Jersey Unreported Judgments

Companies.

[2022]JRC181

Royal Court

(Samedi)

30 August 2022

Before     :

J. A. Clyde-Smith OBE., Commissioner, and Jurats Ramsden and Le Heuzé

 

IN THE MATTER OF THE REPRESENTATION OF HWA 555 OWNERS, LLC

AND

IN THE MATTER OF REDOX PLC S.A.

AND

IN THE MATTER OF AN APPLICATION FOR A CREDITORS' WINDING UP PURSUANT TO ARTICLE 157A OF THE COMPANIES (JERSEY) LAW 1991

Advocate J. M. Dann for the Representor

Advocate J. M. P. Gleeson for the Second Respondent

judgment

the commissioner:

1.        The Representor ("HWA") seeks an order for the winding up of and the appointment of joint liquidators for the First Respondent ("Redox"), a Jersey incorporated company which is already the subject of bankruptcy proceedings ordered by the District Court of Luxembourg in which the Second Respondent was appointed the bankruptcy trustee or curateur ("the Luxembourg Bankruptcy Trustee").

Background

2.        Redox is a public company incorporated in Jersey on 8^th August 2008 and formerly named as Regus PLC.  It is a member of the IWG group of companies, and its parent company is IWG PLC which is also incorporated in Jersey. 

3.        On 1^st September 2008, Redox was registered as a société anonyme (a public limited company) with the Luxembourg Register of Companies and Commerce with its place of central administration being an address in Luxembourg.  It has thus been described as a "dual hatted" entity. 

4.        The IWG Group is a leading provider of office facilities with premises all over the world.  The function of Redox was to act as guarantor for the rental obligations of other companies in the group that acted as tenants of office premises.  As such it provided over 700 guarantees in respect of unpaid rent and the service charges owed by such tenant companies.  It had no employees and its administrative functions were carried out in Luxembourg where two of its directors were resident, a third in the United Kingdom. 

5.        One of the guarantees was given by Redox to HWA in respect of a lease entered into on 24^thJuly 2018 between HWA and RGN-San Francisco XXIV LLC ("RGN"), a special purpose vehicle which forms part of the IWG Group, of a substantial building HWA owned in San Francisco.  The guarantee has a maximum liability of US$90 million plus enforcement costs of US$1 million.  HWA's ultimate parent company is a real estate investment trust incorporated in Maryland in the USA known as the Vornado Realty Trust. 

6.        On 26^th September 2019, RGN purported to terminate the lease.  This was challenged by HWA and on 11^th May 2021, following a trial, the Californian court held that the purported termination was null and void.  That decision is subject to an appeal by RGN which has yet to be heard.  On 16^thAugust 2021, the Californian court made a costs order against RGN in favour of HWA in the sum of US$99,158.61 ("the Costs Order").  This did not include claims for Attorney's fees. 

7.        On 25^th August 2020, Redox applied to this Court for it to issue a letter of request to the District Court of Luxembourg to facilitate the making of a bankruptcy order in Luxembourg in respect of Redox, on the basis that the directors had concluded that it would be unlikely to have sufficient income and assets to meet its liabilities as they fell due in the short to medium term. 

8.        On 10^th September 2020, the Court granted that application for the reasons set out in its judgment of 26^th October 2020 reported as Representation of Regus PLC [2020] JRC 226A.  It is fair to say that the Court expressed some reservations, in particular that:

(i)        Redox had made a distribution in January 2019 ("the January 2019 Distribution") of what would appear to be the bulk of its assets, which distribution might be subject to being set aside pursuant to Article 17 of the Bankruptcy (Désastre) (Jersey) Law 1990, as a transaction at an undervalue, and the Court wished to know if the creditors might be prejudiced by a bankruptcy in Luxembourg.

(ii)       No creditors have been convened to the hearing, which hampered the Court in the exercise of its discretion.

9.        It was the view of the directors of Redox that the creditors considered that they were dealing with a Luxembourg business and that Luxembourg bankruptcy would be expected by them.  It was argued that unlike the position in Jersey, the Luxembourg Court bankruptcy process, although not a formal rescue procedure in the same way as for example an English administration order, would not necessarily result in the liquidation of Redox, with the possibility of the company, if it met certain condition, being allowed to pursue its activities as a going concern. 

10.      The Court was persuaded to issue a letter of request to the Luxembourg Court for it to act in aid of and be auxiliary to this Court by initiating bankruptcy proceedings in Luxembourg.  However, because no creditors had been convened, the Court wished to keep open the right of any creditor to come to the Court to seek orders in relation to what was, after all, a Jersey company.  It granted liberty to the creditors to apply to set aside the order for the issuing of a letter of request and declined to order that no enforcement proceedings could take place without the written consent of Redox or with the leave of the Luxembourg Court. 

11.      On 11^th September 2020, Redox changed its name from Regus to Redox three days before applying to the Luxembourg court to be placed into bankruptcy.  That application was initially rejected because the conditions of bankruptcy were not met, but the application was renewed and Redox was placed into bankruptcy proceedings by the District Court of Luxembourg on 9^th October 2020, appointing Mrs Anick Wolff, 1st Vice-President of the District Court of Luxembourg as Judge-Commissioner (supervisory judge) and the Second Respondent as bankruptcy trustee (curateur).

12.      The District Court of Luxembourg in its judgment made no reference either to the letter of request from the Jersey Court or to the registration of Redox in Luxembourg as a société anonyme.  In essence, it found that Redox had no economic activity in Jersey and was managed from Luxembourg.  It is not in dispute that this is factually correct. 

13.      Applying to the District Court of Luxembourg for the opening of bankruptcy proceedings constituted an Event of Default by RGN under the lease and on 6^th November 2020, HWA exercised its right to terminate the lease. 

14.      On 9^th November 2020, HWA issued a demand against Redox under the guarantee claiming damages in the amount of not less than US$90M, together with reasonable attorney's fees, costs and expenses in the amount of not less than US$1M. HWA has given notice that it intends to bring further proceedings against RGN for wrongful termination of the lease seeking damages equal to or exceeding the amount of debt under the guarantee. 

