Introduction
Capital requirements
Distributions
Fiduciary duties of directors
Auditors
Changes to squeeze-out procedure on takeovers
Administrative matters
Matters for future consideration
On May 23 2014 the States of Jersey passed the Companies (Amendment 11) (Jersey) Law 201. This was sent to the UK Privy Council for consideration and then laid before the States of Jersey for a final time before coming into force. The Privy Council approved the law on July 19 2014.
The amendment law makes a number of changes to the Companies (Jersey) Law 1991 in order to ensure that the corporate law framework in Jersey continues to adapt to the demands of its cross-border client base.
The law amends the provisions of the Companies Law relating to reduction of share capital of all Jersey companies (including public companies) in order to follow the approach taken in the UK Companies Act 2006 in respect of private companies. Therefore, it will be possible for a Jersey company to reduce its share capital by passing a special resolution, provided that it is supported by a solvency statement made by the directors in the 15-day period before the passing of the special resolution. A copy of the special resolution and solvency statement must be filed with the registrar of companies within 15 days of passage of the special resolution; the resolution will take effect on registration, not on passage. However, given that there are circumstances where a court-approved reduction may still be preferable (as a result of the comfort and requirement elsewhere for a third party to sanction the reduction), this has been retained as an alternative procedure, rather than being removed.
The amendment law resolves a drafting point in the Companies Law by expressly permitting the transfer of amounts from other accounts (eg, a profit and loss account) to a stated capital account (for a no-par-value company) or a share premium account (for a par-value company) without the need for a special resolution.
Article 55 of the Companies Law is amended to clarify that the proceeds of a redemption or repurchase by a Jersey company of its own shares may be paid in specie (or partly in cash and partly in specie).
Further amendments extend the redemption and repurchase provisions to cover depositary certificates or receipts; these are used on certain stock exchanges where shares of a Jersey company cannot be traded or settled. This clarifies uncertainty within the Companies Law that has existed for some time.
The permitted period of authorisation required for the on-market repurchase of Jersey shares is extended from 18 months to five years in order to track the equivalent UK legislation.
Finally, the amendment law removes the prohibition on the payment of commissions and discounts, as these were felt to be "unnecessary and unduly restrictive", given the general shift away from the concept of maintenance of capital to protection of creditors via the use of solvency statements.
There has been debate in Jersey, as in London, regarding whether the giving of a guarantee by a Jersey subsidiary in respect of its parent's obligations constitutes a distribution. Article 115 of the Companies Law is amended to clarify that the law restricts or seeks to control only distributions that reduce the net assets of the company. Net assets are determined in accordance with the generally accepted accounting principles adopted by the company. Therefore, a guarantee that is to be entered in the accounts as a note only because of the contingent nature of the obligation will not be a distribution.
The amendment law seeks to address the concern as to whether a distribution made unlawfully because of, for example, a failure to obtain the requisite solvency statements before such distribution can be ratified. The Companies Law will be amended to allow an ex parte application to be made to the Royal Court whereby the court can declare a distribution lawful. The court would need to be satisfied that:
- the relevant solvency tests could have been passed immediately after the distribution and at the time of determination of the application; and
- it would not be contrary to the interests of justice to do so.
No shareholder approval is required. Companies can still treat the purported distribution as a loan to shareholders until the directors pass the solvency statement to convert this to a distribution. However, in such circumstances, the passing of the solvency statement has no retrospective effect, unlike the court approval process.
Article 74(2) of the Companies Law provides that an act or omission by a director is not a breach of his or her fiduciary duties to the company (as set out in Article 74(1)) if:
- all members of the company authorise or ratify such act or omission; and
- after the act or omission, the company can discharge its liabilities as they fall due.
The amendment law introduces an additional procedure for ratification that is a simplified equivalent to the procedure in the UK Companies Act 2006.
