Jersey Unreported Judgments

Bankruptcy - application for a Remise de Biens.

[2013]JRC208

Royal Court

(Samedi)

25 October 2013

Before     :

Sir Michael Birt, Kt., Bailiff and Jurats Crill and Milner.

 

IN THE MATTER OF REVA HOLDINGS LIMITED

Miss J Grant as director of Reva Holdings Ltd.

Advocate M. W. Cook for Jersey Home Loans Ltd, a creditor.

Advocate M C. Goulborn as a partner of Bois Bois, a creditor.

judgment

the bailiff:

1.        This is an application by Reva Holdings Limited ("Reva") for a Remise de Biens.  The application was originally brought before the Court on 20^th September at which time the Court, in accordance with Article 2 of the Loi (1939) sur les Remises de Biens, appointed Jurats Morgan and Kerley ("the Jurats") to examine Reva's property and report on the appropriateness of a Remise. 

2.        The application came back before the Court on 4^th October, at which time the Jurats presented their report which recommended against the granting of a Remise.  Following submissions from Miss Grant on behalf of Reva, the Court adjourned the matter to 14^th October for further argument.  The Court as presently constituted heard argument on that day and reserved its decision. 

Factual Background

3.       On 1^st October, 2007, Reva entered into a loan facility with Jersey Home Loans Limited ("JHL") by which it borrowed £332,500 in order to assist with the acquisition of the freehold property known as 14 Duhamel Place, St Helier ("the property").  The property consists of three 1 bedroomed flats and one studio flat. 

4.      In March 2009, the property suffered extensive fire and water damage when a fire broke out.  As a result the property became uninhabitable and all the lodgers moved out.  Reva therefore ceased to receive any rental income. 

5.      This appears to have been the beginning of the financial problems of Reva.  Further difficulty was caused by the fact that there is apparently a dispute with the insurance company as to the extent to which any damage is covered by insurance. 

6.      Be that as it may, Reva fell behind in respect of the loan from JHL and on the 17^th August, 2012, judgment was entered against Reva and Miss Grant in the amount of £355,415.28, together with continuing contractual interest. 

7.      On 7^th June, 2013, JHL obtained an Acte Vicomte Chargé d'Ecrire.  On 23^rd August, 2013, on the application of JHL, the Court pronounced 'L'Adjudication de la Renunciation' of Reva's immovable property and ordered that a degrevement should take place.  It appointed Mr Pollano and Advocate Temple as attournés. 

8.      As already stated, Reva applied on 20^th September for a Remise.  The supporting affidavit suggested that Reva's assets exceeded its secured liabilities. 

9.      Apart from movable property valued at £3,007, Reva has only one asset, namely the property.  There is no dispute that the property is divided into four flats.  The top three have all been substantially refurbished following the fire.  They appear to be in good condition and are let.  The ground floor flat is occupied by Miss Grant and the refurbishment of that flat has not been finished.  Any purchaser would therefore have further work to undertake in respect of that flat. 

10.    The Jurats obtained two valuations for the purposes of their report.  The first was from Le Gallais, estate agents.  Le Gallais valued the property at £515,000.  The second valuation was from Broadlands estate agents.  This valued the property at £450,000 but stated that, should the flats be sold off separately after completion of the work to the ground floor flat, a figure closer to £600,000 in total could be achieved. 

11.    The Schedule of Claims prepared by the Jurats, with the assistance of the Viscount's Department, showed secured claims totalling £572,753.63 with ordinary or preferred unsecured claims of £81,838.16, making a total of £654,591.79. 

12.    The Jurats took a figure for the property of £500,000 (being a figure between that of Le Gallais and that of Broadlands).  The total assets were therefore £503,007.  After deduction of administrative expenses such as selling costs, the valuation fees and prior degrevement costs (totalling £17,426.69) the net assets which would be available for distribution came to £485,580.31.  As the secured claims totalled £572,753.63, this led to a shortfall for the secured creditors of £87,173.32.  In those circumstances the Jurats felt unable to recommend that a Remise be granted. 

13.    When the matter came back before the Court on 4^th October, Miss Grant produced a valuation from Labesse and Company, chartered building surveyors.  Mr Labesse of that firm had inspected the property on 3^rd October.  He expressed the opinion that approximately £35,000 would be required to complete the works to the property.  He gave a valuation of £660,000 assuming completion of the works.  It is not entirely clear from that report whether he was valuing the property as a whole or on the basis of selling the four flats individually, but he did give a value for each individual flat, so the latter seems more likely. 

