March 10 2008
The Companies (Guernsey) Law 2008 is new legislation that primarily consolidates existing law but will also incorporate a number of improvements. It was approved by the States of Guernsey (the island's government) on January 30 2008 and is now awaiting royal assent. It is expected to enter into force no later than July 1 2008.
The main body of legislation on which the new law is based is the Companies (Guernsey) Law 1994. Since that date various changes have been brought in to make Guernsey companies more flexible and versatile, including the creation of special types of company such as the protected cell company (Guernsey was the first jurisdiction to have this legislation) and the incorporated cell company.(1) These changes have considerably assisted the funds and insurance industries. In addition, for several years there has been the ability to migrate a company to Guernsey, to emigrate a company from Guernsey and to amalgamate one or more companies.
New types of company
Two new types of company have been introduced: (i) unlimited companies, where the liability of the members is unlimited and (ii) mixed liability companies, which can have shares, unlimited liability members and guarantee members.
Incorporation and filing processes
The incorporation of companies will cease to be a judicial or court process under the new regime. The consent of crown officers and the Guernsey Financial Services Commission, and court approval, are currently required before a company can be registered. In future, the incorporation process will be controlled by the new Company Registry (also introduced by the legislation).
Incorporations will be possible online, with the ability to select the required service levels. It is understood that a fast-track service (taking 15 minutes, provided that all documentation is in order) will be offered.
There will be a facility for online filing of annual validation certificates (which will replace companies' annual returns) online and notification of changes to the registrar of companies throughout the year. Searches may also be conducted online.
Standardized articles of association
Under the new regime, standard articles of association can be prescribed which will automatically be adopted, unless otherwise indicated on incorporation.
Unless a company's memorandum of association specifies, its objects will be unrestricted. This should avoid any issues being raised as to whether a particular act or transaction is within the company's powers.
Arrangements and reconstructions
The new law facilitates compromises and arrangements between a company and its creditors (or any class of them) or members (or any class of them). Subject to agreement of a 75% majority of the creditors or members, the Royal Court will be able to permit the compromise or arrangement. This should assist in insolvency and potential insolvency situations. Under the existing regime, despite a proposal being supported, for example, by the vast majority of creditors, a minority can block a proposal.
Squeeze-out provisions will allow a proposed purchaser with 90% acceptances to acquire the remaining shares compulsorily.
Dividends and distributions
Currently, the repayment of share capital or the payment of dividends to shareholders is subject to complex rules, particularly in relation to the accounts from which payments can be made or profits distributed, and in some cases (eg, a reduction of capital) require court approval. The new regime does away with these rules. As a general principle, distributions will be made or paid provided that any requirements set out in the company's memorandum and articles are fulfilled and the company satisfies a solvency test.
The new legislation provides that the directors must approve and one of them must issue a certificate stating that in their opinion the company will, immediately after the distribution, satisfy the solvency test and the grounds for that opinion. Any distribution made at a time when the company does not satisfy the solvency test can be recovered, subject to certain exceptions. In addition, the directors may be personally liable to repay to the company amounts that are not recoverable from the members.
The effect of these provisions will be a much more flexible regime for both repayment of capital and distributions to the shareholders. However, the onus is on the board of directors to ensure that payments can be properly made.
A new solvency test will be in place which will be applicable to a number of company actions, including:
Under the new provisions, a company satisfies the solvency test if:
The new test increases certainty and consistency in the process.
The law permits documents to be sent electronically to shareholders by the company if this is agreed by the shareholder.
In tandem with these developments in Guernsey's company law, a new Companies Registry is expected to be launched and operational by July 1 2008. The new office of registrar of companies is to be established, which will take over the role currently undertaken by Her Majesty's greffier and his staff.
A modern, flexible company law underpins Guernsey as both a financial centre and an entrepreneurial jurisdiction. This progressive company law should enable Guernsey to attract further business.
(1) For further details please see "New Legislation Provides for Incorporated Cell Companies" and "Ordinance Amends Protected Cell Companies".
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