In the Matter of Restore Builders En Désastre [2024] JRC 290

In the Matter of Restore Builders En Désastre is the first reported wrongful trading case to come before the Royal Court of Jersey. Under Article 44 of the Bankruptcy (Desastre) (Jersey) Law 1990 (which provision is plainly modelled on the equivalent provision in the Insolvency Act 1986), the Royal Court may, if it thinks it proper to do so, order that a person who is or has been a director of the company be personally responsible, without any limitation of liability, for all or any of the debts or other liabilities of the company arising after a specified time.

In this context the specified time is the point at which the person in question either knew that there was no reasonable prospect that the company would avoid being placed into a désastre or a creditors’ winding up or was reckless as to whether the company would avoid such an order. The Court shall not make such an order where it is satisfied that the person in question took ‘reasonable steps’ with a view to minimising the potential loss to the creditors of the Company. The question of whether (and if so how) the requirement in Jersey to take ‘reasonable steps’ differs from the requirement in England to take ‘every step’ has not to date been determined in Jersey.

These provisions apply both in respect of Jersey’s ‘désastre’ regime, under which the assets of the insolvent  company vest in the Viscount (who in this context plays a role analogous to that of the Official Receiver), and of the creditors’ winding up process (under which a liquidator is appointed, and which – following recent reforms – can now be instigated by creditors of an insolvent company as well as its shareholders).

Given the facts of the case, it is perhaps not surprising that the Court was minded to make an order in the circumstances. The respondent to the proceedings was the sole director and shareholder of the company. From March 2021 he had carried on business as a sole trader. The company was incorporated in July 2022, and by September 2022 letters had been issued to creditors stating that it was in financial difficulties. On its own application, the company was placed en désastre in November 2022, as also was its sole director and shareholder.

The Court noted that there was  evidence that the director had accumulated debts of nearly £1 million in his personal capacity before incorporating the company. It observed that he appeared to have incorporated the company in order to improve his position with creditors. It also observed that there was evidence that the director may have mixed the company’s assets with his own and therefore that it was ‘unclear where the assets and the liabilities truly lay’.

In this context, it is perhaps not surprising that the Court went on to hold that the director ‘knew, or ought to have known, that there was no reasonable prospect that the Company which he incorporated would avoid bankruptcy’. It observed that individuals ‘should not be able to play fast and loose with the rules’, and that accordingly the director should be personally responsible for the debts of the company.

The case provides some useful guidance in Jersey as to the application of the relevant test, and the circumstances in which the Royal Court may be minded to make such an order.

This article was first published in the Spring 2025 edition of South Square Digest.