15.      On 7^th April 2021, HWA applied to the Court for disclosure of certain confidential information that had been filed by Redox in the October 2020 proceedings, and for the Court to set aside the letter of request to clear the way for any creditor to make a further application to the Jersey Court in order, for example, to commence insolvency proceedings in this jurisdiction.  It was felt that this step was effectively blocked by the judgment of the 26th October 2020.  Another creditor, West Sussex County Council, intervened and supported the application.  

16.      Advocate Pallot, acting for the intervenor, said that his firm had acted for many creditors who had challenged the efficacy of the Luxembourg bankruptcy proceedings.  He said the modus operandi of other companies in the IWG Group was to settle/compromise with the creditors of Redox which they had done in twenty of twenty-one cases so far. Overall, it was said on behalf of both the intervenor and HWA that there had been a lack of communication between the Luxembourg Bankruptcy Trustee and the general body of creditors.  Although there was no allegation of his acting otherwise than in good faith, there were problems arising out of the bankruptcy procedure in Luxembourg, which they said was not suited to a large-scale commercial insolvency and which did not feature the kind of open dialogue and exchange of information with creditors that was a fundamental part of the process in Jersey or England. 

17.      The Luxembourg Bankruptcy Trustee contested the allegations made against him, but in particular, said that the January 2019 Distribution was being actively investigated.  He had just received a draft report from Ernst & Young in Luxembourg ("the EY Luxembourg Report") which indicated that further work was needed to be done before a final position could be adopted.  He went on to say, helpfully in the view of the Court, that if the EY Luxembourg Report, as finalised, indicated that there were claims that could be better made in this jurisdiction, then he would not hesitate in seeking such assistance from this Court as may be required, including, if appropriate, the opening of any parallel process in this jurisdiction. 

18.      For the reasons set out in its judgment of the 21^st September 2021, reported as Representation of Regus [2021] JRC 238, the Court found that it was not appropriate to set aside the letter of request at that time (paragraph 26) and adjourned that application with liberty to apply to all affected persons, including the creditors of the company.  It ordered disclosure of the confidential material and agreed with the observation of counsel for the Luxembourg Bankruptcy Trustee that it appeared to be too soon to begin a parallel insolvency process, particularly when it was confirmed that the relevant time limits in respect of any pursuit of claims to set aside the January 2019 Distribution under Jersey law were not about to expire (paragraph 28).  The Court said this at paragraph 29:

"Finally, having regard to the views expressed on behalf of the Respondent and the Intervenor that the Trustee was acting in good faith, we invited the Respondent and the Intervenor to give serious consideration to participating in the creditors' committee in Luxembourg for the purpose of obtaining early sight of the Ernst & Young report and furthering their interests generally.  It is in the interest of all creditors to have their claims resolved in one jurisdiction and to have access to all the advice that the Trustee is receiving. We note in that regard that the advocate for the Trustee stated that his advice to the Trustee in respect of the Jersey law remedies available to a Trustee/Liquidator on these facts would also be shared with the creditors' committee in early course, including specific advice in relation to causes of action in respect of the 2019 distribution.  He also confirmed that the Trustee would not hesitate to seek assistance from the Court if the necessity arose."

19.      No creditors' committee in the Luxembourg bankruptcy had been formed at the time of the hearing. HWA ascertained after the hearing that a filing of a proof of debt in the Luxembourg bankruptcy proceedings was required before it could be a member of the creditors' committee, which would constitute a submission to the jurisdiction of the District Court of Luxembourg.  Subsequently, HWA informed the Luxembourg Bankruptcy Trustee that it could not submit a proof of debt and join the creditors' committee (as it had been invited to do), as in doing so it might consequently be precluded from seeking relief from the Jersey Court.  Accordingly, HWA has not had access to the EY Luxembourg report, as the Luxembourg Bankruptcy Trustee had advised that the appropriate forum to receive this confidential information was the creditors' committee. A creditors' committee has subsequently been formed in the Luxembourg bankruptcy proceedings although it is not known which creditors are members of it. 

20.      As a result of the issues surrounding the provision of confidential information and what HWA considered to be insufficient progress in the Luxembourg bankruptcy proceedings, it filed a representation making this application on 15^th March 2022, seeking an order for Redox to be placed in a parallel insolvency process in Jersey in the form of a creditors' winding up pursuant to Article 157A of the Companies (Jersey) Law 1991 ("the Companies Law").  It is proposed that Mr Alan Roberts of Grant Thornton Limited in Jersey and Ms Chris Laverty and Mr Oliver Haunch of Grant Thornton UK LLP be appointed joint liquidators. 

21.      Mr Roberts explained that it was not envisaged that the Jersey liquidation of Redox would inhibit or impinge on the Luxembourg bankruptcy proceedings or the activities of the Luxembourg Bankruptcy Trustee.  He understood the concept of parallel insolvency proceedings in Jersey as well established.  The primary purpose of any liquidation of Redox in Jersey would be to investigate the company's affairs, in order to determine whether any recoveries might be made under Jersey law for the benefit of creditors, which had hitherto been unavailable under Luxembourg law.  Following their appointment, steps would be taken to agree a protocol with the Luxembourg Bankruptcy Trustee in order to facilitate the efficient winding up of the company in Jersey and Luxembourg and to avoid a duplication of costs.  The proposed Liquidators would investigate, inter alia, the propriety of the January 2019 Distribution and whether proceedings could be brought against IWG PLC, a Jersey company, as the recipient of the January 2019 Distribution.  If any grounds for a potential claim were found, then it was considered that the Jersey Liquidators had the power to seek recovery in respect of that claim without the necessity of the Luxembourg Bankruptcy Trustee being a party or needing to expend efforts or funds in connection with the pursuit of any such claim. 

22.      The Luxembourg Bankruptcy Trustee questions whether HWA had the standing to initiate a creditors' winding up, but in any event, he does not consider that the institution of a creditors' winding up in Jersey at this stage would be in the best interests of the creditors as a whole.  It would be duplicative of the work he was undertaking, would create significant additional cost at the expense of the insolvent estate and creditors as a whole, would cause complication and complexity, including in relation to agreeing an appropriate protocol as between the Jersey office holders and himself and it would not appear to be clear whether any Jersey office holders would succeed in achieving formal recognition of their status in Luxembourg. 

