Jersey: Financial Assistance In Jersey

Last Updated: 23 September 2008
Most Read Contributor in Jersey, September 2016

The Companies (Jersey) Law 1991 (the "CJL") derives many of its provisions from the equivalent UK Companies Act. Article 58 of the CJL historically provided for a prohibition on unlawful financial assistance, similar to that set out in section 151 of the UK Companies Act. As in the UK, the consequences of the giving of unlawful financial assistance were severe. If a Jersey company gave financial assistance in contravention of the CJL, such company and any officer who was in default was guilty of a criminal offence. In addition, the transaction constituting the financial assistance would be unlawful and could therefore be void. This provision often proved problematic. However, with effect from 22 January 2008, the CJL has been amended and the giving of financial assistance is no longer unlawful in Jersey. This is a positive step, underlining Jersey's commitment to ensuring that its legal and regulatory framework are continually adapted so that Jersey remains in the forefront of the offshore jurisdictions.

Previous Position

Prior to 22 January 2008, Article 58(1) (a) of the CJL provided that:

  • where a person was acquiring or proposing to acquire shares in a Jersey company, it was not lawful for that company or any of its Jersey subsidiaries to give financial assistance directly or indirectly for the purpose of that acquisition before or at the same time as the acquisition took place; and
  • where a person has acquired shares in a Jersey company, and any liability has been incurred in respect of such acquisition, it was not lawful for the Jersey company or any of its Jersey subsidiaries to give financial assistance directly or indirectly for the purpose of reducing and discharging the liability so incurred.


  • Article 58 of the CJL was similar but not identical to section 151 of the UK Companies Act;
  • Article 58 of the CJL did not contain examples of financial assistance equivalent to those set out in section 151 of the UK Companies Act;
  • the CJL did not contain any equivalent to the "principle purpose" exemption contained in the UK Companies Act;
  • Article 58 of the CJL set out a "whitewash" procedure which was a simpler version of that contained in section 151 of the UK Companies Act.

It is notable that, unlike the UK, there was no express requirement for a statutory declaration or an auditor's report. The comparative ease meant that it was best practice in Jersey to follow the whitewash procedure if there was any doubt as to whether or not a transaction constituted unlawful financial assistance.

Change In The Law

The Companies (Regulations No. 2) (Jersey) Regulations 2008, which came into force on 22 January 2008, removed the prohibition on unlawful financial assistance. Therefore, a Jersey company may give financial assistance in connection with the acquisition of its shares or the discharge of financing related to a prior acquisition of its shares. Importantly, Article 58 as amended makes it clear that the removal of the statutory prohibition on unlawful financial assistance does not result in any prior common law prohibition being revived.

However, the giving of financial assistance, whilst itself lawful, may give rise to other concerns.

Corporate Benefit

Many actions which constitute financial assistance may also give rise to concerns about lack of corporate benefit. Financial assistance often involves a company giving support to its shareholders or potential shareholders with no specific benefit flowing through to the company itself. Given that Article 74 of the CJL sets out a statutory fiduciary duty of directors which expressly refers to the directors having to act in the best interests of the company, it may be necessary, in some circumstances, to follow the sanction procedures set in Article 74 (2) of the CJL. This involves (a) the company satisfying a solvency test that it is able to meet its debts as they fall due immediately following the action which gives rise to the concern and (b) all shareholders providing a sanction or consent to such action. Notably, there is no requirement for the sanction to be put in place before the financial assistance is given, removing one of the major concerns relating to unlawful financial assistance, notably that of timing and the inability to ratify after the event;


Financial assistance may result in value being passed by a Jersey company to its shareholder which could give rise to concerns that there may be a distribution, particularly given the English case of Aveling Barford Limited v Perion Limited (ChD 1989) [1989] BCLC 626, 5 BCC 677). In that case, a company entered into a sale of assets at an undervalue to another company controlled by a common sole beneficial owner. It was held by the English courts that such action could constitute an indirect distribution. Therefore, if a company was not in a financial position to be able to make such a distribution in accordance with the distribution rules under Article 114 and 115 of the CJL, it may be considered unlawful. This could result in (a) the directors being personally liable to reimburse the company for such unlawful distribution, and (b) any recipient on notice of such breach holding the distribution monies on a constructive trust on behalf of the company.

There are current proposals to amend the CJL to allow a Jersey company to make distributions out of any sources (save for the nominal share account and the capital redemption reserve).

This will be subject to the directors who approve the distribution making a prior statement of solvency. However, for the period before this change takes effect, there are transitional provisions which will allow a company to give financial assistance, secure in the knowledge that this will not constitute a distribution. The transitional procedure is also remarkably similar to the old financial assistance whitewash procedure in that it requires (a) a prior special resolution and (b) a statement of solvency to be given by the directors approving the financial assistance, confirming that they have formed the opinion:

  1. that, immediately following the date of the financial assistance, the company will be able to discharge its liabilities as they fall due; and
  2. that, 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 it, the company will be able to carry on business and discharge its liabilities as they fall due for a period of 12 months immediately following the date of the financial assistance or until the financial assistance or until the company is dissolved pursuant to a solvent winding up.

Given the lack of clarity rising from the Aveling Barford case and the potential risk that any action which results in value being provided to a shareholder being categorised as distribution, it is foreseen that companies will generally follow this procedure if in any doubt as to whether financial assistance constitutes a distribution or not.

In respect of the solvency test, it should be noted that:-

  • the sanction procedures are available to both private and public companies;
  • not all directors are required to approve the financial assistance, just those approving the financial assistance at the relevant board meeting;
  • the CJL defines "liabilities" as including "any amount reasonably necessary to be retained for the purpose of providing any liability or loss which is either likely to be incurred or certain to be incurred, but uncertain as to amount or as to date on which it will arise";
  • the test provides for a forward looking solvency test based upon the company's cash flow and ability to meet it as they fall due. There is no balance sheet test;
  • the sanction procedure does not require a statutory declaration or auditor's report. However, it is best practice for the directors to consider the financial and accounting records of the company before making such statement;
  • while there is no technical requirement for the solvency statement to be in writing separate from any board resolutions, it is best practice for a separate statement to be signed by the directors and tabled at the board meeting; and
  • the statement of solvency must be made or signed before the board authorises the giving of financial assistance which would otherwise constitute a distribution.

As a consequence of this change, the focus on analysing a transaction will shift from whether or not a transaction constitutes financial assistance and must therefore be whitewashed to whether a transaction constitutes a distribution and must therefore be either made in accordance with Articles 114 and 115 or sanctioned as per the new transitional procedures set out in Article 58.


Financial assistance had previously given rise to technical issues requiring procedural steps to be taken to avoid a transaction potentially being void. Therefore, the removal of the prohibition on unlawful financial assistance can only be seen as a positive step and one which benefits Jersey and the financial institutions that use it.

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.