The Companies (Guernsey) Law, 2008 (as amended, the “2008 Law”) came into full force on 1 July 2008. As you may be aware, a number of transitional provisions have been brought into force that modify the effect of the 2008 Law, some of which are applicable to all companies, and some of which are applicable only to companies incorporated prior to 1 July 2008 (“Existing Companies”).
However, a number of the provisions are due to expire within the next year (or have expired already). We set out below an explanation of those transitional provisions and the action that companies need to take as a result.
Transitional provisions that expired on 1 January 2009
- Section 138: Director’s consent and declaration of eligibility
Under section 138 of the 2008 Law, a person may not be appointed as a director unless he or she has consented in writing to the appointment, and declared that he or she is not ineligible to be a director (in terms of section 137 of the 2008 Law).
Until 1 January 2009, section 138(1) did not apply to directorships of Existing Companies held prior to 1 July 2008. In our view, this transitional provision is oddly drafted – the requirement to consent in writing and declare eligibility in section 138 arises on appointment and on that basis does not apply to those directorships in any event!
Notwithstanding the above, all new directors of Guernsey companies are required to consent to their appointment in writing and declare that they are not ineligible, and companies should check that they hold such records. For existing directors, it would also be worthwhile (in the interests of good record-keeping) for companies to update their records, so that they also have both written consents and declarations of eligibility from each director.
- Section 143(8): Register of directors
Section 143 requires that a company keep a register of its directors (and certain information concerning those directors) at the company’s registered office. Following the expiry of the transitional provision in respect of this section, it is now an offence for all companies (including Existing Companies) not to keep the information required by section 143 in the register of directors. The information includes (for directors who are individuals) their name, address, service address, nationality, business occupation, and date of birth. For directors that are companies, it includes the company’s name and former names, registered office, legal form and governing law, the name of the relevant companies register on which the company is registered and the company’s registration number.
Companies should ensure that they have all of the information referred to above on file (hard copy or electronic) in the register of directors, and that the register of directors is kept at the company’s registered office (which must be in Guernsey). Any missing information should be requested from the relevant director as soon as possible to avoid committing an offence.
- Section 145(3): Duty to notify Registrar of changes
Section 145 requires that a company advise the Companies Registry of changes to its directors and the particulars contained in the register of directors (see above for more information on this) within 14 days of the change. It is now an offence for all companies (including Existing Companies) not to do so.
Companies need to ensure that they advise the Companies Registry of any changes to their directors (or their particulars) to avoid committing an offence. This should be a simple exercise using the online submissions facility. It is also worthwhile reminding directors that they must provide any changes of address (residential or service) to the company as soon as possible, so that the register of directors can be updated (and the Companies Registry be advised accordingly).
- Section 173(7): Register of secretaries
Section 173 requires companies that have appointed a secretary to keep a register of secretaries at the company’s registered office. That register must contain certain information (which is similar to that required for directors as set out in section 143 – see above). It is now an offence for all companies (including Existing Companies) not to keep this information.
Companies should check their records to ensure that the relevant register of secretaries is being kept, that the requisite information is held and is being updated, and that the register is kept at the company’s registered office in Guernsey.
- Part XXIX: Beneficial ownership (Resident agent)
This part of the 2008 Law obliges most companies to appoint a “resident agent”. The relevant exemptions are set out in section 483 of the 2008 Law, and section 2 of the Companies (Beneficial Ownership) Regulations, 2008 (the “Regulations”).
The resident agent can be either an individual director who is resident in Guernsey, or a corporate service provider. A company must keep a record of its resident agent and provide this information to the Companies Registry (and provide updates within 14 days if this information changes). Resident agents are obliged to take reasonable steps to ascertain the identity of the beneficial owners of members’ interests in the company, and to keep records of those beneficial owners. However, the Regulations have reduced the requirement to keep records of beneficial owners, so that a resident agent is now exempt from keeping a record of details of beneficial owners in respect of a member’s interest, if that member holds less than 10% of the total voting rights at general meetings. The requirement to appoint a resident agent and to record beneficial owners (where required) took effect for all companies from 1 January 2009.
