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Jersey Unreported Judgments |
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You are here: BAILII >> Databases >> Jersey Unreported Judgments >> Representation of Regus [2021] JRC 238 (21 September 2021) URL: http://www.bailii.org/je/cases/UR/2021/2021_238.html Cite as: [2021] JRC 238 |
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Before : |
R. J. MacRae, Esq., Deputy Bailiff, and Jurats Crill and Austin-Vautier |
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Between |
Redox Plc SA (formerly Regus Plc) |
Representor |
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And |
HWA 555 Owners LLC |
Respondent |
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West Sussex County Council |
Intervenor |
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Maître Nicolas Thieltgen |
Trustee (in Bankruptcy) |
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IN THE MATTER OF REPRESENTATION OF REGUS PLC
AND IN THE MATTER OF THE INHERENT JURISDICTION OF THE COURT
Advocate J. M. Dann for the Respondent.
Advocate M. L. A. Pallot for the Intervenor.
Advocate J. M. P. Gleeson for the Trustee in bankruptcy.
judgment
the deputy bailiff:
1. On 9th September 2021, the Court heard an application arising from the liberty to apply provisions contained in an Act of Court dated 10th September 2020.
2. Various orders were made by the Court on 9th September 2021. We now give reasons for those decisions.
3. Subsequent to the orders made by the Court on 10th September 2020, the Royal Court gave its reasons on 26th October 2020 Representation of Regus [2020] JRC 226A. In that judgment, the Court set out the background to this matter and the considerations which led the Court issuing a letter of request to the Luxembourg Court (as defined in the judgment) inviting it to exercise its insolvency jurisdiction in respect of Regus Plc (as it then was known, prior to being renamed), a Jersey company.
4. Importantly, the Court was troubled by two matters as revealed by the judgment. First, it was concerned (see paragraphs 22 to 26) by a distribution made by the Company to a parent company in the IWG Plc Group in the sum of over £635 million in 2019 and the extent to which, if at all, the creditors of the Company might be disadvantaged by bankruptcy proceedings taking place in Luxembourg as against proceedings taking place in Jersey in terms of the prospects of the trustee in bankruptcy, or equivalent in either jurisdiction, recovering these funds to the benefit of the creditors.
5. Secondly, the Court was concerned by the fact that counsel for the Company (the Company itself was not represented at the recent hearing) invited the Court to order that certain exhibits to the affidavits sworn by Timothy Regan, a director of the Company, be kept confidential at that time. The relevant paragraphs are paragraphs 11 and 30 of the October 2020 judgment. It is clear from those paragraphs that the Court was told that that material ought to be kept confidential principally because the Company might be prejudiced if the contents were disclosed to a substantial body of creditors prior to a declaration of bankruptcy by the Luxembourg Court.
6. As to the assertion made on behalf of the Company that the creditors need not be convened to the application made to the Court last year because they would not be affected by the bankruptcy, the Court expressly held in the last sentence of paragraph 30 that it was 'unable to make such a finding'. Furthermore, in a postscript to the judgment, the Court noted (paragraph 39) that, subsequent to the hearing on 10th September 2020, a creditor (subsequently other creditors) had contacted the Court asking for material relevant to the proceedings before the Royal Court. This led the Royal Court to find, which we repeat in this judgment, that, as a general rule, creditors ought to be heard on such an application as that which was before the Court last year.
7. The Luxembourg Court made a bankruptcy order in respect of the Company on 9th October 2020 and appointed Mr Thieltgen as trustee in bankruptcy (the "Trustee"). Only some, of many creditors, became aware of those proceedings before the bankruptcy order was made and were unable to effectively object or participate in those proceedings before the order was made.
8. Some creditors have challenged the efficacy of the Luxembourg proceedings. Carey Olsen, through Advocate Pallot, said that they had acted for many such creditors and the modus operandi of other companies in the IWG Group was to settle/compromise with them which they had done in twenty of twenty-one cases so far. Overall, it was said on behalf of both the Intervenor and the Respondent to the proceedings, that there had been a lack of communication between the Trustee and the general body of creditors. However, both Intervenor and Respondent stated at the hearing that they were satisfied from the material available to them that the Trustee was acting in good faith.
