Ferbrache & Farrell contributes to the International Comparative Legal Guide – Litigation & Dispute Resolution 2025

On 20 December 2024 Jersey made its first wrongful trading order against a Jersey director in the case of Viscount v Thomas McLaughlin (In re Restore Builders Limited, En Desastre) [2024]JRC290 (the Restore Builders Judgment). Not only is this a first for Jersey, but a first for the Channel Islands.

What is a wrongful trading order?

Wrongful trading occurs where a company is approaching insolvency and this is known or ought to be known to the directors, yet the directors continue to trade. Once a director of a company concludes, or should have concluded, that there is no reasonable prospect of a company avoiding insolvency, they have a duty to take every step that a reasonably diligent person would take to minimise loss to their creditors.

Where a director does not fulfil this duty, they are said to be conducting wrongful trading and are exposed to civil liability. Where wrongful trading is established by the court, the director in question can be ordered to make a contribution to the company’s assets. The form that the contribution takes is at the discretion of the court. This is known as a wrongful trading order.

In addition to ordering the director to make a contribution to the company’s assets, the court can also make an order disqualifying the director for a period of up to 15 years.

Until the Restore Builders judgment, no wrongful trading order had been made in relation to an individual director in either Jersey or Guernsey.

The Restore Builders Judgment

The Restore Builders Judgment relates to two applications, one for disqualification, and one for a wrongful trading order, against Mr Thomas McLaughlin, the director of Restore Builders Limited (the Company).

Mr McLaughlin had been trading as a sole trader under the name “RestoreBuilders” and incorporated the Company in July 2022. At the time of incorporation, Mr McLaughlin had accumulated circa £1million in personal debt with respect to various creditors by virtue of his sole tradership.

Shortly after incorporation, the Company fell into insolvency, by which point a creditor had already commenced proceedings in the Petty Debts Court against the Company. The Company was declared en désastre on 25 November 2022, with Mr McLaughlin himself being declared en désastre on the same date.

Mr McLaughlin thereafter had multiple obligations to the Viscount to attend meetings and present documentation, which he did not do. He eventually left the island without notice to the Viscount.

In evidence preceding the Restore Builders Judgment, Mr McLaughlin misrepresented the assets of the Company, and it was established by the Court that he knew or ought to have known that the Company could not avoid bankruptcy.

In correspondence with the Viscount, Mr McLaughlin insisted that he should not be struck off as a director as it was in fact the Viscount’s actions that had prevented Mr McLaughlin from continuing to trade and to “trade his way” out of insolvency.

Mr McLaughlin also declared in correspondence that he had been using customer’s pre-payments to settle his debts, instead of using them for their intended purpose, thereby purposefully misleading customers.

The Court held that Mr McLaughlin’s failures were sufficient to disqualify him from acting as a director of a Jersey company for 10 years. The Court further granted the application for a wrongful trading order on the basis that Mr McLaughlin knew, or ought to have known, that there was no reasonable prospect that the Company would avoid bankruptcy, particularly in circumstances where Mr McLaughlin’s personal debts amounted to almost £1million.

The Court found that the Company was simply a vessel through which Mr McLaughlin was attempting to avoid personal liability, and at no time had he taken any reasonable steps in order to minimise the potential loss to the creditors of the Company.

The Guernsey position

The legal test in Guernsey largely follows both Jersey and the UK. Pursuant to section 434 of the Companies (Guernsey) Law, 2008, the court can make an order that a director be personally liable for the company’s debts if the company has gone into insolvent liquidation and at some time before the commencement of the winding up of the company, the director knew or ought to have concluded that there was no reasonable prospect of the company avoiding going into insolvent liquidation and that person was a director at the time.

If, however, the director has taken all reasonable steps with a view to minimising potential loss to the creditors of the company, and the court is satisfied of this fact, such an order will not be made.

Whilst the Restore Builders Judgment shows rare occasion where a director has acted with extreme recklessness, it does demonstrate the operation of the relevant legal provisions in the Channel Islands. It also shows that the rules are in fact not made to be broken.

Conclusion

As stated above, we are yet to see the operation of section 434 in Guernsey. However, the Restore Builders Judgment serves as an excellent reminder that once your company is approaching insolvency, it is best to seek legal advice to ensure you are taking all the right steps.

If anything, Mr McLaughlin’s actions demonstrate that white lies are definitely not the best way to get yourself out of trouble.

When is a sanction not a sanction, but still a headache?

We are increasingly seeing individuals and entities becoming subject to designation or sanction in one jurisdiction and yet remaining free of sanction elsewhere. Or subject to a sectoral prohibition in the US and yet not in Guernsey. And, as political ideals, aims and goals in the US, EU and UK become more….distinct, these differences between countries’ lists are likely only to increase.

