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31 October 2018
The recently enacted Companies (Demerger) (Jersey) Regulations 2018 introduce a new demerger regime for Jersey companies. In addition to the new regime, a demerger by way of a court-sanctioned scheme of arrangement is still possible as an alternative under the Companies (Jersey) Law 1991 (the Companies Law).
The new demerger regime will be of particular interest to those who use, or are considering using, Jersey companies in their structures. It makes the use of a Jersey company more flexible and has a range of potential uses, including:
As there is no requirement to seek court approval, the new demerger regime may result in significant cost and time savings for those looking to divide the undertaking, property, rights or liabilities of a company among two or more companies.
The regulations introduce a simple new way for a relevant Jersey company (a demerging company) to demerge into two or more relevant Jersey companies (each a demerged company). One of the demerged companies will be a 'survivor company' (if the demerging company continues to exist on completion of the demerger), or all of the demerged companies can be new companies.
However, a Jersey company will be unable to demerge or become a demerged company using the new procedure if it:
For the time being, the new regime will also be unavailable to Jersey companies that are liable to pay tax in Jersey at the company or shareholder level. This includes any Jersey company:
However, for all international (non-Jersey resident-owned) clients, these restrictions are unlikely to apply.
The demerging company must apply to the registrar of companies in Jersey to complete the demerger. The application must include the following.
Although there are no restrictions on what may go into the demerger agreement and it need not be very detailed, it must include:
The demerger instrument may also provide for circumstances in which the demerger may be revoked before its completion.
Board and shareholder approvals and confirmations
The following board and shareholder approvals and confirmations are required:
Creditors, shareholders and employees are entitled to certain information so that they can make informed decisions about the demerger. The demerging company must make available for inspection by its shareholders and creditors:
The demerging company may remove commercially sensitive information from these documents before making them available for inspection.
Notice to tax authority
The demerging company must give notice of the demerger to the comptroller of taxes in Jersey by way of electronic self-certification. The certification must confirm that the demerging company:
Following notification, the comptroller of taxes will either:
Shareholders and creditors
Similar to the merger procedure under the Companies Law, a shareholder has the right to object to a demerger within 21 days of shareholders having approved the demerger instrument.
Shareholders who voted against the demerger have a further 21 days after notifying their objection to the demerging company to apply to the court on the grounds that the demerger would unfairly prejudice their interests. If the court is satisfied that an objecting shareholder's application is well-founded, it may make such order as it sees fit to give relief to the complaint.
Notice to creditors
The demerging company must also:
If the demerging company is solvent, the notice must state that the creditor has the right to object to the demerger and may do so within 21 days of the date of the notice's publication. A creditor has a further 21 days following such objection to apply to the court for any order that the court sees fit in the circumstances. If the creditor's claim has not been discharged, this may include restraining the demerger from proceeding or modifying the demerger instrument.
Once the creditor notice period has expired or if all shareholders and creditors consent to the demerger, provided that the directors have complied with the relevant demerger provisions and the demerging company is solvent, the demerging company can apply to the registrar to complete the demerger.
The demerging company must:
Employees may object in writing to the transfer of their contract of employment under a demerger.
If the registrar is satisfied that the application complies with the regulations, it will register the notices relating to the demerger.
A demerger will not need the court's consent unless:
As with a merger between Jersey companies, the Jersey Financial Services Commission will not need to consent to a demerger, except where it has issued a licence or consent to a demerging company requiring transfer.
Following the completion of a demerger, if the demerging company is a survivor company, it will continue as a demerged company together with one or more demerged companies that are new Jersey incorporated companies. If the demerging company is not a survivor company, it will cease to be incorporated as a separate company and will continue as two or more demerged companies that are new Jersey-incorporated companies. The registrar will issue the relevant certificates on completion of the demerger.
Property, rights and contracts
The property, rights, civil liabilities, contracts, debts and other obligations to which the demerging company was subject immediately before the demerger was completed will pass to the demerged company in the parts stated in the demerger instrument. If not stated, the default position is that:
If a Jersey company has non-Jersey assets, local advisers should check for any additional requirements for their transfer.
Actions, legal proceedings and financial penalties
Subject to an order of the court:
Licences, authorisations and other permissions
Any licence (including an authorisation, certificate, consent, permit, registration or any other permission) held by a demerging company will not transfer to a demerged company on completion of the demerger unless the authority that granted the licence has consented to the transfer.
Employees, employment contracts and pensions
Contracts of employment between the demerging company and its employees will automatically transfer to the relevant demerged company with no change in terms and conditions, unless:
If the employee does not withdraw their objection before the demerger's completion, the employment contract will not transfer to the relevant demerged company. The contract will be treated as having terminated on the later of the completion date of the demerger or the expiry of any notice period applying to the employee's employment contract immediately before the completion date of the demerger, and the demerging company may make a payment to the employee in lieu of notice in respect of all or part of the relevant unexpired notice period.
Subject to the above, the demerger will not terminate employment contracts and will have effect from the demerger's date of completion as if between the employee and the relevant demerged company. In addition, any collective agreements which apply to employees and were in force immediately before the demerger will remain in effect.
The regulations contain further provisions relating to employees, including:
If, immediately before the completion date of a demerger, the demerging company provides a pension scheme and has a contractual obligation to pay a contribution, the obligation to pay contributions will transfer to the new employer company on the completion date of the demerger. The general rule under the demerger regime is that the new employer company must provide something broadly equivalent to the arrangements in place before the demerger. Because the regulations contain no detail relating to pensions, the demerger instrument should set out any provisions that may be required if the demerging company has any retirement schemes in place.
The materials contained on this website are for general information purposes only and are subject to the disclaimer.
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