9. Advocate Dann, on behalf of the Respondent, states that his client, a real estate investment trust from the United States, owns real estate in the USA leased to an IWG Group company, with the tenants' obligations under the lease guaranteed by the Company. By virtue of that guarantee, which has not been honoured by the Company, the Respondent is a creditor of the Company in the sum of approximately $90 million. The Respondent asked the Court to order that the confidential exhibits to the first and second affidavit sworn by Mr Regan should be disclosed save insofar as they related to material of limited relevance to the creditors which contained commercially sensitive information. However, they did want disclosure of all internal management documentation relating to the Company's affairs and expert reports which had been relied upon in the proceedings last year.
10. The Respondent said that, as a substantial creditor of the Company, it had a legitimate interest in understanding how a company, whose sole purpose was to guarantee the financial obligations of the IWG Group to its landlords and which held very substantial assets for that purpose, had found itself somehow divested of those assets and placed in an insolvency process in Luxembourg. They added 'To date, that insolvency process appears both opaque and grindingly slow'.
11. Furthermore, the principles of open justice demanded disclosure of this material in the interests of the creditors. The proceedings in 2020 were heard in open court and persons with a legitimate interest in this documentation should be entitled to it - the Royal Court had recognised this by giving all creditors liberty to apply.
12. Further, the reason given to the Court for withholding the material, namely that the commencement of the insolvency process in Luxembourg might be prejudiced, no longer applied as the Company had now been in those proceedings for over a year. The Respondent and the Intervenor argued that the affidavit evidence filed by Mr Regan insufficiently explained the creation of the in specie dividend to IWG Plc, comprising essentially all the value of the Company on 30th January 2019; the name change of Regus to Redox Plc just three days prior to its application to the Luxembourg Court; and its reliance on advice from what was described as a 'small and little known valuation adviser'. It is accepted that the Trustee was not responsible for the actions of the Company prior to the commencement of the Luxembourg insolvency proceedings.
13. The Respondent concluded its criticisms by saying:
"None of this is intended as a criticism of [the Trustee]. It is simply reflective of a civil law insolvency procedure which is not suited to a large-scale commercial insolvency and which does not feature the kind of open dialogue and exchange of information with creditors that is a fundamental part of the process in Jersey or in England. Through the decision to place [the Company] in an insolvency process in Luxembourg, rather than a Jersey creditors' winding up, the creditors have been deprived of the following:
(a) Their right to be notified that the Company seeks to enter into an insolvency process;
(b) Their right to receive information regarding the Company's affairs from the directors verified by affidavit;
(c) Their right to receive any information surrounding the Company's affairs as they might reasonably request;
(d) Their right to have a director attend before them in a meeting to present them with the facts of the Company's insolvency;
(e) Their right to appoint a liquidator of their choosing;
(f) Their right to have a liquidator who is at least qualified to be one under Jersey law; and
(g) The comfort that the liquidator appointed has not just the duty but the incentive (as a professionally qualified and regulated insolvency practitioner) to properly scrutinise the 2019 Distribution."
14. It was said on behalf of the Intervenor that the Company, when making the application for a letter of request should have, in clear tabulated form, set out for the consideration of the Royal Court the differences between Jersey and Luxembourg insolvency law and the effects of the same, including the provisions in relation to transactions at an undervalue, wrongful trading, fraudulent trading, and unfair preferences, both under the Companies Law and the Désastre Law. Further, the Company should not merely have made submissions in relation to désastre, but should have also focussed on considerations relevant to a creditor's winding up and/or a just and equitable winding up in Jersey.
15. The Intervenor and the Respondent asked the Court to set aside the Letter of Request made by this Court to the Luxembourg Court in order 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 said that any such step is now effectively 'blocked' by the September 2020 Act of Court.
16. The Trustee contests many of the allegations made against him. In particular, he says that he is actively investigating what is described in the "2019 Distributions" and, indeed, had just received a draft report from Ernst & Young which indicates that further work needs to be done before a final position can be adopted by the Trustee in relation to those distributions. He is not, accordingly, ignoring the complaints of the creditors.
17. As to the setting aside of the Letter of Request, the Trustee says that the Luxembourg Court decided to place the Company into liquidation in that jurisdiction without reference to this Court's Letter of Request because there is no mention of it on the judgment of the Luxembourg Court. Further, he says that many creditors are engaging with the Luxembourg insolvency process. In any event, the Trustee argues (correctly) that there is nothing in the Letter of Request, or accompanying Act of Court itself, which prevents a creditor from attempting to open insolvency proceedings in Jersey. It was at that stage (i.e., once such a request had been received) that it would be more appropriate for the Court to consider, if appropriate and necessary, setting aside the Letter of Request.
