Jersey has long been established as one of the top offshore jurisdictions for international finance transactions. There is a constant process of updating the legal and regulatory framework to ensure that a wide range of structures is available to the client. This briefing note summarises certain changes to the Companies (Jersey) Law 1991 (the "CJL").
The Companies (Amendment No.2) (Jersey) Regulations 2008 were passed by the States of Jersey on 15 January 2008 and came into force on 22 January 2008.
The Companies (Amendment No. 9) (Jersey) Law was passed by the States of Jersey on 15 January 2008 and awaits Privy Council approval; it is anticipated that it will come into force in mid-2008.
A Jersey company will be permitted to make a distribution from any source, not merely from distributable profits. Therefore, distributions may be made from capital without a need to obtain either shareholder or Court approval for a reduction of capital, as is currently the case.
A distribution may be debited from any account of the company (including the share premium account and the stated capital account) other than the capital redemption reserve or the nominal capital account. The fact that distributions may be made from the stated capital account of a no par value company but not the nominal share capital of a par value company may lead to an increased use of no par value companies in the future.
A distribution may only be made if the directors authorising the distribution make a statement that they have formed the opinion that:
- immediately following the date of the distribution, the company will be able to discharge its liabilities as they fall due; and
- having regard to the prospects of the company and their intentions with respect to the management of the company's business and the amount and character of the financial resources that, in their view, will be available to the company, the company will be able to continue to carry on business and discharge its liabilities as they fall due for a period of 12 months immediately following the date of distribution (or, if sooner, a solvent winding up of the company).
A director who makes such statement without having reasonable grounds for the opinion may be guilty of a criminal offence.
This amendment is expected to come into effect in mid-2008.
The CJL previously prohibited a company giving financial assistance in respect of the acquisition of its own shares. The provisions of Article 58 of the CJL were similar to those in the equivalent United Kingdom statute, so that financial assistance was unlawful, and therefore void, as well as being a criminal offence. That said, financial assistance was historically less of an issue in Jersey given that Article 58 provided for a simplified whitewash procedure.
This prohibition has been removed with effect from 22 January 2008. Importantly, the amendments make it clear that any previous common law prohibition on financial assistance isnot revived by virtue of the removal of the statutory prohibition.
There are transitional provisions addressing the concern that, prior to the amendments relating to distributions coming into force in mid-2008, any acts that would previously have constituted financial assistance might be an unlawful distribution.
Redemption and buy back of shares
With effect from mid-2008, it is proposed that the monies payable on the redemption of redeemable shares or on the buy back of shares by a Jersey company may be funded from any source, including capital. Currently, in the case of a par value company, the sources available to fund such payments are limited, in general terms, to distributable profits or the proceeds of a fresh issue of shares (although, where such payment includes a premium element in excess of the nominal value, the share premium account may also be used). Similar restrictions apply in the case of a no par value company, although stated capital account can also be used. In all cases, the shares to be redeemed or bought back must be fully paid.
The directors responsible for authorising the redemption or buy back payment will be required to make a statement that they have formed the opinion that:
- immediately following the date on which the payment is to be made, the company will be able to discharge its liabilities as they fall due; and
- having regard to the prospects of the company and their intentions with respect to the management of the company's business and the amount and character of the financial resources that will, in their view, be available to the company, the company will be able to continue to carry on business and discharge its liabilities as they fall due for a period of 12 months after the date of such payment (or, if sooner, a solvent winding up of the company).
A Jersey company is now permitted to hold its own shares as treasury shares. The company will not be treated as a member by virtue of holding such shares. Indeed, it will not be allowed to exercise any voting rights in respect of such shares and the number of treasury shares in issue will not be taken into account when calculating, for the purposes of any resolutions or other statutory consents, the total number or any required proportion of shares in issue. The company cannot make or receive any dividend in respect of treasury shares and cannot exercise or enforce any rights or obligations in respect of such shares.
This amendment will be of particular value to investment funds where the fund manager may want to have shares of the fund available for investors on short notice.
Prior to 22 January 2008, the CJL required Jersey companies to have directors who are individuals. Jersey companies are now permitted to have corporate directors provided that the body corporate acting as a director (a) is registered to provide such services pursuant to the Financial Services (Jersey) Law 1998 and (b) does not itself have any corporate directors.
Currently, the CJL requires that all Jersey companies must prepare accounts in accordance with generally accepted accounting principles (GAAP) and show a "true and fair view" of the profit and loss and the state of the affairs of the company. This provision is to be relaxed so that, while all companies must still prepare accounts in accordance with GAAP, any company that is required to appoint an auditor (essentially all public companies or companies the articles of which so require) can prepare accounts which either "show a true and fair view" of or "present fairly on all material respects" the financial position of the company. This proposed amendment is due to come into force in mid-2008.
With effect from 22 January 2008
- A cell company and each of its cells are no longer required to have the same directors. With effect from mid-2008
- Public companies will be permitted to dispense with annual general meetings, provided that all members agree in writing. (This relaxation of the statutory requirement for annual general meetings to be held is currently available only to private companies).
- A public company that is a limited company will be allowed to end its name with "Public Limited Company", "PLC" or "plc".
- The notice period for calling an annual general meeting or a general meeting to consider a special resolution will be reduced from 21 days to 14 days.
- The statements of solvency required in respect of a re-domiciliation in or out of Jersey will be amended to be consistent with those required for redemption/buyback and distribution, as set out above.
The proposed changes to the CJL underline Jersey's commitment to remain in the top tier of offshore jurisdictions. The increased flexibility in respect of the sources of funds available to fund redemptions and buybacks of shares, the removal of the prohibition on unlawful financial assistance and the greater flexibility in terms of distributions mean that Jersey companies will be increasingly attractive for vehicles in cross-border transactions. Indeed, given the recent amendments to the UK Companies Acts, it may be that the greater flexibility of Jersey corporate law may make Jersey vehicles attractive for domestic UK transactions, as well as cross-border tax-driven structures.
Ogier is one of the world's leading providers of offshore legal and fiduciary services employing over 700 professional and support staff. The group has a presence in nine jurisdictions around the world, namely the British Virgin Islands, the Cayman Islands, Guernsey, Hong Kong, Ireland, Jersey, London, Montevideo and New Zealand.
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- In Legal 500 Ogier has more lawyers recommended and more tier 1 rankings for individual practice areas than any other Jersey firm.
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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.