The latest amendments to the Companies (Jersey) Law 1991 are expected to enhance the Island’s competitiveness in corporate finance.
The latest amendments to the Companies (Jersey) Law 1991 are expected to enhance the Island’s competitiveness in corporate finance. The new changes will bring further flexibility to all forms of Jersey companies, enhancing the attractiveness of Jersey as a jurisdiction to incorporate special purpose vehicles, group holding companies and structured finance products generally. The changes have been widely welcomed by Jersey’s finance industry and in particular its booming funds’ sphere.
The Regulation No 2 came into force on 22 January 2008 and Amendment No 9 of the Companies (Jersey) Law 1991 is anticipated to come into force during the second quarter of this year.
The 2008 company law amendments include the removal of the prohibition on companies giving financial assistance for the acquisition for their own shares (applying to both public and private companies); the simplification of the rules on company distributions and redemptions; and the introduction of the concept of treasury shares.
These amendments, together with the introduction of corporate directors and provisions allowing for greater flexibilities on the board of directors of Protected Cell Companies (“PCCs”) and Incorporated Cell Companies (“ICCs”) and their respective Cells, will provide new advantages for Jersey’s specialist fund industry as well as its capital market structures.
The Removal of Financial Assistance Prohibition
The prohibition against a Jersey company giving unauthorised financial assistance for the purchase of its own shares has been removed in the Regulations passed in January 2008.
Unlike the position under English law (following the Companies Act 2006 amendments which come into force in October 2008) where financial assistance continue to be prohibited for public companies, Jersey’s amendment applies to both public and private companies. This change will provide significant transaction management advantages for Jersey public companies, which will, of course, include all Jersey corporate funds. The changes will, of course, bring benefits to all forms of private companies particularly within group structures and will greatly simplify transactions involving the target company giving security to support borrowings in connection with the acquisition of its own shares.
Treasury Shares
The introduction of treasury shares will enable a Jersey company or fund to purchase its own shares and hold them “in treasury” for a short period of time (rather than cancelling them) following redemptions by investors. Treasury shares should prove very popular with Jersey funds as well as employee share schemes and employee benefit trusts. The changes should allow the efficient subsequent transfer of the treasury shares to new investors, avoiding a complicated cancellation procedure.
A company or fund that holds treasury shares is able to cancel the shares, sell the shares, transfer them to an employee share scheme or hold them without either cancelling, selling or transferring them. Shares held as treasury shares by a company will not carry voting rights or count towards the company’s total issued share capital for the purposes of determining shareholders’ resolutions.
Corporate Directors
Additional changes in the January 2008 amendments allow a Jersey regulated financial services business to act as a corporate director of a Jersey company. In practice, many directors of structured finance products are provided by Jersey regulated businesses. It, therefore, makes sense that those businesses, rather than its officers, should act as directors of the Jersey company.
A corporate director must be permitted so to act under the terms of its existing Financial Services (Jersey) Law 1998 licence. It must be able to act as, or to fulfil the requirements of a director and must itself have no director which is a body corporate. In practice, most Jersey administration service providers will be able to obtain the relevant approvals within the scope of existing licenses from the Jersey Financial Services Commission.
PCC/ICC Directors
Amendment No 9 allows individual cells of cell companies to have different boards of directors from the cell companies themselves. This means that experts in a particular field can sit on the board of a cell without being on the board of the main ICC or PCC. Equally, the director need not necessarily be on all of the boards of all of the Cells in the structure.
Both PCCs and ICCs are proving to be popular vehicles for investment funds, as well as in capital markets and other corporate finance areas where legal segregation of assets is vital. Many of these are listed products. Following this latest change in the law, these vehicles may be increasingly used in what were formerly group holding company structures and in securitisations.
The ability to appoint the most appropriate directors for individual Incorporated Cells (coupled with the ease of set up of an Incorporated Cell) will allow Jersey to use its fund and corporate expertise by allowing each Cell to have among the most experienced directors for the individual product within the European time zone. An individual Incorporated Cell will be able to appoint directors that are especially knowledgeable in the particular investment strategy pursued by an individual IC. If the IC is a property fund, it is sensible to have a real estate expert on the Board. If the IC is a derivative, long/short or arbitrage fund, it would be prudent to have an experienced equity and derivative expert on the Board of that Cell or Protected Cell.
Dividends
The criteria for the payment of dividends by Jersey companies and corporate funds is also to be changed by virtue of Amendment No 9 which is anticipated to come into force during the second quarter of 2008. The proposed changes provide that dividends may be paid by a Jersey company or fund on the satisfaction of a cash-flow solvency test only. This contrasts with the current requirement, modelled on the English law position, which generally requires dividends to be paid out of distributable profits/reserves. From the middle of 2008, Jersey companies will be permitted to make distributions to shareholders without reference to distributable reserves. Instead, distributions may be made out of a company’s assets, provided that the directors approving the distribution are able to give the appropriate solvency statement. This will greatly simplify the payment of dividends by Jersey companies and funds.
Redemptions
In line with the lifting of the requirement to make distributions out of distributable profits/reserves, a Jersey company’s redeemable shares may, after Amendment No 9 comes into force, be redeemed out of any capital source. In particular, in the case of par value companies, this will allow shares to be redeemed in whole or in part out of share capital accounts. These changes will also apply to share repurchases.
Dividends will be able to be paid by Jersey companies without specific regard to whether or not profits or gains are realised or unrealised. There will also be no obligations on the directors to “make full enquiry into the affairs and prospects of the company” for the purposes of the payment of the dividend. This ambiguous statement in the existing law has often led to companies preparing audited accounts before paying even conventional dividends.
Additional Proposed Changes under Amendment No 9
Special Resolutions will now be approved at extraordinary general meetings called on 14 days’ rather than 21 days’ notice.
Shareholders of Jersey public companies will also be able to waive the requirement to hold annual general meetings (as private companies can at present).
Jersey public companies will be able to use the “PLC” suffix which will clarify some current presentational issues, particularly with regard to listed Jersey companies on the Channel Islands Stock Exchange and other similar exchanges.
Conclusion
Overall, the amendments to Jersey’s company law proposed for 2008 should be of major benefit to the Island’s fund and structured finance industries.
Bill Gibbon (pictured) is a Group Partner at Voisin, who has advised on the set up of a large number of Funds and Islamic finance related transactions. Bill has led Voisin’s Investment Funds and Shari’a Funds department since 1996. He has over twelve years’ experience in setting up all forms of fund and capital markets structures. Such experience includes advice on Hedge Funds, Shari’a Funds, Securitisations, Tier 1 Capital Schemes, Sukuk Offerings and CISX Listings.
