The Remise de Biens: How it works

"St Helier deputies Trevor and Shona Pitman have asked the legal system to allow their home to be sold to pay off their debts. Under Jersey law, no States members are allowed to be considered bankrupt while sitting in the assembly. The couple were unavailable for comment. In Jersey law a "remise de biens" allows people struggling with debt to ask the court to step in. It is a form of bankruptcy that lets a court sell property to pay off debt."(1)

The BBC report is not strictly speaking accurate. The "remise de biens" is not bankruptcy as such. That is a "désastre (bankruptcy)". The purpose of a désastre is to gather in and sell an insolvent debtor's assets, to find out why insolvency occurred and whether any bankruptcy offences were committed, and to distribute the net proceeds of the assets to those who are entitled to them. After 1990, the Bankruptcy Law on désastres applied to both movable and immovable property.

There is also a "dégrèvement" which is a procedure mostly used by banks where property is concerned. As Natasha Clark of Appleby explains:

"The advantage of the dégrèvement procedure for a creditor bank, as opposed to the désastre (bankruptcy) option, is clear: whilst désastre ensures the equitable treatment of all the creditors, a dégrèvement is concerned with clearing charges off the property and disposing of it. Unlike a désastre it allows any value in the property, over and above that which is owed, to vest in the creditor who takes the property, and not in the debtor. " (2)

And there is another option, which is at the discretion of the court, a "Remise de Biens". One of the critical case laws cited in this respect is termed "Re Barker [1985]", where  Charles Frossard, Commissioner, said this:

"We have come to the conclusion that a remise de biens is always preferable to a dégrèvement when conditions warrant it."

Deputies Trevor and Shona Pitman have applied for a "remise de biens" which is not totally bankruptcy, as can be seen from this explanation from Voisin Law:

"It is in fact a means by which a debtor, who might not be insolvent, but is experiencing difficulty satisfying his creditors can realise those of his assets as are necessary to satisfy his creditors in an orderly fashion. The procedure is governed by the Loi (1839) sur les Remise de Biens, albeit it is derived from ancient customary law. The process is commenced by the debtor applying to the Royal Court. The debtor must own immovable property i.e. land/house. The debtor is required to present a schedule of all his moveable and immoveable property to the Court. The debtor must swear to the fact that the schedule is true and accurate. If accepted, the Royal Court will appoint 2 Jurats to examine the schedule, investigate the property and report back to the Court within 15 days." (3)

What is important to note is this:

"If satisfied, the Royal Court may grant the relief sought. If it does, then the debtor's property will be placed entre les mains de la justice. The Jurats will then supervise the orderly disposal of the debtor's property. A successful Remise will release the debtor from liability for his debts by selling all or part of his assets. If sufficient funds are raised to pay off the creditors and there is a balance on the debtor's estate, the balance and any unsold assets will be returned to the debtor." (3)

In other words, if the assets can cover the debts, then the debtor will no longer have liability for debts, and therefore would not be considered bankrupt. So the BBC report is misleading.

The important factor is whether it is judged that there is sufficient equity in a debtor's property. If that is not the case, if there is only marginal equity, or the sale or realisation of other assets would be considered complicated, then - as happened recently - a Remise may be turned down. Key principles, as noted by Voisin Law are:

a)      The Court will have no jurisdiction unless it reasonably considers that there may be a surplus available for distribution amongst ordinary creditors following the sale of assets;
b)      If the Court is satisfied that there may be a credit balance available for distribution amongst ordinary creditors then it is right to investigate the matter and give consideration to the application for a Remise;
c)      The Court will have regard to the impact of any extended delay in the recovery of the debt upon the creditors;
d)      There must be clear and significant equity in the debtor's property;
e)      The Court will consider any factors which would go to show hardship on the part of the creditor or the debtor;

It should also be noted that demonstration of bad faith or uncertainty as to the outcome of the Remise will make it less likely that the Court will grant the application.

On the background of the law, there's an interesting article by Frederick Benest and Michael Wilkins in the Jersey Law review which notes that:

"This is an ancient procedure which developed out of the customary law of Normandy and was last substantively modified by a statute passed as long ago, in its original form, as 1839: the Loi (1839) sur les remises de biens." (4)

The article also deals with the fact that while there is no appeal against the decision of the court, there could be brought a writ of complaint against the decision, and an appeal could be made on the grounds of the Human Rights Law (which at the time of their writing, was still being implemented):

"Article 2 of the 1839 Law provides that there is no appeal from the decision of the Court as to whether to grant or refuse a remise.  However, a petition of doléance (i.e. a writ of complaint or grievance somewhat similar to the ancient English remedy of mandamus) could nonetheless be brought to remedy any breach of natural justice (or manifest error of law).. Furthermore  a failure (e.g.) to provide a fair hearing would engage the Human Rights (Jersey) Law, 2000 (once fully implemented) for a breach of the article 6 Convention right." (4)