The procedure requires the cash-flow solvency test to be satisfied, but instead of unanimous member approval, the ratification can be by ordinary resolution or, if required by the articles, special resolution. For these purposes, if the director whose acts or omissions are being ratified is a member of the company, he or she (and any member connected with such director) is not treated as a member entitled to vote; however, he or she may still attend and count in a quorum (subject to the articles of association of the company). The amendment law sets out the definition of 'persons connected with a director' in detail. The definition includes members of the director's family and any corporate with which the director is connected (by virtue of, eg, holding more than 20% of the equity share capital or voting rights at a general meeting). The definition of 'connected with a director' is derived from Section 252 of the UK Companies Act 2006.
Existing investment funds will have to opt in to this additional procedure via a unanimous vote of the members.
The amendment law allows for an order to be made disapplying the requirement for categories of company that are otherwise required by the Companies Law to appoint an auditor. This applies only where the company has also resolved to make such disapplication by a resolution passed by all members entitled to vote. This is intended to apply, for example, to dormant investment funds, where the remaining assets do not support the costs of a full audit.
Broadly speaking, for investment funds that are companies, if the fund has no investors or participants in it for the relevant financial period, it will be able to avail it of the exemption.
Changes to squeeze-out procedure on takeovers
The minority shareholder compulsory acquisition procedure (or 'squeeze-out') on takeovers has been amended in line with the English law position. In particular, the Companies Law has been amended to make specific provisions for situations where the laws of some jurisdictions make it impossible for an offer to be made to shareholders resident in them or for shareholders to accept the offer.
The amendment law introduces a range of provisions designed to assist in the ongoing administration of a Jersey company, including:
- the ability to discount directors and employees of subsidiaries of a Jersey company who are members when calculating the total number of members for the purposes of ascertaining whether a company is a public company (this number is set at more than 30 members);
- confirmation that a company can maintain a branch register outside Jersey showing any and all members, not just those resident in that place. This will assist with Jersey companies listed on exchanges outside the United Kingdom;
- removal of the need for private companies to hold annual general meetings, unless the articles of association require one to be held;
- clarification that a written resolution need not be signed by all members, but instead by the relevant majority required to pass such resolution. This is subject to all members receiving a copy of such written resolution;
- the reduction (from 95% to 90%) of the majority required for consent to short notice of a general meeting other than an annual general meeting, unless the articles provide for a greater majority or unanimity;
- clarification of the Companies Law to provide specifically for multiple corporate representatives of a body corporate at a general meeting, in line with the UK Companies Act 2006. Provision is made for what happens when representatives of the same corporate member vote in the same way and in opposite ways – if they disagree, they may not act;
- confirmation that non-business days can be ignored for the purpose of calculating the 48-hour period specified in the Companies Law as the maximum time that may be required for providing notice of the appointment of proxies. This now corresponds to the position under the UK Companies Act 2006;
- a reduction in certain timeframes for merger procedures (where two or more Jersey companies may be merged with each other);
- improvement of the existing provisions on migrations (eg, shortening the statutory timetable); and
- provisions allowing the registrar to strike off a company for failure to maintain a registered office in Jersey.
Matters for future consideration
The amendment law provides for a future order to be made to amend the definition of what constitutes a 'prospectus' for Jersey law purposes. The current level of 50 offerees without any other carve-outs is outdated. The intention is to change the law to allow more flexibility in terms of the number of offerees and carve-outs. However, these changes will be reviewed alongside a general review of the investment funds regulatory environment and therefore any changes are unlikely to occur in 2014.
The amendment law inserts new provisions into the Companies Law to enable it to be amended at a later date to allow for demergers. The new regime will allow the undertaking, property and liabilities of an existing company to be divided among two or more companies. These regulations are in progress.
For further information on this topic please contact Raulin Amy at Ogier by telephone (+44 1534 504 000), fax (+44 1534 504 444) or email ([email protected]).The Ogier website can be accessed at www.ogier.com.