18. Counsel were unable to identify a previous instance when the Court has elected to set aside a Letter of Request, although our provisional view was that the Court has jurisdiction to do so if necessary.
19. As to the disclosure of the confidential information to the creditors as contained in the exhibits of the two Regan affidavits, the Trustee said that the appropriate forum for the sharing of confidential information was the creditors' committee that was being constituted by the Luxembourg Court. The Trustee agreed that such a committee was not a normal feature of Luxembourg insolvency proceedings and that he had had to obtain the permission of a judge to establish one. It currently consisted of three creditors but could, the Trustee said, be extended to four and thus include the Respondent. The Trustee said that he had confirmed that he would share with any creditors' committee the fruits of the Ernst & Young investigation into the 2019 Distributions and 'some of the confidential information' with creditors on suitable terms as to confidentiality. The Trustee did not identify with precision the documentation contained within the confidential exhibits that he would envisage disclosing to any creditors through the creditors' committee.
20. The Trustee suggested that it might be prejudicial to disclose the confidential information to the creditors more widely prior to the conclusion of the Trustee's investigation into the 2019 Distribution.
21. We found it difficult to understand how that could be the case as the confidential material is already available to the Company and, presumably, other entities within the IWG Group, and it would be persons within or connected to the Company and the Group who would be the respondents to an application to set aside the 2019 Distribution.
22. The Trustee went on to say, helpfully in the Court's view, that if the Ernst & Young report, as finalised, indicated that there are claims that would be better made in this jurisdiction, then 'the Trustee will not hesitate in seeking such assistance from the Royal Court as may be required (including, if appropriate, the opening of any parallel process in this jurisdiction).'
23. The Court was obliged to take this undertaking at face value and this was a significant matter when we determined what, if any, relief to grant to the Respondent and Intervenor.
24. Furthermore, the Trustee went on to say that their review of the draft Ernst & Young report suggests that there 'are matters of concern in relation to the 2019 Distributions that require further investigation. For the avoidance of doubt, the Trustee confirms that he is committed to conducting all such further investigations'.
25. We agree with the submission recorded at paragraph 14 and, in future the Court expects, on any such similar applications, to be provided with a table identifying the differences between the potential remedies available to the Trustee/liquidator/other insolvency professional in Jersey on the one hand and the other jurisdiction on the other, and not for it to be left to the Court to identify the potential disadvantages of the insolvency procedure in the other jurisdiction, which is what happened in this case.
26. As to the suggestion that the Court set aside the Letter of Request, counsel for the Respondent ultimately accepted that the benefit of doing so is now 'more intangible' than originally envisaged and was a matter that could be revisited if necessary. We agree. Accordingly, we determined, having found that we had jurisdiction to set aside the Letter of Request, that it was inappropriate to do so at this time. We adjourned the application to set aside the Letter of Request, with liberty to apply to all affected persons, including creditors of the Company.
27. As to the disclosure of the material in the confidential exhibits to the affidavits sworn by Mr Regan in August 2020 and September 2020, the members of the Court were provided, at our request, with those exhibits and, after a careful examination of the same decided, as listed in the Act of Court, that the majority thereof (all in respect of the confidential exhibits to the second affidavit) should be disclosed within forty-eight hours to the Respondent and the Intervenor, against their undertaking to keep the same confidential and use the material only for the purposes of insolvency proceedings in Luxembourg and/or Jersey. We further observed, without making an order, that we expected the Trustee to provide the same material to any creditor on request, providing that they give the same undertakings. We did not think it was sufficient for members of the creditors' committee only to see such material, bearing in mind their limited number and the fact, as we heard, that various creditors have been the subject of compromise agreements with companies connected to the Company. It was in the interests of any creditor who wished to take advice on its own position to have access to the material that was deployed in Court in September 2020.
28. Although it is a matter for the parties and not the Court, we agree with the observation by counsel for the Respondent that it appears to be too soon to begin a parallel insolvency process, particularly when it was confirmed to us by counsel for the Trustee that the relevant time limits in respect of any pursuit of claims to set aside the 2019 Distribution under Jersey law were not about to expire.
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 Intervenor to give serious consideration to participating in the creditors' committee in Luxembourg for the purpose of their obtaining early sight of the Ernst & Young report and furthering their interests generally. It is in the interests 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 this Court if the necessity arose.
