Changes To The Limited Partnerships (Jersey) Law 1994 – Clarifications, Confirmations And Amendments - Contracts and Commercial Law

Amongst the changes to the Limited Partnerships (Jersey) Law 1994 (the "LP Law") that have been implemented, included are changes that both helpfully clarify and confirm certain provisions of the existing law with respect to Jersey limited partnerships, and changes that build greater flexibility into the LP Law. We have included a redline of the new LP Law as against the previous version of the LP Law at the end of this article as a helpful reference point, and which we will be referring to throughout this article.

Clarifications and Confirmations

The following points have now been clarified and/or confirmed with respect to Jersey limited partnerships:

Purpose: It has been confirmed that a Jersey limited partnership may be formed for "any legal purpose" and Article 3(1) now explicitly provides that such legal purpose is irrespective of any profit element – this is a distinction between Jersey limited partnerships and those established in the UK under the Partnership Act 1890 and the Limited Partnerships Act 1907, where the 1890 Act provides that a partnership is "[t]he relation which subsists between persons carrying on a business in common with a view of profit" (Partnership Act 1890, section 1(1)). The LP Law therefore remains more flexible on this point as it enables the Jersey limited partnership to be used for endeavours that do not carry a profit element. In the context of investment funds (for example), there will tend to be a view of profit, but with the current rise in ESG-oriented investments, it may not always be said that profit is the sole or even the main purpose of an investment vehicle.
Form of general partner: It has been clarified (per the inclusion of "an unincorporated body or partnership" into Article 3(3)) that a general partner of a Jersey limited partnership may take the form of an unincorporated body – this now explicitly allows unincorporated entities such as trusts, general partnerships, limited partnerships, separate limited partnerships, foundations and associations to undertake the role of acting as a general partner of a Jersey limited partnership.
Contributions: It has been confirmed per the addition of "or agreed to be made" to Article 10 that contributions made by limited partners to the Jersey limited partnership may be paid up or owing - this confirms the position where, for example, investors in a limited partnership subscribe for interests and agree to invest a specified amount into the limited partnership (i.e. make a "commitment") and are admitted as limited partners of the partnership on this basis, but only pay up this commitment in tranches pursuant to the terms of draw down notices issued in respect of the fund that is a Jersey limited partnership.
General partner's liability status: It has been confirmed per a new statement included in Article 18(2) that the general partner is liable for the debts and obligations of the limited partnership in the event the limited partnership has insufficient assets to meet its liabilities - this was previously understood to be the case by virtue of Article 11(1) providing that "A general partner in a limited partnership ... is subject to all the restrictions and liabilities of a partner in a partnership without limited partners", which was understood to refer to the status of a partner of a general partnership, which is generally understood to have unlimited liability in respect of the debts and obligations of a general partnership. Whilst the provisions of Article 11(1) remain alongside the new Article 18(2), it is helpful to have this explicit confirmation in the absence of a standalone Jersey Law governing general partnerships in Jersey, akin to the UK's 1890 Act.
Duties owed by committee members: A new provision has been added as Article 19(7) to clarify that any member of a committee of the limited partnership (whether or not they are also a limited partner of the partnership) owes no duty to the limited partnership, its partners, the other committee members or a third party unless expressly provided for in the terms of his or her appointment or under the terms of the partnership agreement – this addresses a previous question of whether such committee members have any fiduciary duties in respect of the limited partnership. The reality is that such committees are normally established with respect to limited partnerships that constitute funds, and a good portion of such committee members are representatives of certain limited partner investors in the partnership, who are more likely to exercise any rights they may have for the benefit of the investor they represent. This is now addressed and is allowed under the LP Law, which makes the Jersey limited partnership a more investor-friendly structure than certain competitor jurisdictions.

Greater Flexibility

The following changes have been made to build greater flexibility into the LP Law. Broadly speaking, this is to be achieved by allowing the provisions of the limited partnership agreement to override the LP Law, with the LP Law operating as a statutory backstop where the limited partnership agreement is silent: -