23.      On 11^th  May 2020, the Luxembourg Bankruptcy Trustee issued an update to creditors.  HWA says this was only the second substantive update in the course of the bankruptcy proceedings.  In that update:

(i)        He said a number of agreements had been reached between the IWG Group and certain creditors outside of the Luxembourg insolvency proceedings resulting in the withdrawal of various guarantee claims and of their related proofs of debt. 

(ii)       He had received claims in the total amount €152 million and of that amount €10.8 million had related to contingent claims which had not materialised, €79.6 million related to claims which had been withdrawn or settled and €31.3 million related to amounts claimed which exceeded the maximum amount guaranteed and which he would therefore contest.  As a consequence, the provisional amount of the claims that he considered Redox might be liable for was €31 million. This would not of course include the contingent claim of HWA which has not been filed in the Luxembourg Bankruptcy proceedings. 

(iii)      The bank accounts of Redox had a positive balance of €8.9 million and it was expected that a further £14.1 million would be acquired through intra-group loans.

24.      He concluded as follows:

"Given my view that the provisional total amount of the claims due and payable by the Company is in the region of EUR 31 million, and that IWG remains in discussions with certain creditors of the Company, I am confident that the Company will be able to pay a significant proportion of the creditors who have filed a claim in the bankruptcy proceedings.  Claims continue to be accepted and I would be obliged if any creditor who has not yet filed a claim could do so in any early course.  I will publish a notice on the Redox insolvency website giving 30 days' notice of any longstop date for acceptance of proofs of debt in the bankruptcy proceedings."

25.      In a confidential affidavit the Luxembourg Bankruptcy Trustee explained that very significant progress had been made in the Luxembourg bankruptcy proceedings, both as a result of his actions gathering in the assets of Redox and the third-party negotiations conducted by the IWG Group which had served to reduce the liabilities of Redox.  In February 2022, he had received from the IWG Group a proposal for the réhabilitation or emergence of Redox from insolvency, a proposal that is contingent and will depend on the outcome of ongoing negotiations between the IWG Group and certain of Redox's creditors.  The process of réhabilitation will involve:

(i)        all the creditors who have admitted claims being repaid the full amount of their claims, together with interest on those sums, to the satisfaction of the Luxembourg Superior Court of Justice, and

(ii)       IWG Group's proposals for the funding for Redox after réhabilitation, including dealing with any contingent claims that might arise in the future.  Relevant to the position of HWA, contingent creditors' claims will not be compromised, but they will be at liberty to pursue such claims if and when crystallised post réhabilitation.  The Luxembourg Bankruptcy Trustee says that any such contingent creditors will therefore be in the same position as they were prior to Redox's entry into bankruptcy proceedings in October 2020 and will not suffer any prejudice as a result of Redox's réhabilitation. 

26.      Pursuant to the réhabilitation, creditors will be invited to file proofs of debt by a set bar date, and Redox's assets will be distributed to those creditors.  The Luxembourg Bankruptcy Trustee will then invite the IWG group to settle admitted claims in full and IWG will subsequently apply for Redox's emergence from the bankruptcy proceedings.  The Luxembourg Bankruptcy Trustee says that Redox will be in a position to emerge by early Autumn 2022. 

27.      On 11^th April 2022, RGN purported to tender a payment to HWA of the amount of the Costs Order without prejudice to its right to challenge the costs order on appeal and to recover the amount paid.  This offer was rejected by HWA and on 16^th June 2022, RGN commenced proceedings in California seeking to compel HWA to accept the tender.  By a "tentative ruling" dated 5^th July 2022, the Californian Court denied RGN's application, which RGN has now accepted.  There has therefore been no good tender made in respect of the Costs Order which remains unsatisfied.

Position of HWA

28.      HWA seeks a creditors' winding up order under Article 157A of the Companies Law for the following reasons, in summary:

(i)        Redox is incorporated in Jersey and HWA is entitled to an order winding up Redox in its place of incorporation, notwithstanding the ongoing Luxembourg bankruptcy proceedings.

(ii)       As far as it is aware, HWA is the largest creditor of Redox and there is no dispute that Redox is heavily insolvent.

(iii)      Redox's affairs require further investigation, in particular into the circumstances of the January 2019 Distribution, but also into a reorganisation that took place at the same time and the change in the name of the company three days prior to filing for bankruptcy.  As to the January 2019 Distribution, HWA say that the purported book value was US$644.6M.  It asserts that on the basis of the 2018 and 2019 financial accounts of Redox, the fair value of the assets distributed was US$3.3 billion.  The effect of this and the reorganisation was effectively to remove all of Redox's assets and render it insolvent.  As a consequence, no substantial assets are available to Redox by which claims can be satisfied.  In its view, both the January 2019 Distribution and the reorganisation at least require investigation.

(iv)      The investigations conducted by the Luxembourg Bankruptcy Trustee so far are unsatisfactory, progress being lamentably slow.  He has failed adequately to investigate the affairs of Redox.

(v)       The réhabilitation would preclude further investigations which cannot be in the best interests of the creditors as a whole.

(vi)      Whilst the Luxembourg Bankruptcy Trustee claims that contingent creditors' claims will not be compromised in the réhabilitation and will be at liberty to pursue such claims even when crystallised post emergence, those claims will be effectively unenforceable against Redox which will have no assets and conduct no business post réhabilitation.  HWA's claims will therefore be rendered valueless by the réhabilitation.  

(vii)     The Luxembourg Bankruptcy Trustee has failed to act impartially and/or has acted in bad faith.  Apart from failing to adequately investigate the January 2019 Distribution, he has prevented HWA and Redox's general body of creditors from accessing important information about Redox's affairs and failed to seek the assistance of this Court despite such assistance being plainly necessary. 

(viii)    The proposed Liquidators would have far more extensive powers which are better suited to conducting the necessary investigations and/or progressing any potential claims.  They would be able to challenge any transaction undertaken within the period of five years prior to the date of a winding up under Article 176 of the Companies Law and could therefore bring claims to challenge the January 2019 Distribution.  Jersey would be the natural forum for any such claim.  HWA is willing to fund the costs of the joint liquidators in investigating the affairs of Redox and the bringing of any claim although we understand that any such costs incurred would ultimately come out of the assets of Redox. In contrast, the fallback provision for reviewing transactions under Luxembourg law, absent fraud, is six months and ten days, although we understand an unlawful dividend can be clawed back in five years. HWA say that is not the same as setting aside a transaction at an undervalue. 

