Choosing an offshore jurisdiction for a fund, holding structure, company group or private wealth vehicle should not be easy or quick - there are many more jurisdictions catering for financial services than ever before, and there are some subtle but often stark differences between them all in terms of the offering, the infrastructure supporting it, and their status in the wider political/economic sphere.
On occasion, decisions about establishing offshore structures and the choice of domicile appear to be taken in haste. Offshore structures are often established largely due to historic familiarity with a particular jurisdiction or regime - the "we've used it before and it works" approach frequently being the deciding factor when faced with multiple options for a particular structuring solution.
That approach does however merit further scrutiny. A proper fiscal and legal analysis for the transaction in question is a given, however key factors, such as regulatory oversight, political stability of the jurisdiction in question and the expertise and standing of the local service providers/professionals should also always remain key influencing considerations. In this exercise, the questions are as important as the answers: here are some of the points that you should be considering:
- Access to finance: lenders are increasingly exercising discretion about the types of structures and jurisidictions they are prepared to lend to.
- Reputation: equity stakeholders are increasingly cognizant of a jurisdiction's standing and reputation in industry and regulatory body rankings. There is increasing international political pressure on offshore jurisdictions to raise standards to increase standards and meet global regulatory and fiscal benchmarks. Many go to great lengths to ensure compliance with the highest international standards, and have been recognised as such. What is clear however is only those who meet (and quite often exceed) such standards will be deemed acceptable for certain investors or other stakeholders.
- Services: the quality of the service providers (lawyers, accountants, administrators and trustees for example) will be key. Does the jurisdiction you are considering have a sufficient number of quality providers?
- Infrastructure: outside of human infrastructure, in a time when demonstrating economic substance is already important and likely to become more so, the physical infrastructure in terms of travel links, communications and office space are also serious issues to consider.
- Scalability: do you need to future-proof what you are doing with a view to scaling up in the future? Is this possible where you are planning to base your structure? In an ideal world, you should be looking to plan the full life-cycle of your structure within the chosen jurisdiction.
In an ever-evolving political and regulatory landscape however, factors outside the control of the corporate group are becoming more and more important in stress testing and influencing the choice of domicile. What happens however if despite best efforts at the outset, the chosen jurisdiction ceases to meet your or more importantly, your key stakeholders', requirements or demands? In such circumstances, corporate groups are often left with the stark reality that they may need to look at moving the seat of their structures to a more favorable jurisdiction in order to proceed with or maintain the relationship with key stakeholders (a process known in legal terms as a "Continuation" or a "Re-domiciliation").
The leading offshore jurisdictions permit Continuations both in and out provided the statutory process is followed. Again with slight variations across jurisdictions, such process usually involves the consent of the shareholders (by majority specified in the Articles of Association of the applicable company), notification to the creditors who have the right to object if they feel aggrieved and approval from the applicable regulator if regulated activities are being carried out.
A Continuation or a Re-domiciliation moves the jurisdiction of incorporation of a company (and in some jurisdictions, limited partnerships) from one jurisdiction to another whilst at the same time ensuring that the legal entity remains the same. The effects of a Continuation between jurisdictions can generally be summarized as follows (subject to slight variations/nuances in legal parlance):
- The process does not create a new company rather the same company, albeit with a different jurisdiction of incorporation, remains in existence;
- All property and rights to which the company was entitled immediately before the Continuation occurs remain property and rights of the newly continued company;
- The newly continued company remains subject to all criminal and civil liabilities, and all contracts, debts and other obligations, to which the company was subject immediately before the Continuation occurs; and
- All actions and other legal proceedings which, immediately before the Continuation, were pending by or against the body corporate may be continued by or against the newly continued company.
As demonstrated above, a Continuation is a very advantageous corporate procedure that enables companies to react to changing market, political and economic conditions by moving their place of incorporation to a more favourable domicile in the eyes of stakeholders.
Similarly, whilst external influences often dictate a chosen course of action, vis a vis corporate domiciliation, many Continuations are driven by internal factors; group simplification, service provider consolidation and cost/benefit analyses are all variables that have been considered by corporate groups when deciding to change the domicile of their corporate structures. With multi-national corporate structures becoming more and more complex, having offshore structures serviced by one provider under one roof and in one jurisdiction is also becoming more and more popular. The Continuation procedure is also therefore a useful tool to facilitate internal corporate planning.
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.