Jersey Royal Court affirms Netting Law in insolvency and clarifies subrogation

The recent case of Representation of Gardner & Others [2025] JRC 144 will be of interest to both insolvency professionals and to creditors of Jersey entities, following a ruling by the Royal Court of Jersey (the Court).

The ruling handed down by the Court has confirmed the robustness of the Bankruptcy (Netting, Contractual Subordination and Non-Petition Provisions) (Jersey) Law 2005 (the Jersey Netting Law) in the context of insolvency. It also emphasises that, where the agreement falls within the scope of the Jersey Netting Law, a liquidator or other equivalent professional has no discretion in giving effect to the relevant netting or set-off provision.

This clear confirmation from the Court is helpful to both creditors and to insolvency professionals. Importantly, the Court also confirmed that the Jersey Netting Law provisions are not restricted to Jersey law-governed contracts or limited to body corporates established in Jersey, but rather it appeared prima facie to address cross-border insolvency situations and contracts governed by different legal systems, where there is a Jersey nexus.  

For the first time, the Court also expressly clarified that the doctrine of subrogation forms part of Jersey customary law, providing welcome clarity. 

In all cases, when drafting contracts with netting and set-off provisions with a Jersey element, it is crucial that advice is taken from Jersey counsel to ensure that any such provisions are drafted in a way that will fall within scope of the Jersey Netting Law.  

Below we discuss the key determinations handed down by the Royal Court in Representation of Gardner & Others [2025] JRC 144 (Gardner & Others).

Case background: Gardner & Others

The case before the Court centred on groups of related companies incorporated across multiple jurisdictions, including England and Wales, the Cayman Islands and Jersey (the Group). The Group was primarily involved in various oil-related services, mostly in the Middle East and Asia Pacific regions.

Insolvency proceedings had been commenced across the Group in England and Wales, the Cayman Islands and also in Jersey, through a just and equitable winding up of certain Jersey incorporated companies (the Jersey Companies) under Article 155 of the Companies (Jersey) Law 1991 (the Companies Law).  

The sole secured creditor (the Creditor) had the benefit of certain corporate guarantees (the Guarantees), containing netting and set-off arrangements. The Guarantees also included the right to apply one member of the Group's assets towards the discharge of another member's obligations to the Creditor. The Creditor exercised their rights under such Guarantees and netting and set-off arrangements. The liquidators then considered that this left a number of subrogated claims between various members of the Group.   

The liquidators had drafted a proposed model (the Proposed Model) for making a distribution of the surplus of the remaining assets to unsecured creditors of the Jersey Companies (the Distribution), considering both the application of the netting and set-off by the Creditor and the remaining subrogated claims. 

The liquidators sought sanction from the Court for the methodology of the Proposed Model for the Distribution, under Article 186A of the Companies Law. This presented three key legal considerations for the Court:

1. Jurisdiction 

Under Article 186A of the Companies Law, the Court is empowered to sanction methodologies and schemes proposed by a liquidator. While such jurisdiction is only automatic under a creditors’ winding up (whereas the Jersey Companies commenced a just and equitable winding up), the Court determined that it did have the power under Article 186A, noting that there had been a previous example of where the Court had applied Article 186A in a just and equitable winding-up.

The Court therefore confirmed that it had the power to approve the Proposed Model, provided certain criteria were met.  

2. The Jersey Netting Law 

The liquidators wanted to ensure that they had been correct in their analysis that the Guarantees were agreements for the purposes of the Jersey Netting Law, and that the netting and set-off provisions contained therein would fall within the scope of the Jersey Netting Law. This meant that they had been correct in the Proposed Model to have taken account of the application by the Creditor of the netting and set-off provisions contained within the Guarantees. 

Article 2(1) of the Jersey Netting Law states that despite any enactment or rule of law to the contrary, a close-out netting provision, set-off provision or contractual subordination provision of an agreement "is enforceable in accordance with its terms". Under Article 2(2) this remains the case, despite the bankruptcy of a party to the agreement or any other person and any lack of mutuality of obligation between a party to the agreement and any other person. Article 2(3) states that any person dealing with the affairs of the bankrupt party shall, when dealing with the property of that party or person, give effect to any relevant provision referred to in Article 2(1).  

Not only did the Court agree that the liquidators had been correct, it also held that Article 2(3) is “instructive” to liquidators and that “shall” in Article 2(3) should be read as “must”, leaving them with no discretion regarding whether to give effect to such an agreement. 

3. Subrogation  

The liquidators also needed to ensure that they were correct in the Proposed Model in applying the doctrine of subrogation to claims between group entities arising after the Creditor's actions under the Guarantees.  

While the doctrine of subrogation had been referred to in previous Jersey case law, this  was the first time in which the Court had examined and expressly confirmed the basis on which subrogation forms part of Jersey law.  The Court summarised the doctrine as follows: “Where person A is owed a debt by person B, and person C discharges that debt, person C steps into the shoes of person A. Following subrogation, whatever rights person A enjoyed, those rights will now be enjoyed by person C”, applying some (but not all) of the principles from the English case of Cheltenham & Gloucester plc v Appleyard [2004] EWCA Civ 291.  

Sanction of the Proposed Model  

In determining whether to sanction the Proposed Model, the Court sought to clarify the considerations which the Court would consider, namely:

1. the liquidators' decision itself

2. the merits and demerits of the proposed decision

3. whether the liquidators considered the decision to be in the interests of creditors

4. whether the decision actually was in the best interests of creditors, having regard to the liquidators' view

5. whether the decision was being taken in bad faith

6. whether the decision was one which no reasonable liquidator would take  

Having applied those considerations, in this case, the Court approved the Proposed Model. 

Conclusion  

The process of calculating distributions to creditors during an insolvency process is complex and will be fact specific. The Court’s judgment, however, offers important clarity on several points of law and should be welcomed by lenders, borrowers and liquidators alike.  

The certainty of the Jersey Netting Law, as reaffirmed by the Court, offers reassurance to parties and demonstrates its unwavering robustness in the face of insolvency. This, together with the recognition of the doctrine of subrogation, demonstrates the Court’s commitment to providing clarity, certainty and pragmatism when required. 

About Ogier

Ogier is counsel to the International Swaps and Derivatives Association, Inc. (ISDA) in Guernsey and Jersey and provides netting and collateral opinions which are available to members from ISDA's website and updated on an annual basis. We often work with banks, prime brokers and others to advise on local law issues in connection with their entry into derivatives transactions (or other transactions involving netting provisions) with offshore counterparties.  

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Disclaimer

This client briefing has been prepared for clients and professional associates of Ogier. The information and expressions of opinion which it contains are not intended to be a comprehensive study or to provide legal advice and should not be treated as a substitute for specific advice concerning individual situations.

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