(ix)      The réhabilitation therefore enables the IWG group to pay off Redox's non contingent creditors in order to insulate itself from further investigation and possible challenges to the January 2019 Distribution by which it received assets at a possible under value of nearly £3 billion.  HWA and other contingent creditors would essentially be left with claims against a non-trading company with no assets.  It is therefore plainly necessary for winding up proceedings to be opened in Jersey in these circumstances in order to protect HWA's and other creditors' interests by the appointment of independent liquidators with the powers to investigate and challenge the January 2019 Distribution. 

Position of the Luxembourg Bankruptcy Trustee

29.      We summarise the position of the Luxembourg Bankruptcy Trustee as follows:

(i)        HWA lacks standing as a matter of Jersey law to seek the placing of Redox into a creditors' winding up, but without prejudice to that submission, he considers that it would not be appropriate at this stage for a parallel insolvency procedure to be commenced in Jersey.  The proposed réhabilitation would be to the benefit of creditors overall, including, for the avoidance of any doubt, contingent creditors.

(ii)       He vigorously rejected the assertion that he had not acted in the best interests of the creditors as a whole, pointing out that he was closely supervised by the supervisory judge of the Luxembourg Court.  In particular, he rejected the suggestion that he had not acted impartially or that he had acted in bad faith or failed to provide creditors with any or sufficient information as to the progress of the Luxembourg bankruptcy proceedings. 

(iii)      Very significant progress had been made in the Luxembourg bankruptcy proceedings both as a result of his gathering in the assets of Redox and the third-party negotiations conducted by the IWG Group which had served to reduce the liabilities of Redox.  Liabilities have progressively been resolved and he had now received from the IWG Group a proposal for the réhabilitation of the company from insolvency, a proposal contingent and dependent upon the outcome of ongoing negotiations between the IWG Group and certain of Redox's creditors and of Luxembourg court approval. 

(iv)      The process of réhabilitation will involve all creditors of Redox with admitted claims being repaid the full amount of their claims, together with interest on those sums to the satisfaction of the Luxembourg Superior Court of Justice and the provision of funding to Redox after its réhabilitation to deal with any contingent claims that might arise in the future.  Réhabilitation is not certain, and he has not closed his mind to the possibility that it may not be possible in the final analysis.  Accordingly, he continues with his investigations into Redox's affairs, including into the January 2019 Distribution upon which Ernst & Young in Luxembourg had been engaged.

(v)       The EY Luxembourg Report has been shared with members of the creditors' committee and estimates have been requested from Jersey and Luxembourg law firms with a view to establishing the merits of any potential causes of action that might be available in those jurisdictions in respect of the January 2019 Distribution and the likely fees associated with any such causes of action.  Once received, he will liaise with the creditors' committee and the supervisory judge as to the most prudent course of action. 

(vi)      In the meantime, it may well be the case that Redox can emerge from insolvency which will be to the benefit of the general body of creditors as all of those with admitted claims will be repaid in full with interest.  Equally contingent creditors will be in a significantly better position than they would otherwise have been as they would be able to seek repayment of the full amounts owed to them from a solvent company once those claims crystallise. 

(vii)     HWA has elected not to submit a claim in the Luxembourg proceedings and as a result has no standing at all in that jurisdiction.  This was despite this Court's previous encouragements that it engages with the Luxembourg insolvency process and that it would be in the best interests of all creditors for the affairs of Redox to be administered in one jurisdiction. 

(viii)    HWA, a contingent creditor, has not yet filed in any insolvency procedure in any jurisdiction and has not clarified when or if it would do so, and is now seeking to exert influence and control over Redox's insolvency, whilst calling into question the bona fides of an experienced professional insolvency practitioner.  

(ix)      HWA has suggested that Redox should not be permitted to exit bankruptcy proceedings without providing in full for any contingent claim which might be laid against it in the future, which is not a correct statement of the law.  The correct approach in an ordinary insolvency scenario is for contingent claims to be valued and for the liquidator to make distributions based on that valuation, thus ending the liquidation as soon as possible.  HWA's insistence in the insolvency of Redox being kept frozen in aspic to give a hope that its contingent claims might crystallise at some future point is not consistent with authority.  HWA cannot insist on insolvency proceedings being kept open pending any final determination in California as to Redox's potential liability under the guarantee. 

HWA's standing to make the application

30.      The ability of a creditor to apply for an order to commence a creditors' winding up of a company was introduced into the Companies Law on 1^st March 2022.  Article 157A provides as follows:

"(1) A creditor may make an application to the court for an order to commence a creditors' winding up if the creditor has a claim against the company for not less than the prescribed minimum liquidated sum and -

(a)       The company is unable to pay its debts;

(b)      The creditor has evidence of the company's insolvency; or

The creditor has the consent of the company

(2)...

(3)...

(4)...

(5) An application under paragraph (1) must be made in the form approved by the court and must be accompanied by an affidavit verifying the content of the form."

31.      Pursuant to Article 9 of the Companies (General Provisions) (Jersey) Order 2002, the prescribed minimum liquidated sum is £3,000.  It is not in dispute that Redox is insolvent.  The issue therefore is whether HWA has a claim for not less than the prescribed liquidated sum of £3,000. 

32.      Article 157C provides:

"(1)     The court, after considering an application made, and the affidavit required, under Article 157A, may -

(a)       make an order that a creditors' winding up must commence in respect of the company from the date the application is made or such other date as the court deems fit and appoint a person nominated by the applicant or selected by the court as the liquidator; or

(b)      dismiss the application and make such order as it thinks fit."

33.      Practice Direction RC22/01 provides at paragraph 3(b) that the affidavit in support of the application must state that "the creditor has a claim against the debtor company for a liquidated sum, that to the best of the creditor's knowledge is not subject to a genuine dispute and arguable defence or counter-claim, and which has not been paid."

34.      Advocate Dann submitted that given this winding up procedure is new at least in so far as it can be invoked by a creditor, there is no Jersey authority to date which has considered the jurisdiction.  He said there was no authority in the context of désastre which sheds meaningful light on the issues raised by the application.  The relevant provisions of the Companies Law are, however, closely analogous to and modelled on equivalent procedure available in England and other common law jurisdictions and decisions from those jurisdictions will be persuasive.  Under English law, a claim for a liquidated sum is one which is (a) pre-ascertained (or capable of being ascertained as a matter of arithmetic) and does not require a judicial process to establish quantum, and (b) due and payable to the creditor; McGuinness v Norwich and Peterborough BS [2012] 2 All ER (Comm) 265 at paragraphs 36 to 39 and Re A Debtor (No 64 of 1992) [1994] 1 WLR 264 at pages 268-9.

