Share and business acquisition transactions in Jersey can take many forms. We may be asked to advise on the acquisition of locally based businesses, including banking, trust and other regulated businesses. Or we may be asked to assist lead advisers to clients who want to acquire a global or regional business with a Jersey subsidiary or branch.
The method used to achieve the share or business acquisition can also take many forms. For instance, it may be effected through a share or business acquisition agreement and related documents, by a public takeover offer, by a Court sanctioned scheme of arrangement or by utilising the statutory merger provisions available under the Companies (Jersey) Law 1991 ("CJL").
This note provides an overview of the key methods available under Jersey law to effect an acquisition or sale of shares or businesses.
Share/Business Acquisition Agreements
Effecting the acquisition or sale of shares/businesses pursuant to an acquisition agreement is the most common approach.
The principal documents include a share/business acquisition agreement, disclosure letter and tax indemnity. Other documents may also be required, for instance if information technology or other transitional services are to be provided by the vendor group pending the purchaser group arranging for replacement services.
The key objectives of the share/business acquisition agreement are as follows:
- To identify exactly what is to be acquired/sold
- To specify the price payable, the method of payment, any deferred payment provisions and the basis of any price adjustments (e.g. arising out of a completion net asset value review)
- To allocate risk as between the seller and buyer as to the condition of the assets being directly or indirectly acquired, through e.g. a warranty, indemnity and claim limitation package
- To agree other important issues, such as non-compete and non-disclosure undertakings
Pursuant to the disclosure letter, the vendor will formally disclose certain matters which are relevant to the warranties, in other words which will be taken to qualify them and thus avoid liability on the part of the vendor.
The purposes of the tax indemnity include allocating tax liabilities, making provision for agreeing tax returns with relevant tax authorities (particularly in relation to any straddle period) and agreeing how any disputes are to be handled.
One of the roles of Jersey counsel is to ensure clients understand the underlying contractual regime in Jersey and its effect on issues such as implied termination and rescission rights. Following recent Jersey case law, it is clear there are significant differences between Jersey contract law and, say, English contract law.
The acquisition of shares in a Jersey company may also be achieved by means of a public takeover offer. This involves an offer by the potential acquirer to the shareholders of the company to acquire their shares. Often (but not necessarily) the offer will be recommended by the company itself.
The City Code on Takeovers and Mergers (the "Code") provides that the Code applies (amongst other things) to certain offers for companies which have their registered office in Jersey if:
- any of their securities are admitted to trading on a regulated market in the United Kingdom or on any stock exchange in the Channel Islands or the Isle of Man, or
- if not falling into the above category, are public (and, in some cases, private) companies with their registered office in Jersey and which are considered by the Panel to have their place of central management and control in the UK, the Channel Islands or the Isle of Man.
The Panel’s jurisdiction extends also to acquisitions structured as court sanctioned schemes of arrangement or statutory mergers.
Legislative changes are currently under consideration in Jersey which will bring the Panel and the Code onto a similar statutory footing as in the UK pursuant to The Takeovers Directive (Interim Implementation) Regulations 2006.
Part 18 of CJL provides a statutory regime which is similar to that contained in sections 428 and following of the Companies Act 1985 of the United Kingdom. This regime provides for the compulsory acquisition (known as a "squeeze out") of shares held by nonaccepting shareholders if certain conditions are met. A key condition is that the offeror has by virtue of acceptances of the offer acquired or contracted to acquire not less than 9/10ths in value of the shares to which the offer relates.
Public takeovers can also be achieved by means of court sanctioned schemes of arrangement, which are discussed below.
Schemes Of Arrangement
Part 18A of CJL sets out a statutory regime for schemes of arrangement which is similar to that contained in sections 425 and following of the Companies Act 1985 of the United Kingdom.
Pursuant to Part 18A, where a compromise or arrangement is proposed between a company and its shareholders (or creditors), the court may sanction that compromise or arrangement with the effect that it becomes binding on all shareholders (or creditors). A key condition is that the compromise or arrangement is approved by a majority in number representing 75% in value of the shareholders (or creditors).
The process followed under Jersey law is similar to the United Kingdom, including as to the documentation required and the court processes involved.
A scheme of arrangement can be used to acquire all of the shares in a company. There are various factors which will determine whether a scheme of arrangement may be more appropriate than another method of acquisition, including the numbers of shareholders and whether or not the target company is prepared to recommend the scheme.
Part 18B of CJL sets out a statutory merger regime, whereby two or more Jersey companies may merge and continue as one company.
There are several ways the merger can be effected, the most efficient of which will depend on the circumstances including tax advice. The merger will be documented pursuant to a merger agreement, which (depending on the form of merger) will be approved by a special resolution (two-thirds majority) of shareholders.
The merger process also involves a requirement to give notice to creditors and there are statutory protections enabling creditors (and dissenting shareholders) to apply to court for an order if the court is satisfied the merger will unfairly prejudice their interests.
The statutory regime also provides for the consequences of a merger, including that all property and rights to which each merging company was entitled immediately before the newly merged company’s certificate of incorporation is issued become the property and rights of the merged company. In complex cases it will be necessary to consider third party rights, and applicable foreign and private international laws, to determine the efficacy of the merger.
Where it is desired to merge companies which are not all currently located in Jersey, it may be possible first to "migrate" the foreign companies into Jersey before utilising the statutory merger provisions (see our separate guide on statutory migrations).
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.