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Popular misconceptions of insolvency in Jersey

Alan Roberts Alan Roberts

For those who are involved with, or run struggling businesses with much reduced income, many are unclear what the most important things to consider are and equally who they might be able to turn to in their plight.

COVID-19 has forced many businesses to face a catastrophic reality, with many making the decision to try to remain open or sadly close. And yet, the concept of closure and insolvency is often shrouded in mystery and for many, the unknown.

Stories of business closures are sadly more frequent and we are reading a lot about business insolvency at the moment. But there is much terminology that is used that is both inaccurate and false. Understanding the following terms may help…

Insolvency in Jersey

‘Insolvency’ is defined as an inability to meet liabilities as they fall due. It’s a simple definition with scope for interpretation but should be viewed in the context of what the business does and a prudent assessment of its ability to pay its debts.


Administration is a modern restructuring procedure that is commonly used in the UK, with equivalent procedures in many other jurisdictions, including Guernsey.

Administration however, is unavailable to local Jersey businesses. So, when we hear of local businesses ‘going into Administration’ or ‘an Administrator being appointed’, this is in fact, incorrect.


Liquidation / Désastre

In Jersey, there are only two frequently used options for an insolvent business. Insolvency in essence means the conclusion of business activity. Liquidation involves the appointment of a Liquidator and a company being placed in his/ her control to be wound up. In rare circumstances, liquidation may be used to rehabilitate a viable business, although it will be costly, due to high legal fees and court costs. Desastre is a similar process administered by the Viscount.



Pre-Pack is the arrangement of the sale of a business or assets, made out of an insolvent company, prior to that company going into Administration.

Neither ‘Pre-pack’, nor ‘Administration’ are legally defined terms in Jersey. That said, and notwithstanding the above, there may be ways that struggling businesses can approach rehabilitation of its assets and the wider business itself to relieve it from the insolvent company that they sit within provided that the objective of the process is enhancing creditor interests and providing an opportunity for continued trading.

So, we’ve explained which of the above insolvency terms should be used in Jersey and why. There are other equally important terms for those leading or running struggling businesses that they should be familiar with, namely; the ‘twilight zone of insolvency’ and ‘wrongful trading’.


The Twilight Zone of Insolvency

The twilight zone refers to a period in time, in which Directors are uncertain whether their business is solvent and viable.

As soon as Directors consider this uncertainty to be the case, they must immediately act in in the best interests of the creditors in making any decision to continue trading. At this point in time, seeking appropriate, qualified and experienced advice from insolvency advisors is essential and the most advisable route to protect Directors from future criticism and potentially personal liability.


Wrongful Trading

Wrongful trading occurs when Directors continue to trade a business beyond a point of insolvency, increasing the loss to creditors over a period in time when they should reasonably have known that liquidation was unavoidable.

Jersey Law established the Wrongful Trading principle in order to protect creditors. Contrary to common belief, Wrongful Trading is regularly raised in investigations with Boards of Directors of companies in liquidation, where recoveries of sums from them and their insurers are sought and achieved by liquidators examining their conduct in the period prior to formal liquidation.

Recent guidance issued in Jersey may have misled Directors to believe that continued trading may be acceptable beyond the point of insolvency even if a loss to creditors is increased. This is not the case, and Directors should be at a greater level of awareness and prudent conduct during this difficult Covid period, where a decision to continue to trade is made and, crucially, board minutes should be recorded to explain the decision to continue trading.


So, in conclusion, while it is easy to grasp popular well used terminology around insolvency, it is very important to be aware of the local differences that exist and to take due care of these differences and to understand what is possible in Jersey.

The key to ensuring you do not fall foul of the law is to seek qualified, professional advice from an established insolvency specialist.