35.      However, as Advocate Gleeson points out, there is well settled Jersey case law as to the meaning of a "liquidated sum". The Privy Council in Dyson v Godfray [1884] App Cas. 726 observed at page 731:

"Perhaps the best definition of what may be called a liquid demand is found in Pothier, Obligations, 1st vol., part 3 chapter 4, paragraph 628:-

'Il faut que la dette qu'on oppose en compensation soit liquide.  Une dette est liquide lorsqu'il est constant qu'il es dû, et combien il est dû, cum certum est an et quantum debeatur.  Une dette contestée n'est donc pas liquide, il ne peut être opposée en compensation, à moins que celui, qui l'oppose, n'en ait la preuve à la main, et ne soit en état de la justifier promptement et sommairement.'

The Courts of Jersey ought to have ascertained whether this was a liquid demand in that sense.   Again, if they came to the conclusion that, instead of being an admitted debt, or a debt capable of being readily proved, it raised a question which would give rise to serious litigation, it would not properly come under the head of a liquid demand".

The key aspect here is the Court applying Pothier in requiring that a liquidated sum be both certain in amount and certain that it is due: "Une dette est liquide lorsqu'il est constant qu'il est dû, et combien est dû..."

36.      In Representation of Harbour [2016] JRC 171 at paragraph 38 the court noted that for an application for a declaration en désastre:

"The creditor must show that it has a liquidated clam, in other words a certain debt to which there is no reasonably arguable defence (so that if proceedings were issued it could form the basis for an immediate application for summary judgment) - see Dessain & Wilkins, Insolvency & Asset Tracking, 5th Ed. [2016] pages 149 - 150."

37.      In Harbour v Orb [2017] JRC 007 at paragraph 13, the Court observed:

"A 'liquidated claim' means a certain debt which is undoubtedly due and payable.  The indebtedness must be certain, and not the subject of a genuine dispute and arguable defence - see the comments of the Jersey Court of Appeal in SO Holding [2011] JLR 782 at paragraphs 8 and 9 citing Re Baltic Partners [1996] JLR Note 1 and Dessain and Wilkins Pages 143 - 144, paragraph 5.3.  As a creditor applicant does not need to have a judgment, a creditor with a liquidated claim can apply even if that claim arises from a contract governed by a foreign law with a foreign jurisdiction clause, as was the case in SO Holding".

38.      The continued application of the above case law in the context of a creditor's winding up procedure can be gleaned from the fact that paragraph 3(b) of Practice Direction RC 22/01 adopts a wording from the désastre context in providing that the supporting affidavit must "state that the creditor has a claim against the debtor company for a liquidated sum, that to the best of the creditor's knowledge is not subject to a genuine dispute and arguable defence or counterclaim and which has not been paid".

39.      In Re Baltic Partners Limited [1996] JCA 075, Southwell JA giving the judgment of the Court noted:

"The creditor's claim will usually have been established by a judgment of a competent court often a summary judgment.  A judgment is not a precondition.  But if the creditor does not have a judgment in his favour, there must nevertheless be a liquidated sum undoubtedly due and payable by the debtor.  The indebtedness must be certain, and not the subject of a genuine dispute and arguable defence, set off or counterclaim.  The indebtedness must be such as could form the basis of an immediate summary judgment."

The Court of Appeal's wording towards the end of this quote is now reflected in Practice Direction RC 22/01.  We conclude that as a matter of Jersey law the reference to a liquidated claim in Article 157A of the Companies Law is a reference to a claim that is certain in amount and which is not the subject of a genuine dispute and arguable defence or counterclaim and which has not been paid.

40.      In this case, HWA does not contend that its formal demand under the guarantee constitutes a claim for a liquidated sum that is not subject to a genuine dispute or arguable defence and which has not been paid.  The demand, which is dated 9^th November 2020, recites that HWA is entitled to recover damages from RGN and Redox in an amount not less than US$90 million, together with reasonable attorney's fees, costs and expenses in the amount of not less than US$1 million.  Those damages and fees costs and expenses (with the exception of the Costs Order) have not as yet been ascertained. HWA has subsequently stated that its claim under the guarantee, other than in respect of the Costs Order, will be for the costs of retrofitting the property amounting to US$55 million, the 150-day rent free period amounting to US$4.3 million, real estate agents' fees amounting to US$1.1 million and attorney's fees incurred (estimated at US$5.4 million), which total some US$65.8 million, well under the amount specified in the demand.  Furthermore, HWA's claim for damages against RGN in the Californian proceedings was withdrawn in order to avoid delaying the trial on the basis that it would be re-asserted later, but the IWG group have indicated that RGN will be defending those claims which have not as yet been the subject of judicial determination. Other than in respect of the Costs Order, the demand under the guarantee does not, therefore, give rise to a claim which is undoubtedly due and payable. 

41.      HWA therefore asserts standing to bring this application on the basis of the Costs Order.  That order was made by the Californian courts on 16^th August 2021, when the Californian courts ordered that HWA was entitled to a costs award in the sum of US$99,158.61, being for non-attorney fee costs.   The Californian court in its tentative ruling denied the attempt of RGN to tender the amount of the Costs Order because the tender had been made on the basis that it satisfied the full amount of the costs award, when HWA was still entitled to claim Attorney fees. The was no question on the part of RGN or the Californian court that the amount of the Costs Order itself was due and could have been paid. This amount is therefore due by Redox under the terms of the guarantee.

42.      Professor Scott Dodson, a professor law at the University of California instructed on behalf of HWA, opines in his opinions of 12^th April and 3^rd June 2022 that Californian law would characterise the Costs Order as a liquidated claim because it is in an amount that is certain or readily ascertainable and that the filing of an appeal disputing the underlying liability or a stay of execution would not undo the liquidated status of the claim.  