While there are sanctions in place in respect of a number of jurisdiction, Russia is, of course, the current hot potato. Only last week, President Trump wrote as if to President Putin –

“Settle now, and STOP this ridiculous War! IT’S ONLY GOING TO GET WORSE. If we don’t make a ‘deal’, and soon, I have no other choice but to put high levels of taxes, tariffs, and sanctions on anything being sold by Russia to the United States, and various other participating countries.”

Whether or not this apparent ramping up will come to pass, and whether or not the UK and EU will follow suit, remains to be seen.  But the chances of differences in approach appear increasingly likely.

Nearly every jurisdiction in the western world has imposed sanctions on Russia in one form or another, with, up until now at least, obvious attempts made to provide uniform and blanket coverage of the principles underlying those sanctions. The political decisions to designate or not to designate are, however, a different matter entirely. Pity the poor cross-jurisdictional fiduciary that happens to find on its books a company that has been put on the US’s / OFAC’s Sanctions List, yet which has not been designated under the UK’s / OFSI’s powers. Or the Guernsey bank with offices in Europe and clients who are Designated Persons vis a vis Guernsey (via the UK), but not subject to any sanctions from the European Union.

It happens. And it causes a headache. The legal answer is of course very easy. The office politics of dealing with such a situation can, though, be tricky, and tensions, or at least perceived tensions, can quickly arise between office A’s sanctions compliance and office B’s contractual requirements.

As ever, the answer is often a carefully documented audit trail of decisions made, and of legal advice taken. What might seem an obvious legal answer can often benefit the bigger, political picture for the firm if it is set out in writing and in black and white. That way, hopefully, cross-jurisdictional infighting might be avoided.

It would be lovely to be able to say that Dr Z is subject to sanctions everywhere, full stop. In the absence of such harmonisation, however, one must tread the legal and political tightrope with supreme care. In the meantime, as the supreme wordsmith Katy Perry says, we’re “stuck on a rollercoaster, can’t get off this ride….”

For advice, please contact Robin Gist, Rebekah Johnston, Jana Valkovska, Charlotte Tomlinson, Glyn Davies or your usual contact at Ferbrache & Farrell.

On 4 December 2024, the Guernsey Court of Appeal handed down its judgment in the matter of Fuller & Ors v Guernsey Financial Services Commission [2024] GCA083 refusing an application to the Court of Appeal for the substantive appeal to be heard in private.

The substantive appeal was an appeal against the decision of a Guernsey Financial Services Commission (GFSC) Senior Decision Maker (SDM) in regulatory proceedings against several individuals involved in a collapsed financial firm in Guernsey.  The GFSC regulatory proceedings themselves are usually conducted in private, and the resulting Public Statements can have significant implications for the reputations of those involved.

The presumption in favour of privacy

Prior to November 2021, the Financial Services Commission (Bailiwick of Guernsey) Law, 1987 (the FSC Law) contained a presumption in favour of privacy in relation to appeals against a decision to publish a Public Statement (namely section 11H(7) of the FSC Law).

Judgments on appeals under the FSC Law were usually published with the names of the parties, and any relevant institutions or individuals involved anonymised, to respect this privacy regime.

The presumption in favour of privacy was removed by virtue of section 106(9) of the Financial Services Business (Enforcement Powers) (Bailiwick of Guernsey) Law, 2020 (the FSB Law), which repealed section 11H(7) of the FSC Law.

The Court of Appeal held that “the legislative intent behind the repeal of s11H(7) is clear; the ordinary principles of open justice should apply to the hearing of appeals, even in the area of financial service regulation, where there will inevitably be reputational consequences from publicity attendant upon any appeal.”

So what principles now apply to regulatory appeals?

The Court of Appeal held that, when considering privacy in the context of regulatory appeals, the principles to be applied are those which would apply in any proceedings where privacy is sought.

The starting position is as set out in IFS Investments Ltd v Manor Park (Guernsey) Ltd [2003], particularly that the principle of open justice is a fundamental principle of the administration of justice in Guernsey.

However, this presumption may be rebutted in circumstances of strict necessity in the interests of justice. The Court of Appeal held that, even if there were any question of balance, the focus would not be on any prejudice, or lack thereof, to the Respondent. Notably, the Court of Appeal stated that “the counterweight to any privacy plea is the wider interest of society in open justice, not the interests of the financial services sector.”

Accordingly, any decision to suspend publication of an SDM’s decision, or consent by the Respondent to have proceedings heard in private are to have no bearing on whether the subsequent appeal is to be heard in private. It is for the Appellants to demonstrate that the publication of any proceedings on appeal would have severe reputational and financial consequences for them. In the case at hand, the Appellants were not able to demonstrate such consequences and therefore the application was refused.

Open justice

It follows from this recent decision that, even if there is somebody watching you (or the outcome of regulatory proceedings), you have no automatic right to privacy.

