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Road map to Insolvent Trusts

The Royal Court of Jersey has released its much awaited ruling in the winding up of the Z III Trust.

All creditors of the Z III Trust agreed to the winding up: the trust assets were insufficient to meet the claims against those assets, applying the cash flow test. The Royal Court therefore set out the procedure for the winding up of an insolvent trust.

In determining who should conduct the winding up, the court rejected claims that some beneficiaries’ hostility to the incumbent professional trustee (Zedra) might hinder its ability to act and found there was no conflict of interest preventing Zedra from properly discharging its duties in the winding up.  Accordingly, the Court refused to sanction the costs of appointing an independent insolvency professional to act in the liquidation and Zedra was to undertake the winding up.

In giving his judgment, the Commissioner referred to the comments made by the Court in a previous judgment, whereby it rejected the arguments that the procedure set down in Estate of Hickman could be sensibly truncated despite the fact that the creditors were already well known to each other.  Further, the Court should be flexible in its approach, having regard always to the best interests of the creditors as a body.

The Commissioner agreed that the approach taken should be flexible, but went on to endorse the procedure in Hickman essentially in its entirety, observing that “there is no shortcut to the winding up being done properly.”

Creditors will therefore be required to formally prove in the insolvency, and notice must be published to allow other creditors to come forward, despite unlikeliness on the facts that this will occur.

In setting out the formal regime to be applied flexibly to ‘insolvent trusts’, the Commissioner not only adopted the regime in Re Hickman, he provided a road map for trustees, creditors and beneficiaries when dealing with an insolvent trust in common law jurisdictions which closely tracks the directions published by INSOL in 2017, in conjunction with Harneys and other industry professionals. 

Road map to Insolvent Trusts

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