14.    In the light of this new information and the suggestion that, if the Labesse valuation were correct, there would be a surplus, the Court adjourned the matter for further argument.  The Deputy Bailiff indicated that the three valuers should get together to see if anything could be agreed. 

15.    That duly occurred and on 9^th October, Mr Labesse emailed the Viscount's Department to say that it was agreed by all three valuers that the best value would be achieved by selling off the flats individually.  A consensus had been reached that, assuming this course of action, the valuation would be £595,000.  It was further agreed between the three of them that, if it was not possible to sell the flats individually, the value for the property as a whole was £500,000.  

16.    On the basis of that information, the Viscount's Department prepared an updated schedule containing an estimate of assets and liabilities.  Taking the higher value of £595,000, this showed total assets of £598,007.  After deducting administrative expenses of £19,421.69 (slightly higher because of the increased valuation), this gave net assets of £578,585.31.  The secured claims remained at £572,753.63, giving a small surplus for unsecured creditors of £5,831.68.  However it was pointed out by the Viscount's Department that this figure did not allow for any additional legal fees that would be incurred in order for the four units of accommodation to be sold separately.  Legal fees would be incurred either in amending the Articles of Association to enable the four flats to be sold by share transfer or by creating the relevant flying freeholds. 

The Law

17.    The key consideration on an application for Remise is that there is no jurisdiction to grant a Remise unless the Court is satisfied that there will be a credit balance, however small, for distribution amongst the unsecured creditors after payment in full of the secured creditors (see Re Shield Investments (Jersey) Limited [1993] JLR N3a).  Similarly, a Remise may not continue if it transpires at some stage during the process that there will be no credit balance for distribution amongst unsecured creditors (perhaps because the property turns out to be less valuable than originally thought or because the claims increase as a result of an accruing interest (see Re Superseconds Limited [1996] JLR 117. 

18.    In Re Mickhael [2011] JLR 1, William Bailhache, Deputy Bailiff helpfully summarised the applicable principles at paragraph 3 of the judgment and we accept and apply that summary.  Thus the Court is disposed to grant a Remise if satisfied if there will be a surplus, particularly where it is thought there may a surplus after all creditors are paid, so that any equity in the property will return to the debtor rather than accrue to any creditor who takes the property upon degrevement.  As against that, as the Deputy Bailiff said at paragraph 3 (v) of the judgment in Mickhael, where there is only a marginal equity and a potentially complex process for the sale or other realisation of the assets, it is highly doubtful as to whether a Remise would be appropriate. 

Discussion

19.    At the adjourned hearing, Miss Grant produced an estimate from Mr Barry Pickersgill for the legal work required to enable the flats to be sold off separately.  Mr Pickersgill said that it was difficult to predict how much work would be required, but that, if he had to quote a fixed fee, he would quote the sum of £6,000.  In view of the uncertainty, we think that is the figure on which we should proceed. 

20.    On the basis that the sum of £6,000 must be added to the expenses of a Remise, the surplus of £5,831.68 referred to above becomes a deficit of £168.32. 

21.    However, Miss Grant submitted that we should not proceed on the valuation agreed between Le Gallais, Broadlands and Mr Labesse.  She produced an email valuation dated 11^th October from Mr Nigel Sweeney, a chartered surveyor, who had inspected the property the day before.  He valued the property on the basis of selling the four flats individually and estimated that a total of £670,000 could be achieved.  If the property were sold as a whole, he thought a likely valuation would be £600-650,000.  However, his email stated that he was not aware of the rental figures being achieved. 

22.    Miss Grant also pointed to the fact that she had advertised the flats for sale via the web and a particular individual had expressed considerable interest and had sent an email dated 13^th October (having inspected the property) asking how the water rates were split between the flats and who was responsible for the roof terrace.  She considered that this was tantamount to an offer. 

23.    She also referred to the fact that Geoffrey Wills Associates, chartered surveyors, had in April 2010 valued the property at £625,000 (and £780,000 after completion of the work).  The same firm had produced a valuation of £650,000 in January 2011 based on the then current condition of the property. 