43.      This is consistent with the position under English law, which in our view is persuasive on this point, that a debt is not considered disputed because it is subject to a pending appeal.  As explained by Warren J in El Ajou v Dollar Land (Manhattan) Ltd [2005] EWHC 2861 (Ch) at [9]:

"In a case where the court has ruled in favour of a claimant that a debt is due, then the claimant is, in my judgment, unquestionably a creditor, even if the judgment is the subject matter of an appeal.  If the creditor then petitions for a winding up based on the judgment debt, it is no defence to the petition that the judgment can be overturned on appeal.  It may be that the Respondent would, depending on the facts, obtain a stay of the petition pending an appeal."

44.      There is no application by the Luxembourg Bankruptcy Trustee to stay the current application brought by HWA pending the outcome of the appeal before the Californian courts, but the amounts due by RGN to HWA under the Costs Order are not in dispute or the subject directly, as we understand it, of any appeal.  It is the substantive findings in the proceedings that are under appeal, and we accept that if that is appeal is successful, the Costs Order may be set aside or varied, but that possibility does not undo the liquidated status of the claim under the Costs Order.

45.      Professor Dodson explains that under Californian law an appeal statutorily stays enforcement of the Costs Order and Advocate Gleeson argues that the stay renders the claim by HWA against RGN uncertain, and therefore not in a liquidated sum.  In our view, this is not the case.  We are concerned with an analysis of the claim itself and whether it is for a certain sum that is not subject to a genuine dispute or arguable defence or counterclaim.  The order of the Californian courts is certain in amount, namely US$99,158.61 and being an order of the Californian court, that amount is undoubtedly due and payable by RGN against whom the order was made. Indeed, RGN attempted unsuccessfully to pay it.  The amount of that order is not the subject of a genuine dispute or arguable defence and, is not of itself directly subject to any appeal.  Whilst the amount due under the Costs Order is presently due and payable, HWA is currently unable to enforce it because of the statutory stay pending appeal, but in our view, the issue of enforceability is quite separate from and does not detract from the status of the claim, which remains a liquidated claim against RGN in a sum above £3,000.  

46.      The guarantee given by Redox to HWA is governed by Californian law and Professor Dodson opines that under the terms of that guarantee HWA has a liquidated claim against Redox for costs of US$99,158.62.  The status of HWA's claim against Redox under the guarantee is the same as the claim by HWA against RGN namely a liquidated claim in excess of £3000, but as a consequence of the stay, HWA is not in a position today to enforce that claim. 

47.      The Court has a discretion whether or not to grant a creditors' winding up under Article 157C of the Companies Law, but we conclude that HWA does have the standing to bring the application as it has a claim against Redox under the guarantee for a liquidated sum in excess of £3,000. 

Decision on application

48.      We accept that in international insolvency cases, the common law and the principles of private international law all emphasise the importance and primacy of the place of the company's incorporation.  Lord Sumption confirmed the importance to have proper regard to the primacy of the law of the place of the relevant company's incorporation when he said at paragraph 23 of Singularis Holdings Limited v PriceWaterhouseCoopers [2014] UKPC 36:

"....The principle of modified universalism is a recognised principle of the common law.  It is founded on the public interest in the ability of foreign courts exercising insolvency jurisdiction in the place of the company's incorporation to conduct an orderly winding up of its affairs on a world-wide basis, notwithstanding the territorial limits of their jurisdiction.  The basis of that public interest is not only comity, but a recognition that in a world of global business ... it is in the interests of every country that companies with trans-national assets and operations should be capable of being wound up in an orderly fashion under the law of the place of their incorporation and on a basis that will be recognised and effective internationally.....".

49.      The place of a company's incorporation is prima facie the principal forum in which the company should be wound up - see Re BCCI SA [1972] B.C.C.83 per Browne Wilkinson VC at paragraph 91 and Kam Leung Sui Kwan v Kam Kwan Lai [2015] HKCFAR 501 at paragraph 19 wherein Lord Millett NPJ said that "the most appropriate jurisdiction in which to wind up a company is the jurisdiction where it is incorporated."

50.      This is so notwithstanding the existence of antecedent parallel foreign winding up proceedings in another country. In North Australian Territory Co Ltd v Goldsbrough [1899] 61 LT 717, the company was incorporated in England and had its registered office in England but had a branch office and the "bulk of its business" in Australia.  The company had been wound up by the Court in Victoria, Australia prior to the commencement of a voluntary winding up in England.  Kay J rejected an argument that the English liquidators lacked authority to serve out certain writs as their appointment had been superseded by the Australian liquidation, holding that:

"The winding-up in this country must go according to the law of this country, and according to the law of the corporation which is a corporation in this country.  Therefore any order made by the Australian courts for winding-up in Australia would merely be ancillary, just as in the converse case an order made in this country for winding-up an Australian company could only be ancillary to any winding-up taking place in Australia.  It would not possibly supersede a voluntary winding-up in Australia, if the company were an Australian company.... It is impossible that the compulsory winding-up in Australia could interfere with the voluntary winding-up here."

51.      As explained by the Grand Court of the Cayman Islands in Re Philadelphia Alternative Asset Fund (unreported 22nd February 2006 and reported in note form at 2006 CILR Note 7):

"This is the fund's domicile.  The established rule is that any winding up must take place here although if there are assets in a foreign jurisdiction, ancillary proceedings abroad may be necessary: see North Australian Territory Co. Ltd v Goldsbrough (1899) 61 LT 717.  Counsel have been unable to cite any precedent either here or elsewhere for what Mr Hodgson now asks.  I am unaware of any instance of an English or Cayman Court declining to make a winding up order in the place of incorporation of a company for the sake of deferring to a foreign receivership in respect of that company.  The court of the country or domicile is the 'principal court to govern' a liquidation ... the fund having been incorporated here, this is the proper court for the management of its liquidation ... These principles are so clear and of such longevity that it would be wrong in principle to deny the petitioners this winding up order".

52.      This Court gave recognition to these well-established principles when it refused to make an order preventing the creditors of Redox from applying to this Court for relief without the permission of the Luxembourg Court.  As stated in the judgment of the 26^th October 2020:

"34     In this case, owing to our concerns in relation to the absence of creditors, we declined to order, as was sought by the Counsel for Regus, that no proceeding or enforcement process in/and out of any court or tribunal shall be commenced or continued by or against Regus Plc or affecting its business or property, except with a written consent of Regus Plc, or with leave of the Luxembourg commercial court.