The Court of Appeal referred to the decision of Lieutenant Bailiff Hazel Marshall KC in Domaille and Clarke v GFSC [2023] which states that there is rarely a need to restrain the publication of an appeal even where the contested decision by the GFSC will has reputational or financial consequences.

If the appeal fails, any adverse publicity will not have been unjustified, and if it succeeds then the Appellants can explain that the GFSC’s decision has been held to be wrong.  Even so, our view is that that is likely to be of very little comfort to the individuals involved.

Please contact Robin Gist, Rebekah Johnston, Jana Valkovska, Charlotte Tomlinson, Glyn Davies or your usual contact at Ferbrache & Farrell, for any advice on this issue.

The Pink Floyd guitarist, David Gilmour, has been forced to make an application to the High Court of England and Wales because the £10m seafront property he is trying to sell does not actually belong to him.

How has this happened? Well, the property was purchased by Mr Gilmour through an English company in 2011.  That company was subsequently dissolved in 2014, but the property had remained in its ownership.  When a company is dissolved, any property which it owns at the time of the dissolution passes to the Crown by law, this is known as bona vacantia.

This situation in respect of such a valuable property seems surprising, but it is not unusual. On this occasion it appears to be as the result of an administrative error in failing to transfer any assets out of the company before dissolution. It more frequently occurs when a company is subject to compulsory strike off, for example, because of failing to make appropriate filings with the company registry. On other occasions, assets which may seem worthless at the time of dissolution become valuable later, for example a claim in a liquidation.

So what is the solution? In the circumstances, certain parties such as a former director or shareholder of a company can apply to Court to restore the dissolved company to the register. If a company is restored with six years of having been struck off, that company is entitled (subject to any order of the Court) to have any property vested in the crown returned to it.  If such property has been disposed of, the company is entitled to its value at the time of disposal.

The Court has discretion to extend the six-year period in respect of the property if it is equitable to do so in the circumstances, however, any application to restore a company must be made within 10 years of the company being struck off.

Any person applying for the restoration of a company must serve notice of the intended application of the Registrar of Companies, H.M. Procureur (Guernsey’s Attorney General) and H.M. Receiver General.  Notice must also be given to any liquidator or administrator of the company if relevant and the Guernsey Financial Services Commission if it was a regulated company.

The application made by David Gilmour was only in the news last week, and it is not clear when the application was first made, but if it had been in Guernsey Mr Gilmour would be dangerously close to the end of the 10-year period in which the restoration application must be made.

Take-aways: The obvious point is to manage your company effectively to avoid compulsory strike off, or to ensure all assets or potential assets have been properly considered if applying to dissolve the company.  However, if the company has been dissolved, any application to restore must be made within 10 years, and ideally six years if it relates to property now bona vacantia.

We are frequently instructed in respect of applications to restore a company and are happy to assist. Please contact Robin Gist, or Charlotte Tomlinson, or your usual contact at Ferbrache & Farrell, for any advice on this issue.

Remember, remember the 5th of November, gunpowder, treason and plot…

Guy Fawkes was presumably monumentally annoyed with Parliament, choosing to try to take matters into his own hands.

With the Supreme Court in England & Wales clarifying last month the circumstances of public authority liability in respect of the police’s duty of care in negligence cases in Tindall v Thames Valley Police (23/10/2024) and the States of Guernsey finally, recently,  ensuring that police officers can be represented by the Law Officers of the Crown if they are sued, it seems the odds are stacked against a disaffected Guy of the 21st century.

However, Guernsey has embraced judicial review as a tool to challenge decisions of the Government, and it has been used to challenge everything from planning decisions (Groucutt, where I appeared for the States) to decisions affecting children with complex or additional need. Judicial review is even said to be available in the regulatory and anti-money laundering spheres, even though the Court cast some doubt on this as far back as 2012 (and questions must be cast as to the efficacy of that route over the usual so-called Liang type private actions).

In addition to challenge by JR, Guernsey also has the very odd spectre of the Administrative Review Board. As anachronistic in many ways as gunpowder in the tunnels by the Thames, the ARB allows a disaffected punter to challenge an administrative decision of the government (whether civil service or political board) without the need for recourse to court.  In addition to the ARB, various ombudsmen now have real powers to award monetary awards.

So if you, like the poem, can see no reasoning behind a decision made by the States, perhaps, before deciding to light up the sky, take stock and consider your options. There are ways to challenge decisions of the public authorities in Guernsey that ought not to end in an effigy being burnt in your honour every year and, while we may from time to time feel that a big old bonfire could be the answer to States paralysis, it is possible to seek redress through less drastic measures.

If you need further information or legal advice, please contact our dedicated dispute resolution team: Robin Gist, Charlotte Tomlinson and Jana Valkovska, A. NALP, who will be delighted to assist.