The Banking Business (Jersey) Law 1991 (Banking Law) allows Jersey banking business (technically deposit-taking business) to be transferred from one licensed bank to another by means of a court-sanctioned scheme.
When Standard Chartered consolidated its two Jersey banking entities (Standard Chartered (Jersey) Limited and Standard Chartered Bank, Jersey branch) into a single operating platform for its Jersey business in September 2013, it used the Banking Law in a novel way to effect the transfer of both its banking and investment business. The Royal Court of Jersey confirmed in Re Standard Chartered (Jersey) Limited  JRC172 its jurisdiction to transfer investment business alongside banking business under the scheme in appropriate cases.
The Court again clarified the extent of its jurisdiction in another case in 2014. In that case the Court was asked to confirm its jurisdiction under the Banking Law to sanction the transfer of regulated funds services business and investment business as well as banking business and their separation, in effect, from the bank's existing trust company business.
Most recently, the Court has sanctioned the transfer of deposit-taking business from Abbey National International Limited to the Jersey Branch of Santander UK plc ( JRC138) including for the avoidance of doubt, any historic liabilities relating to previous investment business and general insurance mediation business activities.
Appleby advised in respect of all three of the above transfers carried out in the last two years.
The Court confirmed that provided the non-deposit taking activities are integral to the business to be transferred and have not been artificially grafted on to a deposit-taking activity in order to get through the jurisdictional gateway, the Court can exercise its discretion to sanction the scheme.
The flexibility of the Banking Law and its application to increasingly complex businesses is illustrated by these cases. The Banking Law can be used not only to transfer banking business alongside other regulatory activities but can also be used to separate banking business from its other business whilst minimising the potential impact on clients.
Key Procedural Steps and Documents
Transfers under the Banking Law are subject to various procedural requirements including:
- two court hearings, one being a directions hearing initially for derogations from client notices and subsequently a second hearing, to consider sanctioning the scheme;
- publication and distribution of notices to clients and members of the transferor and transferee (unless derogations have been obtained) including a summary of the scheme;
- obtaining an auditor's report on the terms and likely effects of the scheme on transferring clients; and
- an opportunity for any interested parties including the regulator and employees at the sanctions hearing to be heard and to object on the basis that they would be prejudiced by the carrying out of the scheme.
Provided that the scheme involves no compromise or arrangement, the more complex provisions applicable to schemes of arrangement under Jersey company law will not apply.
The key legal documents required include the scheme document itself; the independent auditor's report; a summary of the scheme; legal notices for the Jersey Gazette; customer, member and creditor notifications (subject to court derogations); the court application and various affidavits.
Principles to be applied in Sanctioning
In each of the three recent cases, the Court sanctioned the transfer of banking business and other regulated business (where applicable) from local subsidiaries to the existing Jersey branches of other group entities – for example in the Standard Chartered and Abbey National cases to the Jersey branch of a UK public limited company. The Court judgment in the Standard Chartered case contains helpful guidance on the principles to be applied by the Court when considering an application to sanction a scheme given the lack of statutory guidance in Jersey.
In each of the cases, the Court considered Re AXA Equity and Law Life Assurance Society and AXA Sun Life Plc  1 All ER (Comm) 1010, noting that it had been transposed by the Court into the Jersey context for long term insurance business transfers. In summary, following that case the principles to be applied when considering sanctioning a scheme under the Banking Law include:
- the absolute discretion of the Court must be exercised by giving due recognition to the commercial judgment entrusted by the companies' constitution to its directors;
- the Court is concerned whether an interested party or group (including customers, employees and creditors) will be adversely affected by the scheme;
- the Court will pay close attention to the views of the regulator;
- the scheme, whilst being fair, does not have to be the best possible scheme in the Court's view as that is a matter for the directors; and
- the details of the scheme are not a matter for the Court provided the scheme as a whole is fair.
The Court must satisfy itself that the required formalities under the Banking Law have been met (including the provision of an independent auditor's report and client notifications). A number of matters could be taken into account in assessing the fairness of the scheme overall including the financial standing of the transferee and the operational impact of the scheme on clients.
The Court will also take note of the absence (or existence) of any objections to the scheme by clients or creditors. The Abbey National case illustrates the Court's approach to considering client objections made on the basis that they may be adversely affected by the scheme. Taking all matters into account the Court needs to be satisfied that the scheme is fair as between the different persons affected by it and is fair overall before sanctioning it.
Ring-fencing and Capital Efficiencies
As banking groups consider strategic reorganisations involving offshore subsidiaries and branches particularly to meet ring-fencing requirements and to achieve capital and operational efficiencies, the ability to employ flexible court-sanctioned schemes to transfer banking, investment and other regulated business should be welcomed. The Isle of Man has recently introduced a similar mechanism for court-sanctioned schemes and other offshore jurisdictions are likely to follow its and Jersey's lead.
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.