35       We thought that such an order would be an unnecessary and inappropriate fetter on the right of a creditor to come to this Court to seek orders in relation to what is after all a Jersey company."

53.      It may be that these well-established principles require some modification when a company is "dual hatted", namely, as we understand it, incorporated in two jurisdictions.  We have not received any opinion on Luxembourg law explaining the precise effect of Redox being registered as a société anonyme in Luxembourg.  For example, if Redox was removed from the Jersey register, would it still continue to exist as a company registered in Luxembourg?  As a matter of Jersey law, if Redox was removed from the Luxembourg register as a société anonyme, it would still exist as a company registered in Jersey.  The District Court of Luxembourg made no reference to the status of Redox as a société anonyme in Luxembourg in its reasons for commencing bankruptcy proceedings.

54.      We have not been given any authority as to how the principles of international insolvency should apply in the case of dual hatted companies, but it is the case that this Court was persuaded by Redox that it was in the interests of the creditors for bankruptcy proceedings to be conducted in Luxembourg, which it was accepted was Redox's centre of main interest.  It was not a case of this Court deferring to the District Court of Luxembourg, but a positive decision that it was in the interests of the creditors that bankruptcy proceedings should be commenced in Luxembourg and having made that decision, and with bankruptcy proceedings well advanced in Luxembourg, the starting point must be for this Court to act in a manner which is consistent with that decision, for so long as it remains in the interests of the creditors as a whole for it to do so. 

55.      There are a number of reasons why in the exercise of our discretion and on the facts of this case we decline to make a winding up order in this jurisdiction, certainly for the time being:

(i)        At the outset, this Court requested that the District Court of Luxembourg should instigate bankruptcy proceedings.  The District Court of Luxembourg has done so and has appointed the Luxembourg Bankruptcy Trustee who has had the conduct of those proceedings since then acting under the supervision of the supervisory judge.  The close involvement of the supervisory judge marks a significant difference to the way a creditors' winding up would be conducted in this jurisdiction through the appointment of joint liquidators.  Whilst joint liquidators have the ability to seek the directions of the Court at any stage, the Court is not actively involved in the proceedings in the same way that the Luxembourg Bankruptcy Trustee is supervised by the supervisory judge in Luxembourg.  We were informed, for example, that the supervisory judge presides over meetings of the creditors' committee and has a direct involvement with the Luxembourg Bankruptcy Trustee in assessing claims. 

(ii)       In this Court's judgment of 21^st September 2021 at paragraph 29, it invited HWA to give serious consideration to participating in the creditors' committee in Luxembourg for the purpose of obtaining early sight of the EY Luxembourg Report and furthering its interests generally.  The Court remarked that it was in the interests of all creditors to have their claims resolved in one jurisdiction and to have access to all the advice that the Luxembourg Bankruptcy Trustee is receiving.  Whilst HWA and indeed the Court may not have appreciated at that time that participating in the creditors' committee meant HWA filing its claim in the Luxembourg proceedings, and thus bringing itself under the jurisdiction of the Luxembourg court, HWA has not filed its claim in the Luxembourg proceedings, and according to the Luxembourg Bankruptcy Trustee, is unique amongst creditors for not having done so.

(iii)      In a notice to creditors dated 11^th May 2022, the Luxembourg Bankruptcy Trustee has informed them of this application by HWA and given the opportunity to be heard.  No creditor has appeared in these proceedings, nor has any creditor written to the Court in support of HWA.  There is no indication that any of the other creditors regard it as being in their interests for parallel bankruptcy proceedings to be commenced in Jersey.  We were informed that the possibility of proceedings in Jersey over the January 2019 Distribution were discussed at the latest meeting of the creditors' committee, presided over by the supervisory judge.  The contents of that meeting are confidential, but Advocate Gleeson was able to say that the potential claim was felt to be complex and costly.  One can understand that the creditors of Redox may regard it as in their interests to accept réhabilitation rather than complex litigation, which they are on notice will be fiercely resisted by the IWG group.

(iv)      The Luxembourg Bankruptcy Trustee is entitled to regard it as in the interests of the creditors as a whole for the réhabilitation to succeed, which would mean all of the admitted creditors being paid in full with interest and the contingent creditors being able to pursue the full amount of their claims against a solvent company.  The ability of Redox to pay its debts as they fall due will presumably be a key issue for the Luxembourg Superior Court of Justice in deciding whether to grant réhabilitation.  It is likely to be some time before HWA's claim under the guarantee is crystallised.

(v)       We accept the submission that in a winding up, the claims of contingent creditors would ordinarily be valued and bankruptcy proceedings not kept open until those claims had crystallised.  In the English case of In re Danka Business Systems Plc [2013] Ch 506, a contingent creditor was dissatisfied that the liquidation might be concluded, and funds distributed to shareholders, while there remained a risk of a large contingent liability crystallising.  The English Court of Appeal rejected the suggestion that the liquidator should wait and see whether the contingency crystallised before concluding the liquidation.  In so doing, the court approved the following words of Hoffmann LJ in Stanhope Pension Trust Ltd v Registrar of Companies [1994] 1 BCLC 628, 633:

"A company is certainly entitled to initiate and complete the process of winding up notwithstanding that it will thereby become unable to fulfil future or contingent obligations.  Contingent creditors become entitled to prove for the value of their claims at the date of winding up, but the company cannot be required to set aside as fund against the possibility that the contingency may happen.  The liquidator is entitled to distribute the assets in accordance with the rules and such distributions cannot afterwards be disturbed.  In re House Property and Investment Co Ltd, in which a landlord tried unsuccessfully to require the liquidator of its original tenant company to set aside a fund to pay the rent if the assignee should default, illustrates all these principles very well."

(vi)      Réhabilitation appears not dissimilar to the process for terminating a creditors' winding up under Article 185A of the Companies Law, which is in these terms:

"185A             Termination of creditors' winding up

(1)       The liquidator of a company that is in the course of being wound up by a creditors' winding up may apply to the court for an order terminating the winding up, and the members may, by special resolution, authorise the company to make such an application.

(2)       The court shall refuse the application unless it is satisfied that the company is then able to discharge its liabilities in full as they fall due.

(3)       In considering the application the court shall have regard to the interests of the creditors of the company."