24.    We do not feel able to proceed on the basis of the Geoffrey Wills valuations.  They were both prepared some time ago and the market has been subject to change since then.  Similarly, we cannot read anything into the expression of interest by a potential purchaser who has viewed the flats.  His email does not amount to an offer and gives no indication as to what figure he might be willing to offer were he to decide to do so. 

25.    We are left therefore with the fact that Mr Sweeney has produced a valuation which, on the figures contained in the Viscount's schedule, would produce a surplus over the secured liabilities of fractionally under £75,000. 

26.    As against that, the Court must consider the fact that Le Gallais, Broadlands and Mr Labesse are now agreed on a valuation of £595,000.  Furthermore, this figure has been reached after discussion and debate between them.  They also reflect a spread of expertise between estate agents and surveyors.  In the circumstances we do not feel justified in departing from the valuation figure which they have all agreed upon.  We therefore accept that the Court should proceed on the basis of a figure of £595,000. 

27.    On the basis of this figure, there will be a small deficit in relation to the secured creditors and there will be no dividend for the unsecured creditors.  Furthermore, interest continues to accrue on the various secured debts at £32,780.65 per annum (according to the Viscount's schedule of assets and liabilities).  The current income from the units amounts to approximately £33,000 and Miss Grant submitted that therefore the position would not deteriorate during the course of a Remise.  However, it seems likely that vacant possession would have to be obtained before the sale of each flat could take place.  Miss Grant envisaged that the flats could be sold individually as and when purchasers were willing to proceed but we think that is unlikely to be the case.  The practice in a Remise is for the whole property to be sold at one time so as to clear all the secured debt.  This is because a creditor cannot be forced in a Remise to agree to be party to a contract in order to release his hypotheque.  If a creditor is doubtful as to whether all the sales will be sufficient to clear the secured debts, he is unlikely to agree to release his hypotheque.  We see practical difficulties in selling off the flats individually at different times.  Thus interest will continue to accrue on the entire amount until sale of all the units. 

28.    It follows that, on the basis of the figures contained in the schedule of assets and liabilities, we do not think there is jurisdiction to grant a Remise because we are not satisfied that the secured debts will be paid in full upon sale of all the immovable property.  Even if it becomes a matter of discretion, the balance is so close that we would not think it right to grant a Remise. 

29.    Miss Grant argued that, even if we were against her on the question of valuation, there would still be a surplus because the amount recorded as the secured claims in the schedule of assets and liabilities was wrong.  The schedule included the sum of £402,537.75 as the amount due to JHL as at 30^th September, 2013.  Miss Grant sought to produce figures which showed that the balance owing to JHL was less than that.  Advocate Cook was not in a position to respond immediately and accordingly we adjourned until 4pm in order that JHL could supply details of how its claim was made up. 

30.    At the resumed hearing JHL produced a series of annual statements showing the amounts charged by way of interest, the credits by way of payments and any additional amounts debited by way of charges or legal fees.  The terms of the loan entitle JHL to recover legal fees incurred in enforcing payment. 

31.    We have compared the figures produced by Miss Grant with the statements produced by JHL.  According to Miss Grant, the total outstanding capital, arrears and fees is £387,647.37.  However, it is clear that her figures do not include legal fees of £4,492 and £5,913, which are included in JHL's figure.  Furthermore her calculation of the interest due for 2013 is £10,254.29 whereas the figure produced by JHL up to 30^th September, 2013, is £15,689.13, a difference of £5,435.04.  This difference, together with the legal fees referred to above, comes to £15,840.04 which is very close to the difference between the amount contended for by JHL and that accepted by Miss Grant (although she reserves the right to query some of the legal fees). 

32.    On the basis of the information before us, we see no reason to doubt the figure quoted by JHL.  We are certainly not satisfied that the lesser figure quoted by Reva is correct to the extent that we can conclude that there will be a surplus over the secured claims and that it would be appropriate to grant the Remise. 

33.    Having considered carefully the points put forward by Miss Grant on behalf of Reva, we are not satisfied on the evidence that, if a Remise were to be granted, the sum realised would exceed the secured liabilities and accordingly we decline to order a Remise.  The stay on the degrevement is therefore lifted and it may now proceed. 

Authorities

Loi (1939) sur les Remises de Biens.

Re Shield Investments (Jersey) Limited [1993] JLR N 3a.

Re Superseconds Limited [1996] JLR 117.

Re Mickhael [2011] JLR 1.