During the second half of 2011, we advised longstanding client of the firm and FTSE 250 company Centamin Egypt Limited (Centamin Egypt) on the transfer of its corporate domicile from Australia to Jersey. The transaction involved a multi-jurisdictional team and was completed in record time; approximately four months from start to finish. In this article, we provide a brief overview of the transaction and highlight some of the key considerations for companies considering a similar move.
1. Overview
The transaction took the form of a 'top-hat' scheme of arrangement in Australia and involved the following principal steps:
- The incorporation of a new Jersey top company, Centamin Plc (New Centamin);
- An Australian scheme of arrangement to obtain the approval of Centamin Egypt shareholders. The shareholders were asked to approve the exchange on a one-for-one basis of their Centamin Egypt shares for New Centamin shares; and
- The listing of New Centamin on the Official List, the Main Market of the London Stock Exchange and the Toronto Stock Exchange. The New Centamin shares replace the previously listed Centamin Egypt shares and trade under the same ticker symbols.
Our role as English law advisers on the transaction was focused on the listing of New Centamin in London, including preparation of a prospectus, and coordinating the team of overseas counsel engaged by the company (including in Australia, Jersey, Canada and Egypt). RBC Capital Markets acted as the company's sponsor on the listing.
2. Key considerations
For any company considering a change in its corporate domicile, it is important to be clear about the reasons and potential advantages in doing so, not least so these can be articulated to shareholders when seeking their approval for the change.
In Centamin's case, the rationale for its move centred around:
- Allowing the company to position itself in the Europe, Middle East and Africa (EMEA) region where its operations are based;
- Allowing the company to adopt a more international presence with a greater nexus to the larger EMEA region financial centres;
- Aligning the company's domicile with its increasingly international (i.e. non-Australian) shareholder base;
- Allowing shareholders to benefit from the protection of the UK Takeover Code, which applies to listed Jersey companies, and to participate directly in the CREST system; and
- Delivering the potential to create a more flexible global structure for the group, with future investments or acquisitions in mind.
By contrast, for two companies that announced redomiciliations to the UK in 2011 - Polyus Gold and EVRAZ – one of the key drivers was eligibility for inclusion in the FTSE UK Index Series. Non-UK companies may still be eligible for the FTSE UK indices but are subject to additional requirements, including a higher minimum free float. Centamin Egypt was already included in the FTSE 250 as an Australian company, and it was important to the company to choose a new jurisdiction for its top company which would not prejudice its continued inclusion in the index.
Choice of jurisdiction – a range of factors will influence a company's decision as to the jurisdiction it chooses for its new top company. These will include things like regulatory regime (including application of the UK Takeover Code), market perception and practicalities (e.g. geographical location and time zone). Jersey has proved popular with listed companies for a number of reasons including a reputation as a welladministered, reliable offshore base, a shared time zone with and geographical proximity to London and a comparatively light-touch legal regime but one based on English law principles. In addition, the fact that Jersey is recognised by FTSE as a suitable jurisdiction for inclusion in the UK indices – with a number of Jersey companies is the FTSE 100 and FTSE 250 – is an important consideration for many companies.
Legal mechanism: the legal mechanism to effect an offshore move will depend on the requirements of the jurisdiction in which the original head company is incorporated. In Centamin Egypt's case, this was Australia, a jurisdiction with similar company law to that of England and Wales. Accordingly, Centamin Egypt was able to use a standard members' scheme of arrangement approved by the Western Australian Supreme Court to effect the transaction. However, the availability of such a process in all jurisdictions should not be assumed and advice from local lawyers should always be sought at an early stage
Option Holders: in addition to a members' scheme of arrangement, where the company has outstanding options or warrants, it may also be necessary to undertake a further scheme of arrangement to obtain the approval of option or warrant holders. In Centamin's case, due to a very small number of option holders, the company was able to provide for rollover of options by private agreement with each holder, which proved a much quicker and more cost-effective route.
Change of control: the introduction of a new top company brings about potential change of control issues for all the underlying group companies. Consequently, it was important to identify in legal due diligence any contracts with change of control clauses so that the company could address these, and any possible consequences, before implementing the scheme.
Top company: while a top-hat scheme is very neat in that the whole corporate group remains in place below the new top company, it is important to ensure the top company is appropriately set up in its own right. This will include attending to the following matters:
- Articles of Association: the articles of association of the new topco will need to be compliant with the laws of its country of incorporation and applicable stock exchange requirements. At the same time, the company may wish to retain certain shareholder protections in its old constitutional documents, where possible. The directors will be recommending the transaction to shareholders on the basis, in part, that their position as shareholders will not be materially prejudiced by the re-domicile, and with that in mind it is important that the scheme circular being sent to shareholders identifies any material differences between the old top company's constitution or articles and those to be adopted by the new top company. It is important therefore that the new articles of association are prepared at an early stage of the process.
- Taxation – it is important that the listed company takes advice on the tax consequences for the group, if any, of the change of domicile at an early stage of the process, and that appropriate disclosure is made in the scheme documentation.
- Incentive schemes – the mechanism for rolling over interests held in the old top company's incentive schemes will depend on the terms of the schemes themselves. But, broadly, such incentive schemes as there are will most likely need to be replicated in the new top company. In Centamin's case, shareholders were asked to approve at a separate general meeting immediately after the scheme meeting the terms of two long-term incentive plans to be replicated in New Centamin, as well as the adoption of a new option scheme.
- Directors / board committees – the new top company may wish to enter into new service contracts or non-executive letters of appointment with each of its directors. The board committees of the old top company will also need to be established in the newco. D&O insurance, if in place, should also be adjusted to reflect the new group structure.
3. Conclusion
Whilst relatively rare, and not something to be undertaken lightly, the Centamin transaction does illustrate how a listed company can engage in a corporate reconstruction process to move its corporate domicile where the company's original home no longer provides either its operational base or a significant proportion of its shareholders- and is most likely to be relevant for companies like Centamin who have sought, and enjoyed the benefits of, a primary listing in a market outside of their home jurisdiction.
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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.
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