed money by the bankrupt person / 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 it has received 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 ( ‘public inspection’).

Anybody can object to any claim that has been filed within one month of the date of the public inspection of claims. During this one month period the Viscount starts to collect all the bankrupt’s property including all his/her goods 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 of the Bankruptcy (Désastre) (Jersey) Law 1990, (as amended),  there is an order in which creditors  are paid back from the money raised from the sale of the bankrupt’s property. Priority is given to certain creditors in order of importance and this often means that not everyone who has filed a claim will get any money at all.

 

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 which has loaned money via a mortgage secured on the bankrupt’s property, building or land.

ie 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 (‘the property’) 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 sale of any other property owned by the bankrupt debtor.

 

(ii) the Viscount’s fees and expenses (generally 10 per cent of the monies raised from the sale of the bankrupt’s property). 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.

 

‘Priority debts’

 These are paid out after the secured debts if any money is left.

  1. 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 (note: there is a limit set by the law)
     

  2.  the full amount due to the Social Security Department for Social Security payments.

    iii) 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

    (iv) up to six months’ overdue rent to the debtor’s landlord  provided there are enough     goods on the rented premises to cover these arrears. (Note: there are special rules regarding this)

    (iv) 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 (or in a fixed percentage)  between creditors with a priority claim. For example, a creditor with a priority claim for £2,000 will receive twice as much as a creditor with a priority claim for £1,000. The amount that can be paid to an individual in wages/salary is capped at £4,350 plus £1,375 for holiday pay/bonus. These figures are thought to be  enough in that they usually cover the typical requirement, which may be a month’s outstanding pay, for example.

    Ordinary claims

    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.

    Social Désastre

    The Royal Court has the discretion ( or the freedom to decide)  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 ( person who grants legal aid applications – see Legal Aid section)  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 his/her creditors and who may have incurred the debts because of circumstances beyond his/her control, may be granted a social désastre . However an "irresponsible" debtor, who has spent borrowed money on luxuries, will be refused.

    Company liquidations - A Liquidator is a person who works for a private company ( often a firm of accountants) who has been given the legal right to manage the affairs of a company which 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 (usually an accountant in private practice). 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 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/ goods 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 apply in a désastre (see above).

    Other insolvency proceedings

    Other insolvency type proceedings are available in Jersey. For more information, see ‘A Guide to the Bankruptcy Law’ published by the Viscount’s Department.

    It is still possible to be imprisoned for debt

    If a debtor is sued in the Royal Court for a debt over £30,000, or the Petty Debts Court, for a debt under £30,000, and does not pay, the creditor can bring the debtor back to Court and ask the court for an "Acte à peine de prison". If granted, the debtor can be imprisoned at the cost of the creditor. The Court may decide not to force the Acte if the debtor can convince the Court that they can pay if given more time.

    Note:  The Human Rights [Jersey] Law 2000 provides strong grounds for putting forward a defence that the Court should not order an Acte à Peine de Prison because under Article 8 of the law there is a right to respect for private and family life which could arguably be affected. affected.

    Cession

    A Cession means the transfer of a debtor’s property by the debtor to his/her creditors. The method is described in the Loi [1832] 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 and is "wretchedly poor". The debtor swears an oath that he does not have enough money or assets (goods) to pay off his 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 (make a decision) 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 he / she receives a complete discharge from his/her debts. 

    A cession usually happens when someone has fallen on hard times through no fault of their own. The point of doing a cessation is for the debtor to avoid being declared en désastre (bankrupt) which might have a serious effect on the his / her future employment or credit history.

    The last cession was heard by the Court in 1994.