The Foundations (Jersey) Law 2009 (the "Law") allows for the establishment of Jersey foundations, and adds significantly to the structuring opportunities available to clients selecting Jersey as a jurisdiction for private wealth management purposes.
As a concept with its roots in civil law, and so familiar to clients based in locations such as the Middle East and continental Europe (to whom the trust concept is less familiar), the Jersey foundation is a new incorporated vehicle, with its own legal personality and therefore able to transact, hold assets and to sue (and be sued) in its own name.
Although a familiar concept, the Jersey foundation is not identical to foundations seen in other jurisdictions (such as Liechtenstein and Panama) and a key feature is its flexibility, allowing focus to be placed on those aspects which will enable a foundation to look more like a trust, or conversely more like a company, as appropriate in the light of the client's particular structuring requirements.
In addition to establishing new foundations, it is possible to merge Jersey foundations with existing foreign-law entities so that such entities can thereafter continue as Jersey foundations, taking advantage of the flexibilities offered by the Law, and also of the other established factors (such as reputational profile - including the Island's categorisation by the London G20 summit in April 2009 as an international financial centre in the top "white" list of jurisdictions which have substantially implemented the internationally agreed tax standard - robust regulatory environment, respected court system, proximity to London's financial markets and convenient time zone) which combine to make Jersey an attractive choice of jurisdiction.
The Foundations (Mergers) (Jersey) Regulations 2009 (the "Merger Regulations") allow for two or more Jersey foundations to merge and continue as one foundation, for Jersey foundations to merge with "recognized entities" and continue as one foundation, and also for Jersey foundations to merge with "recognized entities" and continue as one "recognized entity."
This Briefing focuses on the merger of a Jersey foundation with a "recognized entity" so that they can thereafter continue as a Jersey foundation. The parties entering into such a merger may choose to continue, following the merger, either as the existing Jersey foundation entering into the arrangement, or as a new Jersey foundation.
Which entities can participate in such a merger?
Jersey foundations can merge with "recognized entities", being designated classes of bodies or entities incorporated or established outside Jersey whether by registration, endowment or otherwise and whether or not having legal personality.
The list of "recognized entities" for the purposes of the Merger Regulations includes Panama Private Interest Foundations, Bahamas Foundations, Liechtenstein Stiftungs, Liechtenstein Anstalts, St Kitts Foundations, Nevis Multiform Foundations and Malta Private Foundations.
In this Briefing, a "recognized entity" which merges with a foundation is referred to as the "Merging Counterparty" and the existing foundation which merges with a Merging Counterparty is referred to as the "Existing Foundation".
A merger agreement (the "Merger Agreement") is required to be entered into between the Existing Foundation and the Merging Counterparty and must:
- be in writing;
- state the terms and means of effecting the merger; and
- where the parties are to continue as a new foundation, set out details of the charter for the proposed new foundation.
Before the application is made
Within 28 days after the date of the Merger Agreement, the qualified member of the council of the Existing Foundation must publish notice of the Merger Agreement (the "Notice"), stating that the Existing Foundation and the Merging Counterparty intend to merge and continue as a Jersey foundation.
Copies of the Notice must be sent by the Existing Foundation's qualified member to: (i) all creditors known by the Existing Foundation's qualified member to have a claim against a party to the Merger Agreement in excess of £5,000; (ii) the registrar of companies in Jersey (the "Registrar"); and (iii) the guardian of the Existing Foundation (who must also be supplied with a copy of the Merger Agreement).
The Notice must state whether the Existing Foundation and the Merging Counterparty are solvent, and must allow those aggrieved to apply to the Royal Court in Jersey within 28 days after the first publication of the Notice for an order to restrain the proposed merger. The court can only make such an order if it is satisfied that the person applying for such restraint would be unfairly prejudiced by the proposed merger.
Where the Notice does not state that the parties to the proposed merger are solvent, an Act of the Royal Court must be obtained, before the merger application can proceed, confirming that the merger would not be prejudicial to the interests of the creditors of the parties to the Merger Agreement. Copies of the application to court in this regard must be sent by the Existing Foundation's qualified member to: (i) all creditors known by the Existing Foundation's qualified member (after making reasonable enquiries) to have a claim against a party to the Merger Agreement in excess of £5,000; and (ii) to the Jersey Financial Services Commission (the "Commission").
