The Foundations (Jersey) Law 2009 (the "Law") will come into force on 17 July 2009. The Law will permit the establishment of Jersey foundations which will be incorporated bodies that can hold assets, transact business and sue and be sued in their own name. A Jersey foundation blends both the features of Jersey companies and Jersey trusts and can, in some senses, be regarded as an incorporated trust. However, the Law is flexible enabling Jersey foundations to be structured to look and operate more like a trust or more like a company, as required. This element of flexibility distinguishes Jersey foundations from foundations encountered in other civil law jurisdictions, such as Lichtenstein and Panama, and will make Jersey an attractive jurisdiction for clients considering establishing a foundation for private wealth management purposes.
It is anticipated that, in addition to the establishment of new foundations, clients may wish to migrate existing foundations established outside Jersey to Jersey in order to take advantage of the benefits of the flexibility offered by the Law, Jersey's reputation as a well regulated and stable financial centre, and Jersey's inclusion in the G20 summit's "white" list of jurisdictions which are considered to have substantially implemented internationally agreed standards on exchange of information for tax purposes.
The Foundations (Continuance) (Jersey) Regulations 2009 will permit Jersey companies and certain types of "recognized entities" to continue as Jersey foundations and permit Jersey foundations to continue as "recognized entities". Classes of recognized entity are to be designated by Jersey's Minister for Economic Development. It is anticipated that the designated classes of recognized entity will be Bahamas Foundations, Liechtenstein Anstalts, Liechtenstein Stiftungs, Panama Private Interest Foundations, St Kitts Foundations, Nevis Multiform Foundations, Maltese Foundations and Cypriot Foundations (referred to in the rest of this briefing as "Migrating Entities").
This briefing will focus on the migration of Migrating Entities to Jersey only, although it should be noted that in addition to Jersey foundations being able to continue as recognized entities outside Jersey it will also be possible, pursuant to the Foundations (Mergers) Regulations 2009, for two or more Jersey foundations to merge and continue as one Jersey foundation, for one or more Jersey foundations to merge with one or more bodies corporate incorporated in or outside Jersey and continue as a Jersey foundation, and for a Jersey foundation to merge with a body corporate incorporated in or outside Jersey and continue as a body corporate incorporated in or outside Jersey.
Notice Of Intention To Migrate
Before an application can be made to continue a Migrating Entity as a Jersey foundation, a notice of the intention to migrate must be published and a copy of the notice must be sent to creditors with a claim against the foundation in excess of £5,000 and to the registrar of companies in Jersey.
The notice must:
- state that the Migrating Entity will be seeking to be incorporated as a Jersey foundation;
- specify the jurisdiction in which the Migrating Entity is currently established or incorporated;
- specify what type of entity the Migrating Entity is;
- state whether the Migrating Entity would be solvent on its incorporation as a Jersey foundation; and
- include a statement that a person aggrieved by the proposed incorporation may, within 28 days of the first publication of the notice, apply to the Royal Court of Jersey for an order to restrain the proposed incorporation.
If a person applies to court for an order to restrain the proposed incorporation, the court can only restrain the application if it is satisfied that the interests of the person who made the application would be unfairly prejudiced if the proposed incorporation were to take place.
If the notice does not include a statement that the Migrating Entity would be solvent on its incorporation as a Jersey foundation, an application cannot be made until a court order has been obtained stating that the incorporation of the Migrating Entity as a foundation would not be prejudicial to the interests of its creditors. Copies of the application to court must be sent to the same recipients as the notice.
Application To Migrate
An application for a Migrating Entity to continue as a Jersey foundation is made to the Jersey Financial Services Commission ("JFSC"), the regulatory authority in Jersey. The application is required to be made by a "qualified person" being a regulated organisation with an appropriate registration under the Financial Services (Jersey) Law 1998. The application is accompanied by various supporting documents including a copy of the charter which the Migrating Entity would adopt upon its incorporation as a Jersey foundation.
The qualified person must also provide a certificate with the application certifying, amongst other things, that:
- a named qualified person would become the qualified member of the council of the Migrating Entity (the "Qualified Member") upon its incorporation as a foundation;
- the regulations to be adopted by the Migrating Entity have been approved by the Migrating Entity and the Qualified Member;
- the address in Jersey of the Qualified Member specified in the certificate is its business address;
- a guardian has been selected for the foundation;
- the law of the jurisdiction of incorporation or establishment of the Migrating Entity (the "Foreign Law") does not prohibit the application for migration from being made;
- if the Foreign Law or the constitution of the Migrating Entity require that an authorisation be given for the application, that it has been given;
- if the Migrating Entity is incorporated in Jersey that it will cease to be an entity incorporated or established under the Foreign Law; and
- if the Migrating Entity is incorporated as a Jersey foundation that the interests of its creditors will not be unfairly prejudiced.
The JFSC can decline an application in order, amongst other things, to protect the integrity and reputation of Jersey in financial or commercial matters and on the grounds that the proposed objects of the foundation are unlawful. Where an application is declined an applicant has the right to appeal to the Royal Court.
If the application is accepted the JFSC instructs the registrar of companies to incorporate the Migrating Entity as a Jersey foundation. The registrar enters on the register the name of the foundation as shown in its proposed charter, the business address of the Qualified Member, the name of the Migrating Entity and the jurisdiction in which it was previously established or incorporated. The registrar issues the foundation with a registration number and notifies this number, along with the fact of incorporation, to the Qualified Member. The registrar also notifies the appropriate authorities in the jurisdiction in which the Migrating Entity was previously established or incorporated of the incorporation.
Effect Of Incorporation
When the Migrating Entity is incorporated as a foundation:
- the property and rights to which it was entitled immediately before the incorporation of the foundation continue as property and rights of the foundation;
- the foundation becomes subject to any criminal and civil liabilities, and any contracts, debts and other obligations, to which the Migrating Entity was subject immediately before its incorporation as a foundation; and
- any action and other legal proceedings that, immediately before the incorporation of the Migrating Entity as a foundation, were pending by or against it may be continued by or against the foundation.
Mourant du Feu & Jeune provides legal advice and documentation in connection with the drafting of and incorporation of Jersey foundations, the migration of foundations to and from Jersey, the merger of Jersey foundations with other foundations or other bodies corporate and the administration of Jersey foundations generally.
You can also download a copy of our Jersey Foundation creation questionnaire by visiting www.mourant.com/trusts
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.