Changes to the international regulatory and commercial landscape have prompted many financial institutions to review their operations and product lines and, where appropriate, consider restructuring initiatives to minimise the impact of those changes. This has been of particular relevance within the Jersey financial services market with a number of institutions changing their local operations.
Whilst each institution has a unique suite of issues, there tend to be common objectives which include:
- Simplifying group structures by merging and/or consolidating vehicles and regulatory licences;
- Satisfying revised capital adequacy and solvency requirements;
- De-risking by effecting disposals of non-core business, clients or portfolios;
- Developing core business and associated infrastructure through investments and acquisitions.
There are a number of potential options available for corporate restructuring in a regulated environment including:
- Contractual assignments of business portfolios;
- Corporate Schemes of Arrangement under Part 18 A of the Companies (Jersey) Law 1991 (the Companies Law);
- Corporate Mergers under Part 18 B of the Companies Law;
- Private laws;
- Segregated Trust/Account Schemes;
- Transfers under the Banking Business (Jersey) Law 1991 (the Banking Law).
Many institutions restructure on a multi-jurisdictional basis, particularly banking groups with presences in the three Crown dependencies or elsewhere offshore. Therefore some of the options may be used on a cross-border basis, for example, in combination with redomiciliation of corporate vehicles or utilising similar options available in other islands. However, the following analysis focuses on statutory banking transfers which until recently were unique to Jersey in the offshore world (similar provisions have been introduced in the Isle of Man).
STATUTORY BANKING TRANSFERS
The Banking Law allows Jersey banking business (technically deposit-taking business) to be transferred from one licensed bank (whether a subsidiary or branch) to another by means of a court-sanctioned scheme similar to UK transfers under Part 7 FSMA.
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.
Since then in 2014 and 2015 Jersey banking schemes have been used by other banking and fiduciary groups to transfer not only investment business but also funds services, general insurance mediation, money services and other current and historic regulated business alongside banking business. The Court has 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.
Banking Law transfer schemes are very flexible. They can be used not only to transfer banking business alongside other regulatory activities but can also be used to separate banking business from 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 regulators, clients, employees and creditors to be heard at the sanctions hearing 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 corporate 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; client, employee, 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 both 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. Thus the Court is prepared to sanction schemes even where there are some client objections.
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 in Jersey to transfer banking, investment and other regulated business is to be welcomed.
Article first published in Jersey First for Finance, by TIMES Group in March 2016
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.