Trends and climate
What is the current state of the M&A market in your jurisdiction?
Jersey has seen significant levels of both public and private M&A activity in recent years. Notable deals include:
- Colfax’s acquisition of Charter International £2.4 billion;
- MAN Group’s acquisition of Hedge Fund Manager FRM Holding;
- State Street’s acquisition of Mourant International Finance Limited;
- CI Group Sandpiper’s acquisition of CI Traders;
- ProfMedia’s acquisition of Rambler Media;
- Intermediate Capital Group’s acquisition of a significant stake in CPA Global Group; and
- CPA's Global Group's acquisition by Cinven.
Have any significant economic or political developments affected the M&A market in your jurisdiction over the past 12 months?
As Jersey is a sophisticated international financial centre, its M&A market (which includes both international cross-border and domestic transactions) is exposed to the same economic and political factors as affect the level and type of M&A in larger onshore jurisdictions.
Over the last 12 months, M&A participants have continued to hold their nerve amid signs of growing economic and political uncertainty. Commodity prices (in particular, gold and oil) are continuing to lead to consolidation in the resources markets and capital market volatility – in particular, China and the eurozone are at the forefront of investor thinking.
That said, as the global deal-making environment remains strong and globalisation continues to be a major driver of M&A, many anticipate that a rise in global M&A activity levels will result in increased M&A in the Jersey market.
Are any sectors experiencing significant M&A activity?
Significant M&A activity within the fiduciary and corporate services sector has occurred in Jersey for over 10 years. This trend is well known in the local market. In particular, the disposal by professional services businesses (eg, law and accountancy firms) of their fiduciary and corporate services arms has accelerated over the last 10 years, led by the big four accountancy firms (which were the first to dispose of their administration arms). Since then, law firms such as Walkers, Mourant Ozannes and Ogier have disposed of their administration businesses. Banks such as Barclays, the Bank of Nova Scotia, the Royal Bank of Canada and Lloyds have disposed of, wound down or are in the process of disposing of their fiduciary and corporate services arms.
While some law firms remain active in this space (eg, Bedell and Mourant Ozannes), the trend of disposal of these business arms, as well as smaller privately held, single jurisdiction corporate services businesses (eg, the sale of Seymour Trust Company to First Names Group) will continue for the foreseeable future.
Are there any proposals for legal reform in your jurisdiction?
Jersey maintains a programme of legislative reform to ensure that its laws reflect up-to-date and available legal technology.
The most significant proposal for legal reform in Jersey pertaining to M&A is the consultation commissioned in November 2015 by the Channel Islands Competition and Regulatory Authorities (CICRA) on possible amendments to the Competition (Mergers and Acquisitions) (Jersey) Order 2005. In 2011 it was proposed that the Jersey M&A control regime be changed from its existing 'share of supply' test to a 'turnover' test. The purpose of the consultation is to propose a narrower category of mergers and acquisitions that are notifiable to CICRA under the order, to ensure that only those mergers which might impact the local market are referred to CICRA. The goal of the amendments to be considered as part of the consultation is to simplify and reduce compliance burdens in Jersey, as well as allow CICRA to focus its resources on prohibiting mergers and acquisitions which would substantially lessen competition in Jersey. As a result of the proposed amendments, the number of M&A transactions that require notification to and approval by CICRA should be reduced.
It is also worth noting that any amendments made in the United Kingdom to the UK City Code on Takeovers and Mergers will apply in Jersey.
What legislation governs M&A in your jurisdiction?
The legislation governing M&A includes:
- Part 18 (Takeovers), Part 18A (Compromises and Arrangements) and Part 18B (Mergers) of the Companies Jersey Law 1991;
- the Competition (Jersey) Law 2005, Competition Mergers and Acquisitions) (Jersey) Order 2010; and
- the UK City Code on Takeovers and Mergers applies in relation to certain Jersey listed (or formerly listed) companies, pursuant to the Companies (Takeovers and Mergers Panel) (Jersey) Law 2009 and the UK Takeover Panel's rules.
How is the M&A market regulated?
The UK City Code on Takeovers and Mergers is implemented by the UK Takeover Panel.
Following recent changes, the UK City Code on Takeovers and Mergers applies in relation to certain Jersey listed companies, pursuant to the Companies (Takeovers and Mergers Panel) (Jersey) Law 2009 and the UK Takeover Panel's rules. A Jersey company is subject to the UK code if any of its securities are listed on:
- a regulated market or multilateral trading facility in the United Kingdom; or
- any stock exchange in the Channel Islands or the Isle of Man.