Two observations can be made from this provision, firstly that the process may involve the members of the company in the same way that the IWG group is involved in the réhabilitation of Redox and secondly, that the Jersey Court will take into account the interests of contingent creditors as it has to be satisfied that the company can discharge its liabilities as they fall due.

(vii)     Ultimately, this Court must have regard to the interests of the creditors of Redox as a whole. We have one contingent creditor HWA, which has not yet filed a claim, asking this Court to take action that it says are in the interests of the creditors as a whole, but we are not aware of any support from the other creditors for such action to be taken.  On the contrary, we have the firmly expressed view of the Luxembourg Bankruptcy Trustee, supervised by the supervisory judge, in proceedings which involve some 44 creditors, that it is not in the interests of the creditors as a whole for parallel winding up proceedings to be commenced.

(viii)    In its Representation, HWA makes it clear at paragraph 15 that it is not seeking to displace the Luxembourg bankruptcy proceedings.  In essence it wishes to have investigated the January 2019 Distribution and if so advised the bringing of proceedings in Jersey against IWG PLC to set it aside.  However, there is a real possibility that such steps against IWG PLC will be prejudicial to the interests of the creditors as a whole, who have the prospect of of a réhabilitation which requires the active co-operation and participation of the IWG group and which would avoid the costs, delay and risk involved in complex civil proceedings.

(ix)      The position would be different if there were serious concerns as to the conduct of the Luxembourg bankruptcy proceedings.  In the case of Re Gordon & Breach Science Publishers Limited [1995] 2 BCLC 189, the landlord, the petitioning creditor, was deeply concerned and sceptical about a voluntary liquidation and suspected that assets had been extracted from the company prior to the liquidation. Documents which subsequently came to light provided strong prima facie evidence of improper manoeuvring prior to the liquidation and the petitioner creditor presented a petition for the compulsory winding up of the company.  It was held:

"In exercising its discretion whether or not the compulsory winding up of the company which was already in creditors' voluntary liquidation, the court had to take account of both quantity and quality of the claims of the petitioning creditor on the one hand and the opposing creditors on the other hand.  Thus, consideration of fairness and commercial morality might require that a substantial independent creditor which considered that it had been prejudiced by sharp practice be given the opportunity to insist on the company's affairs being scrutinized by the process which follows a compulsory order.  Such a creditor was entitled to an investigation which was not only independent, but could be seen to be independent, even where the voluntary liquidation was already well advanced and any compulsory order might cause further expense and delay".

(x)       In this case, the complaints about the Luxembourg bankruptcy proceedings are made by a creditor who has not filed its claim in the Luxembourg proceedings and therefore has no status in those proceedings at all.  We think those complaints are attributable in part to differences in the way bankruptcy proceedings are conducted in common and civil law jurisdictions, explored to some extent in the Court's judgment of the 21^st September 2021, but it is clear that progress had been made in Luxembourg, that advice has been taken on the January 2019 Distribution and that there is a real prospect of réhabilitation taking place.  We are not persuaded that these complaints about the conduct of the Luxembourg Bankruptcy Trustee are justified, complaints which by necessary implication extend to the conduct of the supervisory judge. 

(xi)      As the Luxembourg Bankruptcy Trustee explained, only once all admitted creditors' claims have been settled in full is it possible for Redox to apply to the Luxembourg Superior Court of Justice for réhabilitation.  IWG's proposals for réhabilitation envisage that all contingent creditors' claims will also be provided for going forward.  We are told that upon receipt of an application for emergence, the Luxembourg Superior Court of Justice will appoint its Prosecutor General to investigate (in conjunction with the State Prosecutor and the President of the Commercial Court, where Redox is based) whether Redox has indeed met the legal test to emerge from insolvency.  We note that as a result of HWA's decision not to file its claim in the Luxembourg bankruptcy proceedings, it will not be able to participate in any of these hearings.

56.      The Court has seen the letter dated 25^th March 2021 from Ernst & Young in London procured by HWA, which sets out those matters which they advise warrant further investigation and require further information.  The Court has not seen the advice given to the Luxembourg Bankruptcy Trustee by Ernst & Young in Luxembourg who would have had the advantage of access to all of the information available to the Luxembourg Bankruptcy Trustee in that jurisdiction, the jurisdiction in which Redox conducted its business.  If the January 2019 Distribution is to be challenged, then it would seem that Jersey is the appropriate jurisdiction in which to do so as that is where the parent company IWG PLC, which as we understand it received the benefit of that distribution, is incorporated.  The Luxembourg Bankruptcy Trustee has made it clear (paragraph 22 of the judgment of 21^st September 2021) that should such action be in the interests of the creditors as a whole (for example if the réhabilitation fails), he would not hesitate to seek any assistance of this Court that may be required, including the opening of parallel proceedings here.  In that eventuality the two jurisdictions would be acting in harmony in the interests of the creditors as a whole. 

Authorities

Companies (Jersey) Law 1991.

Representation of Regus PLC [2020] JRC 226A.

Bankruptcy (Désastre) (Jersey) Law 1990.

Representation of Regus [2021] JRC 238.

Companies (General Provisions) (Jersey) Order 2002.

McGuinness v Norwich and Peterborough BS [2012] 2 All ER (Comm) 265.

Re A Debtor (No 64 of 1992) [1994] 1 WLR 264.

Dyson v Godfray [1884] App Cas. 726.

Representation of Harbour [2016] JRC 171.

Harbour v Orb [2017] JRC 007.

Re Baltic Partners Limited [1996] JCA 075.

El Ajou v Dollar Land (Manhattan) Ltd [2005] EWHC 2861.

Singularis Holdings Limited v PriceWaterhouseCoopers [2014] UKPC 36.

Re BCCI SA [1972] B.C.C.83.

Kam Leung Sui Kwan v Kam Kwan Lai [2015] HKCFAR 501.

North Australian Territory Co Ltd v Goldsbrough [1899] 61 LT 717.

Grand Court of the Cayman Islands in Re Philadelphia Alternative Asset Fund (unreported 22nd February 2006 and reported in note form at 2006 CILR Note 7)

In re Danka Business Systems Plc [2013] Ch 506.

Stanhope Pension Trust Ltd v Registrar of Companies [1994] 1 BCLC 628, 633.

Re Gordon & Breach Science Publishers Limited [1995] 2 BCLC 189.