I am seeking here to analyse in summary the current developments
in cross-border insolvency and in particular assets held in or
through "offshore" structures such as trusts. I stress that
it is no more than a summary for those who may be unversed in the
technicalities of offshore insolvency proceedings over business, or
for that matter other assets.
Offshore jurisdictions are frequently used for perfectly
legitimate financing arrangements over assets which are in another
jurisdiction which does not permit the financing institution
to take a charge which it understands over assets with which it is
unfamiliar. Also where the financing involved presents an
issue for a bank in the jurisdiction where the asset is situated.
Here I would cite the old chestnut of French "titrisation",
and the barriers that the French régime presented for French
companies seeking to obtain refinancing of their loans to their
French clientèle from overseas. The offshore securitisation
techniques required to access world capital in the 1980s prior to
France modernising its laws bear ample witness to that. This is not
"évasion de capitaux", it is more like an invasion of foreign
One method is for the beneficial owner of the asset in a
jurisdiction which does not formally recognise trusts makes a
declaration that they own the assets under or subject to a trust.
The trust can be a simple bare trust or a more sophisticated
one. That method does however have limitations as to succession
planning and other multi-generational issues. The nominee
method is really limited to short to medium term trusts over
business assets, as was the case in Akers v. Samba to which I will
Before doing that, I would like to draw attention to a set of
recent decisions of the Jersey Royal Court culminating in the
"désastre" order against Orb a.r.l. ("Orb") and a certain Dr
These decisions show that in certain issues, Jersey is beginning
to retain jurisdiction over its own companies and their
insolvencies. Prior practice used to be to leave such matters
in the hands of the English Courts and English administration under
ss. 127 and 284 of the Insolvency Act 1986.
The manner in which the issues developed in the following linked
cases in Orb was as follows:
Harbour Fund II LP v. (1) Orb a.r.l. (2) Litigation Capital Funding
JRC171 ("the 1st judgment")
Harbour Fund II LP v. (1) Orb a.r.l. (2) Dr Gail Cochrane
JRC007 ("the 2nd judgment")
Representation of the Viscount re Cochrane and Orb a.r.l.
JRC025 ("the 3rd judgment")
The cases have supplied some additional light on the prior use
of English Administration by Jersey and the development of the
historical use of Letters of Request (lettres rogatoires) by the
Crown Dependencies to foreign jurisdictions. The Island used
to allow Jersey Companies in insolvency to be administered out of
England by the English Courts, but Jersey is now taking its own law
into its own hands.
Dr Cochrane is the sole shareholder in Orb, a company registered
in Jersey. Orb first "ran into difficulties" when Gerald Smith, who
was at the time the chief executive of Orb and Dr Cochrane's
husband, misappropriated funds in the region of £35 million from a
company in which Orb owned a large proportion of shares. Criminal
and civil proceedings were brought against Mr Smith and Orb, but
not before significant assets belonging to Orb were sold to a
certain businessman Andrew Ruhan. Mr Smith, previously a GP,
will need no further introduction to readers
The Evening Standard.
Proceedings were issued in both the Manx and English courts on
the basis that there was an oral agreement between Orb and Mr Ruhan
to share in the profits of these assets. The veracity of
these assertions remains yet to be proven.
Harbour Fund II LP ("Harbour") was the litigation funder for
Orb, and had the benefit of fixed and floating charges over Orb's
assets and a personal guarantee from Dr Cochrane. To avoid
confusion, Litigation Capital Funding which is also
mentioned in the judgments, was an entity run by Mr Smith's brother
out of New York.
As a result of a settlement agreement in the Isle of Man, some
assets were transferred to Dr Cochrane in her personal capacity.
Harbour therefore issued a demand for payment under the funding
agreement and then sought to place Orb into insolvency
The 2nd judgment
Harbour applied to the Royal Court seeking a letter of request
to place Orb into English Administration as there was no apparent
equivalent procedure under Jersey law. Whilst this is an
established procedure used successfully in the past in both Jersey
(HSBC v. Tambrook ) and the Isle of Man (Capita Asset
Services v. Gulldale Limited ), it is not the only
methodology available as the Orb procedures now show. The Royal
Court was not duped into taking this path, the Norman influence
does tend to counter English attempts at formalism.
Whilst it is clear that Jersey has acquiesced in the transferred
proceedings and administration to the UK where there was a
chance of the failed company being resuscitated, it is clear that
the Royal Court is perfectly prepared to stand and hand
jurisdiction over the proceedings to the Viscount, a particular
function governed both by Customary law and statute which can act
outside the usual concepts of English trusteeship in bankruptcy.
The customary law of the Island can be an advantage here.
It is not yet established whether the notion of "going concern"
will be a factor influencing any further decisions. Here there is
no doubt that that fraud perpetrated emptied Orb of any viable
The Royal Court declined to accept the transfer of any
administration to England for the following reasons:
- There were doubts over a substantial connection to England and
whether there were any assets;
- Inevitably whoever was appointed would have to investigate this
issue and the Viscount could do this
through désastre; and
- The main difference between Administration
and désastre was the ability to rescue Orb as a going
concern but that was not the case here.
Following the 1st judgment, Harbour then sought a
declaration "en désastre" against both Orb and relying on the
personal guarantee, against Dr Cochrane. These proceedings were
opposed, but the Court made both declarations on 24 November 2016,
with reasons given in the January judgment.
The Court acknowledged that, given the complexity and size of
the désastres, a significant burden would be placed upon
the Viscount who is responsible for the administration of
all désastres. However, the Court "felt it was important that
the Island, as a well-respected financial centre, discharged its
responsibility for dealing with the affairs of this Jersey
registered company and Jersey resident."
