Key Changes to Guernsey’s Insolvency Law from 2023

With the threat of recession impacting businesses across all areas of economic activity in 2023, anyone involved in structures involving Guernsey companies should be aware of significant reforms to the Island’s insolvency regime that will take effect from 1 January.

In particular, new powers that are to be afforded to liquidators and administrators are likely to be relevant in the context of questions around directors’ conduct. They are potentially far-reaching and the limits of these new powers will be of great interest to insolvency professionals and company officeholders (both current and former) alike.

The changes contained within the Companies (Guernsey) Law, 2008 (Insolvency) (Amendment) Ordinance, 2020 and the Companies (Guernsey) (Insolvency Rules) Regulations, 2022 have been well signposted – but there are key points that practitioners should be conscious of, particularly in light of prevailing economic conditions.

The changes take effect from 1 January, and include provisions that, for the first time, will:

  • Require directors to make a declaration of solvency prior to entering a voluntary liquidation and require the appointment of an independent liquidator where solvency cannot be declared. This closes a lacuna in Guernsey’s statutory regime that will prevent boards who have overseen an insolvency scenario being permitted to have conduct of the liquidation. The provision therefore introduces independent scrutiny in relevant circumstances.
  • Permit the winding up of non-Guernsey companies. Owing to Guernsey’s status as a major international finance centre, it is common for non- Guernsey registered companies to be administered within or to hold assets within the jurisdiction. The new provision will introduce a useful and cost-effective route for the liquidation of foreign-registered companies with a sufficient connection to Guernsey.
  • Impose a positive duty on liquidators to report directors where they consider that there may be grounds for disqualification. The reporting obligations incorporate a disclosure obligation and liquidators will also need to provide such additional information or documents in their possession or under their control which relate to the matter in question. This will bring the role of delinquent officers into sharper focus in a way that will likely increase regulatory and registry focus upon those responsible for overseeing companies that find themselves in financial difficulty.
  • Introduce enhanced powers for liquidators and administrators to compel (from a wide range of persons) the production of documents and information and a new statutory basis for setting aside both transactions at an undervalue and extortionate credit arrangements. The new regime affords insolvency professionals with wide-ranging powers to seek statements of affairs, investigate antecedent transactions, and to undertake recovery actions for the benefit of the company’s creditors and other stakeholders.
  • Permit liquidators to give notice to release the company from property that may be unprofitable or give rise to the incursion of liabilities by liquidators. The ability to disclaim ‘onerous’ assets will be subject to protections for those affected by a liquidator’s decision and those who may lose out will have the ability to seek relief from the Royal Court. This can happen notwithstanding that a liquidator has taken possession of the asset, endeavoured to sell it, or otherwise exercised rights of ownership in relation to it.
Enable liquidators to apply to the Royal Court for the appointment of an Inspector who can conduct a private examination of any officer or former officer. Such interviews may focus upon the company’s formation, its business and affairs and the conduct or dealings of those charged with undertaking company business. The appointment of an Inspector will only be granted if the Court thinks it is appropriate and any such appointment will be on terms and condition as the Court thinks fit.

Once the new powers are in force, we foresee an increased level of scrutiny being applied to actions undertaken by directors in the relevant period before an insolvency event and greater scope for challenges to antecedent transactions.

Owing to the pressures faced by many companies in the current market, we anticipate that directors may face difficult decisions about enacting formal insolvency processes. Guernsey’s new insolvency regime increases the scope for such decisions to come under critical scrutiny and directors should carefully consider the steps that they do (or do not take) once the company reaches the point at which directors know, or ought to know, that the company is insolvent, bordering on insolvency or an insolvent liquidation or administration is probable.

Primary Contacts


GUERNSEY
Sarah BrehautPartnerT +44 (0)1481 748 930sarah.brehaut@walkersglobal.com
Adam ColePartnerT +44 (0) 1481 748 912adam.cole@walkersglobal.com
Alison OzannePartnerT +44 (0) 1481 748 905alison.ozanne@walkersglobal.com
Jamie BooklessSenior CounselT +44 1481 748 926jamie.bookless@walkersglobal.com
Helena LavinSenior CounselT +44 (0) 1481 748 948helena.lavin@walkersglobal.com
Laurent ThibeaultSenior CounselT +44 (0) 1481 748 919laurent.thibeault@walkersglobal.com
Jarrad KnoetzeSenior AssociateT +44 (0) 1481 748 944jarrad.knoetze@walkersglobal.com

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