Unless a company falls within the relevant exemptions, it should now have appointed a resident agent. For all interests in a company that carry in excess of 10% of the total voting rights, the resident agent should be keeping records of the beneficial owner and taking the steps necessary to verify the beneficial ownership of those interests.
Provisions due to expire on 1 July 2009
- Section 132(3): Shadow directors
A “shadow director” is defined in the 2008 Law as “…a person in accordance with whose directions or instructions the directors of the company are accustomed to act.” Section 132(3) deems shadow directors to be treated as a director for certain purposes of the 2008 Law including, amongst other things, the ratification of acts of the directors and the disclosure of interest provisions. The application of section 132(3) is suspended for all shadow directors until 1 July 2009.
Companies will need to consider whether there is anyone in any position who could be deemed to fall within the definition of a shadow director above, and to ensure that they comply with section 160 (ratification of acts of directors) and section 162 to 166 of the 2008 Law (relating to disclosure of directors’ interests) in relation to shadow directors after this date.
Provisions due to expire on 1 January 2010
- Section 15 and 16: Memorandum and articles of incorporation
Where the 2008 Law would otherwise render any provision of an Existing Company’s memorandum or articles invalid and unenforceable (which were previously valid and enforceable under the Companies (Guernsey) Law, 1994 (as amended) (the “1994 Law”)), the provision of the memorandum or articles is saved until 1 January 2010.
All Existing Companies should review their memorandum and articles to ensure that they comply with the 2008 Law. We would recommend that this process be commenced as soon as possible if it has not occurred already, as amendments to the memorandum or articles of a company can be a time-consuming procedure for widely-held companies. We would be very happy to assist in the review of any memoranda and articles.
- Section 157: Exemption from liability and indemnification of directors
Sections 157 to 159 of the 2008 Law restrict the ability of a company to indemnify directors or to exempt them from liability. This represents a departure from the approach under the 1994 Law and accordingly such indemnities or exemptions from liability provided in the memorandum and articles of an Existing Company or any contract with the company or otherwise are saved until 1 January 2010. After this date, the indemnity and exemption provisions will be void to the extent that they are inconsistent with sections 157(1) and (2).
An Existing Company should review its existing memorandum and articles and any contracts with its directors to see whether any director liability exemptions and indemnities comply with the 2008 Law. If there are any provisions that do not comply with the 2008 Law, the memorandum, articles or relevant contract should be amended. Further, the 2008 Law still allows a company to purchase insurance against a director’s liability, and to provide a “qualifying third party indemnity” as set out in section 159. It may therefore be prudent to replace any indemnity or exemption from liability with the permitted alternative arrangements. Again we would be happy to review any memoranda and articles and any contractual indemnities in this regard or to advise further as to the permitted alternatives.
- Section 171: Duties of secretaries
If a company has a secretary, section 171 requires that that person must take reasonable steps to ensure that:
(a) all registers and indexes are maintained in accordance with the provisions of the 2008 Law;
(b) all documents required to be filed or served on the Registrar or other persons are duly filed or served;
(c) all resolutions, records and minutes of the company are properly kept;
(d) copies of the memorandum and articles are kept up to date; and
(e) the board of directors is aware of any obligations imposed by the memorandum and articles or by the rules of any stock exchange the company is listed on.
The transitional provision (disapplying section 171 for all companies) will expire on 1 January 2010.
We would expect that most secretaries are already complying with the requirements in (a) to (d) above (at least), but nevertheless the additional filing requirements imposed by the 2008 Law mean that secretaries will need to keep on top of filing documents with the Registry.
The requirement in (d) above should also be noted in conjunction with section 41 of the 2008 Law, which requires a company to deliver a copy of its memorandum (as altered) to the Registrar each time that the memorandum is altered (which is a new requirement of the 2008 Law). This would include in the case of an amendment to the company’s share capital (if this is set out in the memorandum).