As Benest and Wilkins note, the autorisés responsible for realising the debtor's property and the payment of his debts will, in the normal course of events, engage experts and agents to assist them in this process. The Viscount (who administers every désastre) may also provide back-up and certain administrative support.The Jurats have nonetheless to take any decisions presented to them before action can be taken:

"According to the evidence of JW Dupré, Attorney General, given to the Royal Commissioners in 1859, 'nothing is done of any importance without its having been laid before the Jurats and their assent obtained" (4)

It is notable that while the time is not set within stone, there are certain customary time scales:

"A remise must be concluded within a fixed period prescribed by the Court, traditionally of six months, during which time the autorisés attempt to regularise the debtor's affairs.  The proceedings may be - and generally are - extended to twelve months by the Court  but thereafter a further extension can only be granted with the agreement of the creditors because, in the words of Tomes DB in Re Barker- '........a remise which has not been successfully concluded within a year operates, as a matter of law, as the personal cession and renunciation by the debtor of all his property to his creditors and a dégrèvement ensues'. (4)

A Remise that is successful is not a bankruptcy, so it does not need a discharge:

"If a remise is successful to the extent that all the debtor's debts are paid in full, the question of discharge does not arise - there simply are no debts remaining.  But where a remise is successful so  that the secured charges are paid off and a dividend, however small, is paid to the unsecured creditors, the debtor obtains a discharge from his outstanding debts in the sense that the debtor cannot be sued subsequently by a creditor who received a dividend."

The case of Dr Mickhael in 2010 set forth some important case law considerations:

"Where there is a clear and significant equity in the debtor's property, which would accrue to one or more of the creditors on a dégrèvement and be lost to the debtor if the dégrèvement were to proceed, the Court had a solid basis upon which to exercise a discretion to grant a remise. "

" Conversely, where there is only a marginal equity, and a potentially complex process for the sale or other realisation of the assets, it is highly doubtful as to whether a remise would be appropriate."

"Between the two extremes set out in the preceding two paragraphs, other factors will inevitably have some relevance - the weighting of them will depend upon the Court's assessment of the margin of equity in the property which appears to exist, the length of time the realisation of the assets is likely to take place if a remise were to be granted and any other factors which would particularly go to show hardship on the part of the creditors or the debtor." (5)

And Paul Omar, in an article on the Remise, has some interesting historical notes:

"The procedure, which developed in Jersey customary law, is said to be based on the lettres de répit issued by Royal fiat first introduced in a French ordinance promulgated in 1673 during the reign of Louis XIV. The Loi (1839) sur les remises de biens, which codified and amended the customary law procedure, does not define a duration for the procedure. "

"An element of good faith and probity has always been evident in the law relating to remise de biens. Le Geyt stated that the procedure was not available to persons who had wantonly dissipated their assets by spending their money "in taverns, on games of chance or with shameless women". The 1839 law itself was passed in order to control the availability of the procedure by subjecting the application to a hearing  before the court and to require debtors to follow the advice and counsel of the Jurats."

"Le Gros also states that despite the requirement to swear an oath, some debtors have in the past misstated or omitted debts from the statement, often acting in concert with creditors to do so: C. Le Gros, Traité du Droit Coutumier de l'Ile de Jersey (1943) (reprinted 2007, Jersey and Guernsey Law Review Ltd, St Helier), at 371-372." (7)

And he notes that:

"In fact, the law now states that the detailed statement of property presented by the debtor must, unless rejected on the spot, be verified on oath before the court that it is true and faithful. In Re Mickhael, the court states that good faith on the part of the debtor is required, particularly where the debtor is asking the court to exercise its discretion in granting a remise, applying the maxim: "he who comes to equity must do so with clean hands"." (7)

References:

(1)   http://www.bbc.co.uk/news/world-europe-jersey-25218963
(2)   http://www.applebyglobal.com/publication-pdf-versions/articles/articles-2010/the-degrevement-dilemma-by-natasha-clark.pdf
(3)   http://www.voisinlaw.com/voisin-law-review-for-business-brief-july-2011/
(4)   http://www.jerseylaw.je/Publications/JerseyLawReview/Feb04/JLR0402_Benest.aspx
(5)   http://www.jerseylaw.je/Judgments/UnreportedJudgments/Documents/Display.aspx?url=2010/10-09-14_Representation_of_Mickhael_166A.htm
(6)   http://www.jerseylaw.je/Judgments/UnreportedJudgments/Documents/Display.aspx?url=2011/11-02-08_Representation_of_Mr_and_Mrs_Gibbins_033.htm
(7)   https://www.jerseylaw.je/Publications/jerseylawreview/feb11/JLR1102_Omar.aspx