The application to implement the Merger Agreement is made by the qualified member of the council of the Existing Foundation to the Commission and is accompanied by various documents including, where it is intended to continue as a new foundation after the merger, a copy of the charter for the proposed new foundation and a certificate containing prescribed information.
The certificate which accompanies the application is required to be signed by the qualified member of the council of the Existing Foundation, confirming (inter alia) that:
- a named qualified person would become the qualified member of the council of the proposed new foundation (the "Qualified Member");
- the qualified member of the council of the Existing Foundation has possession of regulations for the proposed new foundation which have been approved by the parties to the Merger Agreement and by the Qualified Member;
- a specified address in Jersey is the business address in the Island of the Qualified Member;
- a guardian has been selected for the proposed new foundation;
- the laws of the jurisdiction in which the Merging Counterparty is established or incorporated (the "Foreign Laws") do not prohibit the application from being made in respect of the Merging Counterparty;
- any authorisation required by the Foreign Laws or by the constitution of the Merger Counterparty has been obtained;
- following the proposed merger, the Merging Counterparty will, in due course, cease to be an entity incorporated or established under the Foreign Laws; and
- the interests of the creditors of the Merging Counterparty will not be unfairly prejudiced.
Following receipt of an application, the accompanying documents are forwarded to the Registrar.
Consideration of the application
An application can be declined in certain prescribed circumstances, such as where it is necessary to do so to protect the reputation and integrity of Jersey in financial and commercial matters, in the best economic interests of the Island, or to protect Jersey's international standing.
Where it is intended to continue as a new foundation following the proposed merger, an application can also be declined if the Commission is not satisfied that the objects of the proposed new foundation are lawful, or if the Registrar advises the Commission that the planned name for the new foundation is misleading or otherwise undesirable or does not end with the word "Foundation" or foreign language equivalent.
Where an application is declined, the Merger Regulations allow for the qualified member of the council of the Existing Foundation to appeal to the Royal Court.
Implementation of the Merger Agreement
Where the Commission accepts an application for a merger or an appeal to the Royal Court is successful, the Commission instructs the Registrar to implement the Merger Agreement.
Incorporation of a new foundation on implementation of the Merger Agreement
The incorporation of a new foundation on implementation of the Merger Agreement is effected by the Registrar who registers in the foundations register the name of the proposed new foundation, the name and business address in Jersey of the Qualified Member; and the names of the Existing Foundation and the Merging Counterparty.
The Registrar issues the new foundation with a registration number and enters a note in the register of the Existing Foundation to the effect that it has ceased to be a separate foundation because it has merged with the Merging Counterparty to form the specified new foundation.
Effect of merger where a new foundation is formed
From the date of incorporation of the new foundation, the parties to the Merger Agreement continue as a foundation with the name specified in the register of foundations for the new foundation.
The Merger Regulations provide that, on the incorporation of the new foundation, the parties to the Merger Agreement cease to be a separate foundation and "recognized entity" respectively, and the Qualified Member, named in the certificate which accompanied the merger application, becomes the qualified member of the new foundation, and also that:
- the property and rights to which each of the parties to the Merger Agreement was entitled immediately before the incorporation of the new foundation become the property and rights of the new foundation;
- the new foundation becomes subject to any criminal and civil liabilities, and any contracts, debts and other obligations, to which any of the parties to the Merger Agreement was subject immediately before the incorporation; and
- any actions and other legal proceedings which were pending by or against any of the parties to the Merger Agreement immediately before the incorporation of the new foundation can be continued by or against the new foundation.
Existing Foundation continuing after the merger
Where the Merger Agreement provides that the Existing Foundation is to continue as a foundation, the Registrar enters in the register of foundations in respect of the Existing Foundation the name of the Merging Counterparty.
Effect of merger where Existing Foundation continues in existence
On the date upon which the Registrar notes the merger in the Existing Foundation's entry on the register of foundations:
- the property and rights to which the Merging Counterparty was entitled immediately before that date become the property and rights of the Existing Foundation;
- the Existing Foundation becomes subject to any criminal and civil liabilities, and any contracts, debts and other obligations, to which the Merging Counterparty was subject immediately before that date; and
- any actions and other legal proceedings which were pending by or against the Merging Counterparty immediately before that date can be continued by or against the Existing Foundation.