There has been an increasing level of interest in using Jersey corporate holding structures for public takeover offers and private acquisitions.
The principal advantage of using a Jersey holding company is the flexibility of Jersey company law in relation to returns to investors - whether by means of dividend, redemption of share capital or share buy-back. In particular, monies payable on the redemption of redeemable shares or on the buy back of shares by a Jersey company, may be funded from any source - including capital. A Jersey company may also make a distribution from a wide range of sources, not merely from distributable profits.
A Jersey holding company also facilitates a tax efficient exit through stamp duty savings and is also suitable for an IPO.
A zero rate of income tax applies to virtually all Jersey companies.
However, if required, it is possible to ensure that a Jersey company is tax resident in another jurisdiction provided that:
- it is centrally managed and controlled in another jurisdiction outside Jersey;
- it is tax resident in that other jurisdiction; and
- the highest rate of corporation tax in that other jurisdiction is 20% or above.
No stamp duty is payable on the transfer of shares in a Jersey company and there is no corporation or capital gains tax in Jersey. Jersey levies no annual taxes or charges by reference to a company’s authorised or issued share capital. Although Jersey has recently introduced a goods and services tax at a rate of 3 per cent, companies beneficially owned outside Jersey which do not supply goods or services in Jersey will generally qualify for “international service entity” status - effectively bringing them outside the scope of the goods and services tax regime provided that a fee of £100 is paid each year.
Returns to Investors
It is possible to structure returns to investors by way of capital returns by means of redemption or buy back or cash distributions (or a combination of these methods). Jersey company law is very flexible on the sources of funding for redemption of share capital and in relation to requirements for distributions.
Redemption and buy back of shares
Monies payable on the redemption of redeemable shares or on the buy back of shares by a Jersey company may be funded from any source - including capital.
The directors responsible for authorising the redemption or buy back payment will be required to make a statement that they have formed the opinion that:
- immediately following the date on which the payment is to be made, the company will be able to discharge its liabilities as they fall due; and
- having regard to -
- the prospects of the company and to the intentions of the directors with respect to the management of the company’s business, and
- the amount and character of the financial resources that will, in their view, be available to the company,
the company will be able to -
- continue to carry on business, and
- discharge its liabilities as they fall due,
for a period of 12 months after the date of such payment (or, if sooner, a solvent winding up of the company).
Therefore, provided that the solvency statement can be made, there is considerable flexibility in funding the redemption or share buy back.
A Jersey company may make a distribution from a wide range of sources, not merely from distributable profits. Therefore, distributions may be made from capital without a need to obtain Court approval for a reduction of capital (as was previously the case).
A distribution may be debited from any account of the company (including the share premium account and the stated capital account) other than the capital redemption reserve or the nominal capital account. The fact that distributions may be made from the stated capital account of a no par value company but not the nominal share capital of a par value company may lead to an increased use of no par value companies in the future.
A distribution may only be made if the directors authorising the distribution make a solvency statement in the form referred to above.
Jersey company law historically prohibited a company giving financial assistance in respect of the acquisition of its own shares. This prohibition has now been removed and the amendments make clear that any previous common law prohibition on financial assistance is not renewed by virtue of the removal of the statutory prohibition.
An acquisition often involves the issue of loan notes in connection with the acquisition financing. The Channel Islands Stock Exchange (“CISX”) was designated by the UK Inland Revenue as a recognised stock exchange under Section 841 of the UK Income and Corporation Taxes Act 1988 in 2002. This designation means that qualified debt securities listed on the CISX are eligible for the “Quoted Eurobond Exemption” which allows an issuer within the UK tax net to make payments of interest on the listed securities gross without deduction for tax.
Exit by IPO
Jersey incorporated companies are increasingly being used for listing on the Alternative Investment Market of the London Stock Exchange and also on the main board of the London Stock Exchange. A separate briefing on the advantages of using a Jersey company for a listing is available on request.
Why use Jersey?
Reasons for using Jersey include:
- Jersey is a leader among the offshore jurisdictions and has a top-tier reputation;
- as one of the largest offshore jurisdictions Jersey has the legal and administrative depth and expertise to facilitate complex transactions;
- Jersey companies law is based on English companies law but tends to be more flexible;
- fast track incorporation of companies (same day if required);
- Jersey’s close proximity to, and same time zone as, London makes closing transactions a simpler process;
- an extremely favorable corporate tax regime and no stamp duty on transfer of shares in Jersey companies.
Ogier also advises on BVI, Cayman and Guernsey law and is, therefore, able to advise on more complex crossborder transactions involving those jurisdictions.
- United Utilities Electricity: provision of legal and administrative services to a Jersey-domiciled bid vehicle capitalized by a consortium led by JP Morgan Asset Management and Australia’s Colonial First State Asset Management on its successful bid for the UK’s United Utilities Electricity Limited.
- Domestic & General Group plc: provision of legal and administrative services to AIDG Jersey Acquisition Limited, a Jersey company established at the direction of Advent International plc to bid for Domestic & General Group plc.
- Southern Water: provision of legal and administrative services in respect of a Jersey structure established to facilitate the £4.2 billion acquisition of Southern Water.
- John Laing plc: provision of legal and administrative services to a Jersey company established by Henderson Infrastructure Funds, in respect of the £1 billion takeover offer for John Laing plc. Ogier also advised on the CISX listing of loan notes issued as part of the acquisition financing.
- Anglian Water: provision of legal and administrative services in respect of a Jersey structure established to facilitate the £2.2 billion public offer for AWG plc (owner of Anglian Water). Ogier also acted as sponsor for the CISX listing of Eurobonds.
- London City Airport: provision of legal and administrative services to a Jersey company in respect of the takeover of London City Airport.
- Associated British Ports Holdings plc: provision of legal and administrative services to a Jersey company established by a Goldman Sachs led consortium, in respect of the £2.8 billion takeover offer for AB Ports. Ogier also advised on the CISX listing of loan notes issued as part of the acquisition financing.