This briefing has been produced for structured finance advisors and arrangers using Jersey incorporated companies which issue debt securities.

This briefing considers:

  • whether a "prospectus" is being issued by a Jersey Issuer and the consequences of this;
  • whether the Jersey Issuer will require a consent under COBO (a COBO Consent) and the consequences of this; and
  • the Jersey requirements in relation to the preparation of audited accounts for vehicles issuing debt securities.

The relevant legislative framework in Jersey is contained in the:

  • Companies (General Provisions)(Jersey) Order 2002 (the GPO); and
  • Control of Borrowing (Jersey) Order 1958 (COBO).

Is a 'Prospectus' being issued?

The importance of this question is that it determines whether or not the Jersey Issuer will be 'public' or 'private' and the consequences.

A 'Prospectus' is defined under Companies (Jersey) Law 1991, as amended (the Companies Law) as follows:

'prospectus' means an invitation to the public to become a member of a company or to acquire or apply for any securities, for which purposes an invitation will not be considered to be made to the public where:

  1. the invitation is addressed to qualified investors as defined in Regulation (EU) 2017/1129 of the European Parliament and of the Council of 14 June 2017 on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market OJ L 168, 30.6.2017, p.12, as amended from time to time, or professional investors as defined in the Financial Services (Investment Business (Special Purpose Investment Business – Exemption)) (Jersey) Order 2001, or both;
  2. the number of persons (other than qualified investors and professional investors) to whom the invitation is addressed does not exceed 50 in Jersey or 150 elsewhere;
  3. the minimum consideration which may be paid or given by a person for securities to be acquired by that person is at least EUR 100,000 (or an equivalent amount in another currency);
  4. the securities to be acquired or applied for are denominated in amounts of at least EUR 100,000 (or an equivalent amount in another currency);
  5. the invitation relate to the issue of shares or other securities by a company to its members satisfaction, in whole or in part, of a distribution to be made by that company;
  6. the invitation relates to a scheme specified in Article 3(2)(c) of the GPO; or
  7. any combination of exemptions detailed in sub-paragraphs (a) to (f) apply.

If YES (i.e. a "Prospectus" is being issued), the Issuer must be a public company (as opposed to a private company) and will be treated as if it were a public company under the law in any event.

Some of the consequences of being (or being treated as) a public company as opposed to a private company are as follows:

  • a public company can have more than 30 members whereas if a private company has more than 30 members it is deemed to be a public company;
  • a public company can issue a prospectus (subject to consent-see below); if a private company issues a prospectus it is a criminal offence.\
  • a public company will require an audit of its accounts, whereas this is only required for a private company if its articles require it or, if required by shareholder resolution or if the note-holders request it (see section 3 below); and
  • for a public company, an auditor's report must be filed with the Jersey registrar within seven months of its financial year end. For a private company the accounts need only be held available for shareholders within 10 months of its financial year end.

In addition, the Issuer will require a consent pursuant to the GPO to the circulation of a Prospectus.

If NO (i.e. a "Prospectus" is not being issued), the Jersey Issuer can be a "private" company. None of the consequences of being public (as described above) apply.

Is a COBO Consent required (pursuant to Article 4 of COBO)?

Are securities to be issued by the Jersey Issuer capable of being held by more than 10 persons (if bearer securities) or is the number of persons in whose name the securities are to be registered in excess of 10 (non-bearer securities)? In the context of medium term note programmes, this cap of 10 potential investors is applied on a series by series rather than a programme-wide basis.

If YES, then COBO Consent is required to the securities being issued. The consequences of this in terms of Jersey regulatory requirements are that the "Guide to Securities Issues by Jersey Companies" published by the Jersey Financial Services Commission applies. Copies are available on request.

If NO, then COBO Consent is not required to the securities being issued.

Registered Notes

Where the securities are in registered form, the following text should be included in the issuing and paying agency agreement (or equivalent) in order to place restrictions on the registrar:

"Notwithstanding any other provision of this [Issuing and Paying Agency Agreement] or any other Transaction Document, the [Registrar/Issuing and Paying Agent/other] will ensure that the number of persons in whose names the [securities] are or are to be registered does not exceed 10 (joint holders of any [securities] being counted for this purpose as one)."

Bearer securities

  • Where the securities are in global bearer form and definitive notes may be issued, it will be necessary to ensure that the minimum denomination of the securities is so high that there could never be more than 10 holders of the Notes.
  • Where the securities are in global bearer form and definitive notes will not be issued, only one Note will be issued for each class, and therefore the issue will fall within the less than 10 COBO exemption.

Relaxation of audit requirements for private companies issuing debt securities under COBO

In August 2006, the Jersey Financial Services Commission (the Jersey regulatory body) announced a change in its approach with regard to whether or not a company issuing debt securities must maintain audited accounts.

The current position is as follows:

  • Public companies will continue to require an audit of their accounts.
  • A private company is required to prepare audited accounts if its articles of association or shareholders required it to do so.
  • A private company issuing debt securities and requiring a COBO consent to do so is not required to prepare audited accounts if:
  • the offer document or other documentation pursuant to which the securities are issued makes it clear to investors that no audited accounts will be produced; and
  • the transaction documents allow note holders holding 10 percent by value to obtain an audit of such Company's latest annual accounts. Where such a request is made the requesting parties will be responsible for the costs of carrying out the audit.

A private company issuing debt securities does, however and as with all Jersey incorporated companies, have a statutory obligation under Articles 102 and 103 of the Companies Law to keep accounting records which are sufficient to identify the transactions of the company and to disclose with reasonable accuracy its financial position. The Companies Law also prescribes that accounts must be prepared in accordance with generally accepted accounting principles and show a true and fair view of the profit and loss of the company and the state of its balance sheet. There is no limit on which GAAP may be chosen.

Issuer Structures (post-August 2006)

Since August 2006 it has been possible for new issuers entering into debt issuance transactions which do not require the issuance of a Prospectus, to be incorporated as private companies. Furthermore, it is not necessary for such issuers to prepare audited accounts provided that: (i) a mechanism is included in the transaction documents allowing investors to call for audited accounts to be prepared in the future; and (ii) it is clearly disclosed to investors that the issuer will not produce audited accounts unless the investors exercise their right in (i) above.

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.