This includes being listed on the main board of the London Stock Exchange or on the Alternative Investment Market. The UK code may also apply to companies which were formerly listed on a relevant securities exchange.
A Jersey company which has shares listed on other exchanges (eg, the New York Stock Exchange or NASDAQ) may also be subject to the UK code if the UK Takeover Panel considers that the company's management and control is either in the United Kingdom, Jersey, Guernsey or the Isle of Man.
The market is overseen by the UK Takeover Panel. The main functions of the panel are to issue and administer the UK code and to supervise and regulate takeovers and other matters to which the UK code applies.
A takeover may require the Jersey Financial Services Commission’s prior approval, depending on whether the merging entities carry on a regulated activity or in certain other circumstances.
Further, if the merging businesses meet the relevant thresholds (as established in the Competition (Jersey) Law 2005 and the Competition (Mergers and Acquisitions) (Jersey) Order 2010), a takeover may require the Jersey Competition Regulatory Authority’s prior approval.
Are there specific rules for particular sectors?
Under Jersey law, no specific rules apply to M&A transactions for particular sectors.
Types of acquisition
What are the different ways to acquire a company in your jurisdiction?
This involves the sale of a company where the seller and buyer agree to the terms of sale. The terms of sale will be recorded in a private contract.
This involves the bidder making an offer to the target's shareholders to acquire their shares in the target. After the takeover is complete, the bidder and target remain separate companies and the target becomes a subsidiary of the bidder. The bidder may compulsorily acquire the remaining shares if it acquires at least 90% of the shares to which the offer relates.
Scheme of arrangement
This is a statutory court process, involving a compromise or arrangement between a company and its members. It results in the bidder holding all of the target's shares.
Jersey has a merger regime which could potentially be used in the context of a takeover, whether for cash or equity (and including cross-border mergers, if the other relevant jurisdictions permit this). The main advantage of a statutory merger is that, in addition to board approvals, it requires only shareholder approval by way of special resolution in order to achieve 100% control of the target. A special resolution is a resolution passed by a two-thirds majority (or any higher threshold, as set out in the company's constitutional documents). In contrast, attaining 100% control in a takeover requires acceptance from at least 90% of the shares subject to the offer (so as to be entitled compulsorily to acquire the remaining shares). Further, attaining 100% control in a scheme of arrangement requires approval from a majority in number, representing at least 75% in value of those target shareholders that vote on the scheme (together with the court's approval).
The target’s business and assets (in whole or in part) may be acquired by way of a business purchase agreement between the buyer and the target. The buyer neither acquires the target nor its liabilities (except to the extent that it agrees to do so).
Due diligence requirements
What due diligence is necessary for buyers?
Typically, a bidder uses publicly available information to undertake due diligence before it approaches the target. If the target is prepared to support the offer, the bidder may also present a list of matters on which it requires further information.
With a hostile bid, due diligence is usually limited to information in the public domain. However, the bidder may be able to obtain information from the target that has been provided to a competing bidder if the UK City Code on Takeovers and Mergers applies. This is because the target has a duty to provide equal information to rival bidders in a competitive situation.
What information is available to buyers?
Publicly available information includes:
- audited accounts (for public companies only);
- articles of association;
- details of directors and shareholders (for public companies only);
- prospectuses; and
- other information may also be available through UK sources, such as public announcements issued by the target.
What information can and cannot be disclosed when dealing with a public company?
How is stakebuilding regulated?
Stakebuilding is regulated by the statutory provisions which apply to Jersey companies in the Companies (Jersey) Law 1991. The UK City Code on Takeovers and Mergers is also relevant. Insider dealing and market abuse are each offences which may be committed by a bidder if it seeks to build a stake in the target while it possesses price sensitive information.
Stakebuilding is unhelpful in relation to achieving the 90% threshold needed in Jersey on a takeover offer. This is because the 90% threshold which pertains to a takeover offer relates to shares other than those which at the date of the offer are already owned by the bidder. In certain circumstances, stakebuilding may assist a bidder on a scheme of arrangement in reaching the 75% resolution required to effect a scheme, although the English court decision in Re Hellenic & General Trust Ltd ( 1 WLR 123) will be of persuasive effect in having a bidder's shares treated as a separate class for the purpose of meeting a scheme threshold.