Continuation of limited partnership: Article 21A(2) has been introduced to provide that the limited partnership can elect to continue in a different legal form governed by the laws of Jersey (e.g. a Jersey limited partnership continuing as a Jersey general partnership) provided it has been approved by the limited partners and any relevant authorities (which is a new defined term meaning "the Commission, Revenue Jersey and such other person as may be prescribed") - NB: This provision is to be an exception to the rule of de-registration of a limited partnership triggering the dissolution of the limited partnership or the requirements that the limited partnership be wound up in advance of such de-registration. The provision does not currently address the other Jersey legal forms that a Jersey limited partnership can be continued as, which may be clarified in due course. Indeed, in the same way in which we have legislative provisions detailing the processes involved in migrating Jersey companies and limited partnerships abroad, it may be that more detail may be required to effect any such continuation other than that it must be "unanimously agreed by the partners and approved by the relevant authorities". In the absence of any such guidance, it seems the process to be undertaken can be bespoke and will constitute a "request" which must be effected by the registrar upon receipt. The requirement that such continuation must first be "approved by the relevant authorities" indicates that there is ambit for such authorities' refusal, at their discretion (in the absence of any detailed guidance).
Penalty clauses: A new Article 17A has been introduced which allows for sanctions or other consequences to be imposed on partners for breach of the partnership agreement, and explicitly provides that such provisions in a partnership agreement are not unenforceable solely on the basis that they are penal in nature – this does not, however, mean that such provisions are necessarily enforceable. Enforceability may be subject to applicable Jersey law with respect to determining whether a sanction or other consequence is invalidated by reason of being "excessive".
Rights of third parties: A new Article 16A allows for limited partnership agreements to provide for third parties to gain directly enforceable rights under the partnership agreement while not being a limited partner or otherwise a party thereto – as Jersey does not otherwise have an equivalent of the UK's Contracts (Rights of Third Parties) Act 1999, which makes provision for the enforcement of contractual terms by third parties to such contracts, this provision aims for the same effect in this context. As a result, Jersey counsel will no longer need to include a specific provision in the terms of the limited partnership agreement whereby e.g. the general partner agrees to hold any rights granted to third parties under the partnership agreement on bare trust for them, and then dis-apply all duties and liabilities of the general partner as trustee of the bare trust, or otherwise advise the client that Jersey law does not recognise third party rights in this context. Furthermore, the provision provides a statutory backstop for the manner in which third parties' rights may be varied or extinguished – i.e. only with the consent of such third parties.
Clawback: The previous clawback provisions for profits or contributions paid to a limited partner (see Articles 14(3)-(4) and 17(2)-(3)) have been made more flexible so that whilst the statutory minimum period remains 6 months, a "longer" period can be specified by the partnership agreement. The previous qualification that required any such debt or obligation of the limited partnership (that requires settlement by the prematurely distributed share of the profits of the limited partnership) to be "incurred during the period that the share of the [profits/contribution] represented an asset of the limited partnership" has been removed, so that the debt or obligation may now be incurred either before or after the period that the share of the profits or contribution represented an asset of the limited partnership, which broadens the ambit of the provision.
Partnership records under Article 8: Per the amendments to Article 8(5)(c), disclosure of a limited partnership's records (specifically, those records required to be kept under Article 8(4)) can now been made subject to the terms of the limited partnership agreement – Previously such records were available for inspection and copying without charge during ordinary business hours at the request of a limited partner. This amendment addresses part of an issue concerning the sharing of sensitive commercial information with limited partners which arose in the recent case of IQ EQ 1986 Limited v Agilitas Private Equity GP Limited and Ors.
Partnership records under Article 13: Per the amendments to Article 13(1), and in alignment to the amendment made to Article 8(5)(c) noted above, the rights of a limited partner to "inspect and make copies of" the limited partnership's records "at all times" and "to be given, on demand, true and full information of all things affecting the limited partnership and to be given a formal account of partnership affairs" has now also been made subject to the terms of the partnership agreement (or to any regulations made or to be made under the LP Law) – As mentioned above, this amendment addresses the principal issue that arose in the recent case of IQ EQ 1986 Limited v Agilitas Private Equity GP Limited and Ors. In a nutshell, the case dealt with the parameters of the undefined term "partnership records" in Article 13(1)(a) of the former LP Law, and interpreted these to extend beyond those records kept under Article 8(4) and the accounting records under Article 9, to "all" records of the limited partnership. The Court then turned to establishing a process by which to (i) identify the documents that exist, and then (ii) assess whether they form part of the record of the partnership's business. Importantly, the motive or purpose of a limited partner in exercising their rights under Article 13(1)(a) is irrelevant for the purposes of this exercise, because the right under the former LP Law had been expressed in unqualified terms. This has now been addressed so that the right can now be qualified by the terms of the limited partnership agreement.
