By Paul Perris Managing Director, Ogier, Bahrain
Jersey has a long track record as a domicile for companies, funds, trusts and other structures used by GCC-based clients that stretches back to the 1980's.
There are a number of reasons why Jersey continues to be attractive to investors from this region for structuring international investments, ranging from time zone and convenience to confidentiality, flexible laws and robust regulations.
Professional service providers are also very familiar with and expect to administer structures with a high level of corporate governance, thus providing comfort to clients regarding the integrity of their asset holding vehicles. This has been particularly important since the economic downturn.
Flexible Companies Law
Jersey's Companies Law is very flexible. Different classes of shares can be issued with different rights. This practice is not permissible pursuant to company law in certain GCC states. It is often beneficial to use a Jersey company at a 'topco' level to facilitate investment and to provide the investors with certainty as to how the laws would be interpreted (on English law principles) should any dispute arise.
Jersey companies are also used by GCC investors investing into international assets, including joint venture arrangements for the same reasons.
Family Office structures
High net-worth families prefer to separate the family business from the investments, business affairs and philanthropic interests of the family by establishing a Family Office and at the same time being able to control succession planning in connection with international assets. Jersey's financial services industry is well placed due to the concentration of experienced professionals in the field of trust administration, legal and accounting services and private wealth management to provide proactive, tailored and value added services to families in a favorable time zone.
Real estate holding structures
High net-worth families and banks commonly invest in UK and European based real estate due to the political stability and transparency of the markets. Recent exchange rates and suppressed property values have fuelled this practice. Middle Eastern families also regularly visit those jurisdictions. Jersey domiciled vehicles are often preferred due to the proximity to the UK and Europe and professional service providers have a long track record of administering such vehicles. In order to provide family members with a diversified interest in a portfolio of properties, clients are becoming more sophisticated and are now considering Family Limited Partnership and Family Unit Trust arrangements, which can be structured in a Shari'a-compliant manner and also allow for succession planning.
GCC-based banks commonly use Jersey companies for investment in Europe and to structure their joint ventures in order to avail of the flexibility of Jersey company law.
Structured finance products
Jersey allows clients to structure vehicles using a wide variety of debt instruments, bonds and other types of product. Structures are often established as 'orphan' or off balance sheet structures. Due to the flexibility that Jersey legislation provides, it is possible to structure Shari'a-compliant structured finance vehicles such as Sukuk through Jersey, and the Channel Islands Stock Exchange (CISX) provides the ability to list certain products. A recent example of this is the Emirates NBD auto loans securitisation using an innovative dual Special Purpose Vehicle structure. Arab Bank plc have also used the CISX to list securities.
Trusts and Foundations
Trusts and Foundations are an important wealth and inheritance planning tool and can be structured in a Shari'a-compliant manner. Both can also be established to ensure bankruptcy remoteness and protection of valuable assets.
Jersey is a popular jurisdiction through which to establish trusts due to the comprehensive, flexible and tried and tested Trust Law. Jersey Trust Law permits the use of Private Trust Companies, which appeal to families in the GCC who are keen to retain control over the structure and avail of the benefits of a Trust. Unlike a Cayman Private Trust Company, a Jersey Private Trust Company has no restrictions on who can be a Director (in Cayman the directors must be based in Cayman).
Jersey Managed Trust Companies have also been used by several GCC banks through which they generate business from their customers.
Employee benefit structures
In recent years, banks have established cash and share plans in Jersey which are aimed at attracting, retaining and motivating employees. Jersey has become a centre of excellence for such structures and many service providers have invested in IT platforms that deliver real time reporting to employees.
Jersey has a history of working with the GCC in domiciling funds stretching bank to the Dar Al Maal Al Islamic Fund in 1982. More recently Emirates NBD Bank has structured funds via Jersey. As clients in the GCC, particularly those who are more sophisticated and risk conscious, begin to appreciate the benefits of regulation and corporate governance, combined with a favourable time zone, Jersey should be able to attract new funds business.
Despite current upheavals in parts of the region, the GCC market is predicted to continue to grow. Jersey, as a safe and secure jurisdiction with its professional service providers, is well placed to continue the delivery of value added legal, administration and other professional services to GCC-based families and institutions.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.