Guernsey Law Reports 2007–08 GLR Note 19
GUERNSEY FINANCIAL SERVICES COMMISSION v. CLARIDGES TRUSTEES LIMITED, CLARIDGES TRUST COMPANY (GUERNSEY) LIMITED, FIRST NOMINEES LIMITED and SECOND NOMINEES LIMITED
ROYAL COURT (Collas, Deputy Bailiff and Jurats): January 16th, 2008
Financial Services—regulation of fiduciaries—compulsory winding up
The Commission applied under the Companies (Guernsey) Law 1994, s.96B for four related companies to be wound up, on the grounds that it was desirable to do so “for the protection of the public or of the reputation of the Bailiwick of Guernsey” or, alternatively, under the Regulation of Fiduciaries, Administration Businesses and Company Directors, etc. (Bailiwick of Guernsey) Law 2000, s.34 on the ground that it would be “just and equitable” to do so.
The companies (of which the principal one was the first, CTL) were all carrying on regulated business as a group owned by the same holding company when the 2000 Law came into force and were therefore deemed to be licensed fiduciaries (and subject to the Law) by virtue of the transitional provisions of s.59 of the Law. They applied for full fiduciary licences. Over several years, however, the Commission entertained serious misgivings about the conduct of their businesses and imposed conditions on their deemed licences restricting the activities and involvement of a named official (D-B); required them to confirm their compliance with the money-laundering regulations; restricted their taking on new business without special approval; and required the business of CTL to be managed by another full fiduciary licence holder approved by the Commission. A management agreement with such a licence holder lasted for a year from October 2006, when it gave three months’ notice, after which it advised the Commission that it was unwilling to continue further.
The companies were repeatedly warned that a number of licensing criteria were not being met. The conditions were tightened further and they were forbidden to accept new client appointments. They reached agreement in principle for the sale of their book of clients to another management company subject to due diligence procedures. Inspectors appointed by the Commission, PricewaterhouseCoopers, reported that the Commission’s concerns were well founded and that CTL’s controls and procedures were fundamentally defective.
The Commission finally rejected the companies’ applications for full licences as too many of the licensing requirements remained unfulfilled—in particular that R, the principal director, was not considered a fit and proper person to act as a director. All the directors except R resigned and the Commission obtained an order under s.33 of the 2000 Law restraining the companies, R and D-B from carrying on regulated activities.
At this stage, therefore, the four companies were no longer licensed. The sole director of CTL was R, who was not a fit and proper person and was in any case non-resident. The only employee—if that was indeed his status—was D-B, who had no one to supervise his activities as required by the Commission. Yet there were 30 trusts and 100 companies, with an estimated worth of approximately £70m., with no one who could lawfully manage them.
Held: (1) All the companies would be wound up under s.96B of the Companies Law 1994 “for the protection of the public or of the reputation of the Bailiwick.” These phrases would be given their ordinary meanings—in particular, it would be emphasized that the protection intended for “the public” was very wide, since it was not limited to the public of Guernsey but included members of the public anywhere, including clients of the four companies and those affected by their work, such as the beneficiaries of trusts.
(2) The purpose of the Law was to protect the public from service providers who did not meet the minimum licensing criteria and to maintain or promote Guernsey’s reputation as a well-regulated and respectable financial centre. The four companies were now unlicensed. They, or those of them that provided administration and trusteeship services to clients, needed to be administered lawfully and in a manner that would enable the client relationships to be transferred to another licensed service provider or otherwise unwound. The Commission concluded that the best way to achieve that aim was by winding up and that conclusion was not challenged by three of the companies. Consequently, the Jurats were satisfied that it was desirable that those three be wound up.
(3) They also concluded that the affairs of the four companies were so inextricably interwoven that it would not be practicable to extract CTL and allow it to be administered separately once the other three companies had been wound up. It would therefore also be wound up. R had deposed that CTL had no remaining business other than providing services to the other three companies (though both the Commission and the Jurats had some doubts as to R’s credibility) and was concerned that its liquidation would be sufficiently expensive to reduce its ability to pay its creditors and provide a return to shareholders—though the court noted that the principal creditors who would stand to lose most were in fact R and D-B.
(4) Compulsory liquidation was a draconian remedy to be used only as a last resort. The long history of the Commission’s dealings with the four companies showed the lengths to which it had gone in seeking to find a solution which would address its concerns. Its decision to reject the licence application had not been taken hastily and it had not been appealed. The court considered the protection of the public and the reputation of the Bailiwick of Guernsey were of such high importance as to justify the imposition of this draconian remedy.
(5) In the light of this decision under s.96B, it was unnecessary to deal with the application to wind up on the “just and equitable” ground under s.34 of the 2000 Law. The court accepted, in the absence of specific authority, that since the members of the company themselves had the right to petition to wind up on this ground, the Commission’s role in making the application was effectively to act on their behalf when it was most desirable for them. The court should therefore focus on whether winding up would be for the benefit of the members of the companies—though, since the only shareholder who made representations was R, who opposed winding up, the Jurats considered that, had they not already decided to wind up the companies under s.96B, they might not have heard sufficient evidence on this question.
2009
Law Report
None
Guernsey Law Reports 2007–08 GLR Note 19