Name of limited partnership: Article 7 has been made more flexible by the removal of the restriction on the name of a limited partnership including the name of a limited partner (and thereby making them potentially liable as a general partner to any creditor of the limited partnership). The name of the limited partnership may now include the name of a limited partner, provided it is not "calculated" or likely to "mislead", or is "otherwise undesirable" (which is to be determined by the registrar), and the registrar has been given power under Article 7(4) to issue guidance for this purpose. We expect this guidance may cross-refer or align to some extent at least with the existing guidance with respect to Jersey companies' names found here.
Term: Article 4(3)(d) which required that the term of the limited partnership be included in the information provided to the registrar on establishment has now been removed entirely – consequently, any changes to the term of the limited partnership (which frequently occurs upon the amendment and restatement of a limited partnership agreement) does not need to be notified to the registrar.
General partner's rights and powers: Article 11 has been amended so as to significantly broaden a general partner's statutory rights and powers in respect of the limited partnership by the removal of the previous statutory restrictions. The powers and rights of the general partner are now made subject only to the partnership agreement, and there are no statutory backstops in place – previously, an approach to drafting a limited partnership agreement included explicitly listing out any specific rights and powers that it was agreed the general partner should have, to ensure the general partner has them. As this approach will now be reversed, it may be worthwhile to check the provisions of existing limited partnership agreements so as to ensure that the ambit of the general partners' rights and powers accurately reflects the intentions of the parties (i.e. in case they can be made broader or narrower than is currently provided for).
Return of contributions/share of profits: A limited partner's entitlement to receive a return of their contributions or share of the profits of the limited partnership is now entirely made subject to the limited partnership agreement (and the solvency status of the limited partnership). Per the addition of Article 16(3) (which change is reflected in Article 17(3)), a partnership agreement may now provide that "a partner has no rights to a return of contributions or to receive profits, or both" – previously a limited partner was entitled by law to receive back and not have to repay its contribution to the limited partnership, which was subject only to the solvency test being satisfied and any fraud committed by the limited partner. It may now be agreed that there will be circumstances where despite the solvency test being satisfied and no fraud having been committed by the limited partner, they are not entitled to receive back their contributions, which provides more flexibility in structuring limited partnerships where a return of contributions is not intended.
Limited partners' liability status: Article 18 has been amended to include Article 18(1) which provides that a limited partner's liability to the limited partnership is now to be subject to the terms of the partnership agreement – the statutory backstop reflects the previous position, which was that a limited partner is liable to the limited partnership for only the difference (if any) between the commitment agreed to be made to the limited partnership by such limited partner (whether it be in money or other property or services) and the amounts actually paid up/property contributed/services carried out in respect of the limited partnership. This change suggests that e.g. a limited partner's liability to the limited partnership could be greater or less than their commitment, if this is provided for in the limited partnership agreement.
Limited partners' liability status continued: In alignment with the changes made to Article 18, Article 19 provides that a limited partner's liability to the limited partnership for its debts or obligations is expressly made subject to the partnership agreement in addition to being subject to the LP Law – this means that, subject to the LP Law (including the rest of the provisions of Article 19, which sets out the "safe harbour" provisions of the LP Law), the statutory backstop remains, which is that a limited partner is not liable for the debts or obligations of the limited partnership over and above its liability set out in Article 18(1) (as discussed above).
Safe harbours: At the same time, the list of activities that do not constitute participating in the management of the limited partnership (for which the general partner is solely responsible and which would, if carried out by a limited partner, expose them to the liability status of the general partner) – known as the "safe harbour" provisions which are listed out under Article 19(5) and (6) - have been expanded to reflect the equivalent provisions in competitor jurisdictions' laws. The LP Law now also allows for the Minister to amend this provision in the LP Law by an order.
Consequences of participation in management: On a related note, Article 19(4) has been fine-tuned so as to provide that, in the event a limited partner is deemed to have participated in the management of the limited partnership (i.e. its activities fall outside of the "safe" activities listed in Article 19(5) and (6)), and where there is a person seeking to claim against such limited partner for this reason, such limited partner will be liable under Article 19(3) to such third party only if (i) that third party transacted with the limited partnership during the period of, and with actual knowledge of, the participation of the limited partner in the management of the limited partnership and (ii) then reasonably believed, based upon the limited partner's conduct, the limited partner to be a general partner – these underlined additions tighten the requirements that need to be shown by such third party claimant.
Winding up provisions: Finally, there has been a significant change to the winding up provisions set out in the LP Law, which we will turn to explore in a separate article in this series – please watch this space.

A full comparison of the new LP law as against the previous version is available here.

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.