Ian Watts Gibraltar, providing legal services in Gibraltar since 2002
Introduction – Gibraltar Insolvency Legislation
The Insolvency Act 2011 came into force on the 1st November 2014. It lays down a comprehensive framework for matters relating to corporate and personal insolvency in Gibraltar. Matters regarding the practice and procedure to be adopted in cases of insolvent corporate debtors and those to be accorded to insolvent personal debtors are legislated by the Insolvency Regulations 2014 made under the enabling provisions of the 2011 Act.
International Insolvency Law
It is worthy of note that Gibraltar’s Insolvency (Cross Border Insolvencies) Regulations 2014 deal with EC Insolvency Regulation No.1346/2000 on European cross-border insolvency matters, as well as the UNICTRAL Model Law on cross-border insolvency as adopted by the United Nations Commission on International Trade Law on the 30th May 1997.
Gibraltar Insolvency Law – A Balancing Exercise
The overall ethos underpinning Gibraltar’s insolvency laws is a balancing exercise to protect the various interests of creditors, controlling and punishing delinquent directors or insolvent debtors, and promoting a rescue for the insolvent individual debtor or insolvent corporate debtor, wherever possible. Matters of insolvency ought to be taken very seriously and there is certainly no substitute for sound legal advice.
Definition of “Insolvency”
At its most basic level, ‘Insolvency’ can be said to be a factual situation in which an individual or a company finds itself in when he or it cannot pay its debts when they fall due. In the United Kingdom, there is adopted two principal tests – first of all, the ‘balance-sheet’ test (this is where liabilities exceeds assets); and secondly, the ‘cash-flow’ test (this measures the ability to pay debts as they fall due). It follows that one may have a portfolio of assets – e.g. luxury real estate, luxury cars, yachts and substantial tied-in investments that well surpass actual liabilities (in which case one is balance sheet solvent); but unable to raise the necessary money in which to pay debts as they fall due (in which case one is cash flow insolvent).
Whereas ‘insolvency’, at its basic level, is factual determined as aforesaid, it ought to be distinguished from liquidation (in the case of companies) and bankruptcy (in the case of individuals), which is a ‘legal condition’ that can arise from a position of insolvency.
Statutory Presumption of Insolvency
The Insolvency Act 2011 does however provide a definition of ‘insolvency’: s.10 of the statute enacts as follows:-
(a) is presumed to be insolvent if–
(i) it fails to comply with the requirements of a statutory demand that has not been set aside under section 143; or
(ii) execution or other process issued on a judgment, decree or order of a Gibraltar court in favour of a creditor of the company is returned wholly or partly unsatisfied; and
(b) is insolvent if–
(i) it is unable to pay its debts as they fall due; or
(ii) the value of its liabilities exceeds its assets.
(2) An individual is presumed to be insolvent if–
(a) he fails to comply with the requirements of a statutory demand that has not been set aside under section 143; or
(b) execution or other process issued on a judgment, decree or order of a Gibraltar court in favour of a creditor of the individual is returned wholly or partly unsatisfied’’.
As can be seen aforesaid, there is a presumption of insolvency under Gibraltar Law that exists in relation to companies in Gibraltar as well as individuals. It is interesting to note that the statute also preserves the presumption of insolvency on the basis of the balance sheet and cash-flow tests in relation to corporate debtors, but not individuals. A common feature in both instances is nevertheless a failure to comply with a statutory demand, as well as an unsatisfied court order for money (either wholly or partly).
The statutory demand
It is common precondition to liquidation and bankruptcy in Gibraltar that a statutory demand is first of all served by a creditor upon a debtor (individual or corporate), and the debtor does not pay the debt or apply to the Supreme Court of Gibraltar to have it set aside
The statutory demand is a formal requisition for payment of the debt within a stipulated time-frame (the minimum sum for which it may be issued is £750) that must comply in all material respects with s.141 of the Insolvency Act 2011 and the procedure laid down in the Insolvency Rules 2014. It will specify, among other things, that if it is not complied with, an application can be made to the Court for the appointment of a liquidator or a bankruptcy order (as the case may be).
One should bear in mind that the statutory demand is not an insolvency process or procedure in itself – rather, it operates as a precursor to formal insolvency proceedings brought before the Chancery Jurisdiction of the Supreme Court of Gibraltar.
For further information/advice on Gibraltar Insolvency Law, please contact Ian Watts, Barrister-at-Law & Acting Solicitor.
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