If applicable, the UK code contains a number of restrictions on dealings in bidder and target securities, including preventing any person (other than the bidder) that has price-sensitive information about the offer from either:
- acquiring securities in the target before the offer is announced (Rule 4.1(a)); or
- making a recommendation to any other person to deal in the securities (Rule 4.1(b)).
Other restrictions may apply under Rules 5 and 16 of the UK code, including as follows:
A bidder (including its concert parties) cannot acquire an interest in target shares carrying voting rights which would take a bidder's shareholding to 30% or more of the voting rights (subject to certain exceptions) (Rule 5).
Subject to limited exceptions, no shares may be bought on any special terms since these terms must be made available to all target shareholders (Rule 16).
The following disclosure obligations also apply:
- If the UK code applies, the bidder must disclose its own and any concert party's opening positions following the start of an offer period or an announcement which first identifies the bidder as the bidder (Rule 8). An opening position disclosure must contain details of long interests and short positions in the relevant securities of the parties to the offer.
- The target's constitutional documents often contain disclosure requirements, together with penalties for failure to comply, including:
- loss of voting rights; and
- loss of rights to dividends.
What preliminary agreements are commonly drafted?
It is common for heads of terms and non-binding offer letters to be drafted in order to outline the basic terms of a proposed M&A transaction. It is also common for exclusivity, non-disclosure or similar confidentiality agreements to be prepared and entered into at the start of an M&A transaction.
What documents are required?
In a sale by private treaty, typical documents include:
- the sale and purchase agreement;
- a disclosure letter qualifying the warranties (produced by the seller);
- a tax deed of covenant under which the seller agrees to pay to the buyer amounts in respect of pre-closing tax liabilities of the target;
- the target’s board minutes in relation to the change of director, change of auditors and approval of share transfers on completion;
- stock transfer forms;
- any applicable change of control consents; and
- any applicable release of security documents.
On a recommended bid (takeover offer), the target's shareholders will, at a minimum, receive:
- the circular summarising the terms and conditions of the offer (and a copy of the Rule 2.7 announcement to shareholders);
- the offer document, which contains extensive information on the bid, the bidder and the target and, in a recommended bid, the target board's recommendation to its shareholders to accept the bid;
- an acceptance form; and
- the prospectus or equivalent document (if required).
In addition to the above, the target's shareholders will receive the following on a hostile bid:
- defence documents; and
- a revised offer document.
For a scheme of arrangement, a scheme document (prepared by the target with some input from the bidder) must be prepared.
Which side normally prepares the first drafts?
Private treaty sale – in an auction, the first drafts are usually prepared by the seller (and commented on by the bidder as part of the offer process); in a bilateral arrangement, the first drafts are sometimes produced by the buyer.
Takeover offer – the bidder prepares the offer document.
Scheme of arrangement – the target prepares the scheme document.
What are the substantive clauses that comprise an acquisition agreement?
In a sale and purchase agreement, typical provisions include:
- a general obligation to sell and purchase the shares;
- conditions and closing requirements;
- limitations on the seller's liabilities with respect to the sale;
- specific indemnities (the tax deed and certain other indemnities may be contained in separate deeds of indemnity);
- non-compete restrictions;
- a parent company guarantee (usually in respect of the seller);
- confidentiality restrictions;
- boilerplate clauses relating to announcements, costs, interests, notices, assignments, third-party rights, entire agreement and further assurance; and
- governing law and jurisdiction clauses.
What provisions are made for deal protection?
Break fees were traditionally commonplace in larger cross-border transaction. However, the general prohibition on deal protection measures (including inducement fee agreements) which were set out in the UK City Code on Takeovers and Mergers in September 2011 apply to relevant transactions involving Jersey companies.
Otherwise, deal protection measures have not historically featured as a significant part of local M&A transactions.
What documents are normally executed at signing and closing?
If signing and closing are not contemporaneous, the sale and purchase agreement (and any applicable covenant or indemnity) and the disclosure letter are signed at signing. Other documents are usually in agreed form. Corporate authorisations of the target approving the documentation that is being entered into and the transaction overall are also signed at this stage.
In a share sale, the following are produced and executed on closing:
- stock transfer form(s);
- any waivers or consents to give full and legal beneficial title;
- resignation letters from officers and appointment letters for new officers;
- new bank mandate forms; and
- board meetings and minutes to record the formal transfer and resignations and appointments.