The 3rd judgment
The Viscount then made an application to the Court seeking a
Letter of Request to the English High Court for assistance with
the désastre. The grounds for this application were founded
upon the complexities that the Court had noted in the 2nd judgment.
In particular, Dr Cochrane now claimed that significant assets were
not owned by her but by linked companies in the US and Panama, and
both Dr Cochrane and Orb were subject to at least five sets of
legal proceedings in the English courts. In essence the Viscount
was seeking recognition in England and Wales and to have certain
persons summonsed to the High Court in England for an examination
should they not voluntarily attend upon the Viscount. In the light
of this information, the Court granted the application.
The Royal Court then proceeded to formally confirm its
declaration of 24th November, 2016 that both Dr Cochrane and Orb
were "en désastre".
Comment and the jurisprudential linkage to Akers v Samba
The Orb procedures have shown that obtaining a Letter of Request
from the Court in Jersey for English Administration requires strong
evidence as to why administration would be preferable
to désastre, and what if anything is the substantial
connection to England.
The Royal Court is concerned that the insolvency regime in
Jersey was in danger of being disregarded, and would prefer that
proceedings continue under Jersey law even where there is
significant complexity. The Court's decision to then allow a Letter
of Request for assistance is clearly indicative of the staged
approach the Jersey Court will consider.
How does this fit in with certain other recent United Kingdom
decisions on the scope of s. 127 of the Insolvency Act in
particular Akers v. Samba?
That case involved an issue of a nominee trust established under
Cayman Law over assets situated in Saudi Arabia. The case was
decided by the Supreme Court on an in limine jurisdictional
basis, so it is of limited authority as to the actual substantive
issues of the case, but of highly significant authority on the
application of English principles of trust law over assets which
are situated in and governed by the laws of jurisdictions which do
not recognise the trust: here Saudi Arabia.
Again the issues as to substantive law were not argued or indeed
arguable, as the matter was an in limine issue as to whether the
English Court had jurisdiction under ss. 127 or even 284 Insolvency
Act 1986 to impose a trust in Insolvency or Bankruptcy
The Supreme Court judgment makes interesting reading, as it
compiles the otherwise conflicting authorities as to whether an
"equitable interest" is a proprietary one, or a personal
obligation. This is of great significance for civil lawyer's
understanding of the concept, as the French in particular can get
very confused about it when they attempt to tax trusts and
beneficiaries. The result is that the French administration then
tends to fix its own "certainties", which are way off the mark
Those wishing to read a summary of the Akers judgment can refer
to the recent Chancery Bar Association Lecture by Lord Briggs which
I have posted on the resources page.
His main comments addressed :
Their Lordship's summary of the effect of the Hague Convention
and the implementing British legislation, which was not
The very effective statement that considerations of whether the
trust was recognised as such in the jurisdiction where the asset in
question was situated, in other words under its Governing Law, was
no fatal to the trust, which could notwithstanding be enforced
against the "trustee" themselves, thus requiring the trustee to act
in relation to the asset so as to give effect to the trust to which
they were subject.
He directed his address as to the issue of the meaning of the
term "disposition" in s.127 Insolvency Act 1996. In my view that
means that The Supreme Court's decision may not therefore be
immediately transposable to other jurisdictions.
Most importantly, both the Supreme Court and Lord Briggs
addressed the jurisprudential dichotomy of the trust as being
either a set of personal obligations, or a proprietary issue.
The Supreme Court were able to concentrate on the meaning of
"disposition" in s. 127 IA 1986, and the effectiveness of the
transfer to the Third Party to avoid coming to any conclusion on
that point in what was not a decision the substance of the case.
My view is that a trust's effects amount to both, but that
principally a trust is a proprietary matter, defined by the Courts
by reference to equitable rights giving rise to obligations which
are enforced both in rem and in personam
by the Courts, subject to the proprietary freedoms of the common
law and the bona fide purchaser for value without
notice, or equity's darling. At the risk of
misplaced wit, I personally prefer Professor Farrand's term
"Equity's blue-eyed boy" as there is usually a more or less
believable protestation of innocence and clean handedness involved
before an English Court, the latinate root of mani
I stress here, as an aside, that to treat a trust as if it
were a "contrat" as distinct from a matter of property law is a
pure heresy, and that that is one of the flaws in the French tax
legislation which should be considered to be fatal to it.
This is where Jersey remedies become both comparable and yet
The Trusts Law (Jersey) 1984 had to define the legal status of
an interest in a trust, as the British notion of equity simply is
not the same as équité in Norman customary law.
Article 10 (10) of the Law defines a beneficiary's interest in a
Jersey trust as a movable property right, thus in a sense defining
the Royal Court's position, whilst leaving the matter of remedies
untouched by statute.
Taken in that light, the likely outcome of a Jersey decision is
perhaps foreseeable with more certainty than the English.
Lord Briggs clearly admits that it is as much a question of
intimate gut feeling for an English lawyer, as opposed to any
foreign desire for legal definition and certainty.
Jersey is an ideal jurisdiction in which to attempt to reconcile
such jurisdictional incompatibilities, as whilst the Island
recognises trusts, it has a non-trust customary law. What is
more the Viscount has been confirmed by the Royal Court as not
being bound by the same fiduciary duties of care and accountability
as a trustee in bankruptcy. The office and function of
Viscount is not a trustee function.
Quite whether that can be stretched to accommodate passing a
simpler "going concern" procedure into the hands of the Viscount is
another issue, but it might give openings to those seeking
reparation in cases of cross-border fraud and fraudulent conversion
to any extent that assets have not been fully disbursed or