The memorandum and articles (and any relevant listing rules) referred to in (e) above are documents which we would expect that a board ought to be familiar with. However, secretaries should check to ensure that (at least) each director has a copy of these documents and confirms that they have read and understood them. Secretaries should also draw to the board’s attention any potential issues arising out of the board’s business that affect or are affected by the memorandum and articles or listing rules.
- Section 283: Conversion into stock
Section 283 of the 2008 Law prohibits the conversion of a company’s shares into stock. However, Existing Companies may continue to do so until 1 January 2010.
In our experience, it is uncommon for a Guernsey company to seek to convert their shares into stock (although a number of companies retain the ability to do so in their memorandum and articles). This ability should be removed as part of the review of a company’s memorandum and articles to ensure compliance with the 2008 Law.
- Sections 291, 292 and 293: Powers of directors to issue shares
Sections 291 to 293 restrict the ability of directors to issue shares in a company. In particular, section 292 states that the directors may only exercise a power to issue shares in a company if they are authorised to do so by the memorandum or articles of the company, or by a resolution of shareholders. The authorisation may be given for a maximum of five years only, and must then be renewed. It should be noted that the above applies only to companies who have issued more than one of class of shares – the position for single-share class companies is that the directors may issue shares unless prohibited from doing so by the memorandum, articles or shareholder resolution.
The transitional provisions provide that sections 291 to 293 do not apply to Existing Companies until 1 January 2010, and the rules for issue of shares in the 1994 Law apply instead to such companies.
The requirement for shareholder authorisation for issues of shares is one of the more controversial inclusions in the 2008 Law and we understand that these provisions are under review. Although it is not certain that these provisions will remain, for Existing Companies reviewing their memorandum and articles for compliance with the 2008 Law, we would still recommend adding a shareholder authorisation into the articles of the company for completeness and to ensure that the position is covered off in the interim (whether the requirement for shareholder authorisation remains in the 2008 Law or not).
- Sections 243, 244, 248 to 252 – Accounts and reports
The Companies (Transitional Provisions) (No. 2) Regulations, 2008 and the Companies (Transitional Provisions) (No. 3) Regulations, 2008 contain additional transitional provisions, mostly related to the accounts of Existing Companies. In particular, a concession is provided to Existing Companies where its “current financial year” began on or before 18 August 2008 and ends after that date. The concession allows the relevant accounts to be prepared in accordance with the principles in force immediately prior to the commencement of the 2008 Law. Consolidated accounts (if produced) and directors’ reports relating to the current financial year may also be prepared in accordance with the 1994 Law.
The requirement to send copies of the accounts, the directors’ report and the auditors’ report to members within 12 months of the end of the financial year also does not apply to accounts for the current financial year.
Companies that were “dormant” or “asset-holding” companies under the 1994 Law immediately prior to 1 July 2008, and whose balance date was on or before 31 December 2008, were also given the ability to pass a waiver resolution for the current financial year to exempt themselves from the requirement to have their accounts audited. This transitional provision was required as a result of section 256 of the 2008 Law, which (generally) provides that a waiver resolution exempting a company from the audit requirement needs to be passed in advance (i.e. in the financial year prior to the year in which the waiver will have effect).
The transitional provisions in this regard apply only to the “current financial year”, i.e. to Existing Companies whose financial year began prior to 18 August 2008, and as such at the end of this period all accounts produced by an Existing Company must be prepared in accordance with section 243 of the 2008 Law. Further, it is an offence for these accounts and the directors’ report (and the auditors’ report, if one is required to be produced) not to be sent to members within 12 months of the end of the financial year to which they relate.
Accordingly, companies should put in place processes to ensure that their accounts are compliant with the 2008 Law, and to ensure that the relevant accounts are sent to members within the 12 month timeframe.
If companies wish to be exempted from the requirement to have their accounts audited, the waiver resolution needs to be passed in the financial year prior to the year in which the waiver of the requirement has effect. The wording of the 2008 Law does not allow for a company to pass a single waiver resolution that would apply for all years thereafter – if a company wishes to exempt itself from the audit requirement on a continuing basis, it must pass a waiver resolution each year in advance.