Are there formalities for the execution of documents by foreign companies?
Under Jersey law, there are no formalities for the execution of documents by foreign companies.
Are digital signatures binding and enforceable?
The Electronic Communications (Jersey) Law 2000 provides that the requirement in an enactment to provide a signature may be satisfied by an electronic communication. Further, electronic signatures can be used as a means of identifying a person by a computer-generated code rather than a handwritten signature.
Foreign law and ownership
Can agreements provide for a foreign governing law?
Yes, and this is frequently seen where Jersey targets are the subject of an M&A transaction.
What provisions and/or restrictions are there for foreign ownership?
Generally, no restrictions apply to foreign ownership of shares in Jersey companies.
Valuation and consideration
How are companies valued?
How companies are valued in Jersey M&A transactions is entirely dependent on the nature of the assets which the company owns or operates. The open market value of a company may be assessed by reference to a combination of any of the following:
- a multiple of profits;
- asset valuation;
- entry valuation;
- discounted cash flow; or
- industry rule of thumb.
Jersey companies must prepare their accounts in accordance with generally accepted accounting principles; thus, the relevant principles usually significantly impact the value of the company.
What types of consideration can be offered?
There is generally no restriction on the type of consideration that can be offered on a private treaty sale or voluntary offer. Therefore, consideration can include cash, loan notes and shares.
If the UK City Code on Takeovers and Mergers applies, the consideration must be in cash for a mandatory offer, or be accompanied by a cash alternative and comply with minimum consideration requirements.
What issues must be considered when preparing a company for sale?
The following preparatory actions will help to minimise issues in a proposed sale transaction:
- engage reputable valuation experts to conduct a valuation;
- consider the target market (ie, strategic or financial buyers);
- review the business structure;
- review all statutory book documentation;
- review all corporate governance processes;
- complete a thorough vendor due diligence process;
- have appropriate non-disclosure, confidentiality and exclusivity agreements on hand; and
- have a satisfactory form of the sale and purchase agreement on hand.
What tips would you give when negotiating a deal?
Skilful negotiation can make all the difference to a deal, as follows:
- The success of a deal can often depend on keen negotiation skills.
- Preparation is key – research the asset, structure and value and know your counterparts.
- Price should not be discussed in isolation.
- Multi-issue negotiations can add value to a deal.
- Expert involvement in multi-issue negotiations is vital.
- Always have a best alternative to a negotiated agreement.
Are hostile takeovers permitted and what are the possible strategies for the target?
Hostile bids are allowed but are not yet common in Jersey. This is likely because they carry significant additional completion risk and complexity. For example, less information will be available than on a recommended bid.
Warranties and indemnities
Scope of warranties
What do warranties and indemnities typically cover and how should they be negotiated?
Warranties and indemnities may typically cover:
- share capital of target and group structure;
- capacity of seller;
- financial accounts and record;
- changes since the accounting date;
- warranties relating to assets (eg, unencumbered title, condition and adequacy for the target's business);
- IP rights;
- material contracts;
- litigation, disputes and investigations;
- environmental and health and safety issues;
- compliance with laws;
- anti-money laundering, know your customer and anti-bribery compliance;
- insolvency; and
- change of control provisions.
Limitations and remedies
Are there limitations on warranties?
Warranties are usually qualified by way of specific matters set out in the disclosure letter, but these do not generally restrict negotiation of the following limitations on warranties:
- time periods by which a claim can be made;
- cap on liability;
- de minimis levels before claims can be made (individual and aggregate);
- provisions relating to how to conduct a dispute that may arise relating to a breach of warranty and a third-party claim; and
- general obligation to mitigate loss suffered.
Other restrictions on warranties include the sellers:
- qualifying warranties within the knowledge of certain individuals;
- preventing double recovery;
- requiring the buyer to exhaust all rights against insurers and other relevant third parties;
- excluding seller liability for contingent claims (until they become actual); and
- limiting a buyer's right to recovery by way of a buyer’s knowledge.
What are the remedies for a breach of warranty?
A breach of warranty is a breach of contract, giving the buyer a claim for damages. Remedies for a breach of warranty are generally on a common law or indemnity basis. Indemnity basis recovery covers the cost of remedying the breach. Recovery on a common law basis is limited to the diminution in the value of the shares or assets acquired arising as a result of the breach of warranty.
Warranties can be (but are not usually) given as representations, so that a breach gives rise to a claim in tort, which in turn gives rise to damages assessed on a tortious basis or, potentially, rescission.
Are there time limits or restrictions for bringing claims under warranties?
Time limits or restrictions for bringing warranty claims are subject to negotiation between the parties. In general, non-tax warranties will cover the first and second audit periods. Time limits for tax claims may extend up to five years (which is the time after which the comptroller of taxes in Jersey can issue an amended or additional assessment if he or she discovers that profits have not been fully assessed). In Jersey, the common law limitation period for breach of contract is 10 years from the date of breach.
Tax and fees
Considerations and rates
What are the tax considerations (including any applicable rates)?
In Jersey, transfer duties are typically not payable in public takeover transactions. There is no capital gains tax in Jersey, nor is there any branch profits tax (there are special rules for overseas life assurance companies). Withholding tax is not likely to apply to an M&A transaction.
Exemptions and mitigation
Are any tax exemptions or reliefs available?
What are the common methods used to mitigate tax liability?
What fees are likely to be involved?
While the main cost in any M&A transaction is likely to be the cost to acquire the target, buyers and sellers will generally retain a capital markets M&A adviser (investment banker), lawyers and accountants. Adviser fees vary based on the deal.
Management and directors
What are the rules on management buy-outs?
No specific Jersey law regulates M&A transactions in Jersey which proceed as management buy-outs. Many transactions in the local fiduciary and corporate services sector (especially private equity backed ones) are structured as management buy-outs.
What duties do directors have in relation to M&A?
The usual directors’ duties apply to the directors of a target which is the subject of a proposed M&A transaction in Jersey – that is, to act honestly and in good faith with a view to the best interests of the company and also exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.
While the decisions of English (and other) courts are not binding on the Jersey courts – and are only of persuasive effect – it is suggested that the position of directors of Jersey companies in receipt of a bid are in line with those of the directors of English companies in a similar situation. In this regard, the English Court of Appeal decision in Arbuthnott v Bonnyman( ALL ER (D) 218) is helpful. This decision reaffirms the commonly accepted view that directors of an English company in receipt of a bid are generally not subject to Revlon-type duties of the kind recognised by the Delaware courts to take active steps to maximise value for shareholders. In other words, the primary role of the target directors is not to frustrate a good-faith offer so that the offer (and any relevant competing offer) can be put to the shareholders.
Consultation and transfer
How are employees involved in the process?
There is no obligation to consult with employees, but the UK City Code on Takeovers and Mergers requires certain documents to be made available to an appropriate employee representative, including the offer announcement and offer document. The obligation to maintain secrecy remains.
If no employee representative exists, the documents should be made available to employees. The details of the documents can be communicated to employees through the company’s usual means (eg, posting the information on the company's website). In addition, the UK code requires the offer document to contain information on the impact that the offer will have on employees.
What rules govern the transfer of employees to a buyer?
No statutory requirements exists for employee transfers on the sale or acquisition of a business. For example, there are no provisions similar to the EU Transfer of Undertakings (Protection of Employment) Regulations 2006. The only requirement placed on the employer when an employee transfers with a business on sale or disposal is that his or her continuity of employment is preserved.
What are the rules in relation to company pension rights in the event of an acquisition?
Jersey has no rules in relation to the transfer of company pension rights in the event of an acquisition. Jersey has no applicable legislation in this area.
Other relevant considerations
What legislation governs competition issues relating to M&A?
Competition issues are governed by:
- the Competition (Jersey) Law 2005; and
- the Competition Mergers and Acquisitions (Jersey) Order 2010.
Are any anti-bribery provisions in force?
Yes – the Corruption (Jersey) Law 2006 took effect in Jersey in March 2006 and is substantially similar to the UK Bribery Act 2010. While the Bribery Act is UK legislation which has no direct application to Jersey, its far-reaching provisions mean that it affects Jersey-based companies and individuals with a nexus to the United Kingdom.
What happens if the company being bought is in receivership or bankrupt?
Jersey law does not contain the concept of receivership.
The assets of a Jersey company which has been declared en désastre (a form of enforcement in the event of insolvency) vest in the sheriff (the Jersey court-appointed insolvency official). Specific advice should be taken concerning individual situations in which such a company is the subject of an M&A transaction in Jersey.
Law stated date
Correct as of
Please state the date as of which the law stated here is accurate.
January 8 2016.