This client briefing provides a general overview of schemes of arrangement for Jersey companies under the Companies (Jersey) Law 1991 (the “Companies Law”). A scheme of arrangement can involve almost any kind of corporate reorganisation, merger, acquisition or restructuring so long as the appropriate approvals and court sanction are obtained. In the context of restructurings, there is limited precedent in Jersey, although Jersey schemes of arrangement have been used as part of the Drax and Telewest restructurings.
What is a Scheme?
Under Article 125 of the Companies Law, the Royal Court of Jersey may sanction a compromise or arrangement (a “Scheme”) between a company and its creditors or shareholders (or a class of either of them). The court may, on application of the company (or its creditor, shareholder, or liquidator if it is being wound up), call a meeting at which the Scheme will need to be agreed to by a majority in number of the creditors or shareholders (or a class of either of them) representing:
(a) 75% in value of the creditors (or class of creditors); or
(b) 75% of the voting rights of the shareholders (or class of shareholders).
If the Scheme is so agreed and sanctioned by the court, it is binding on all the creditors (or class of creditors) or on all the shareholders (or class of shareholders), as well as on the company itself and, where the company is in the course of being wound up, on the liquidator and all contributories. A Scheme is concluded when the court order sanctioning the Scheme is filed with the Jersey Companies Registry.
Article 167 of the Companies Law provides that an arrangement between a company and its creditors entered into immediately preceding the commencement of, or in the course of, a creditors’ winding up is binding:
(a) on the company, if sanctioned by special resolution of the shareholders; and
(b) on the creditors, if acceded to by 75% in number and value of them.
However, a creditor or contributory may appeal to the court against the arrangement within 3 weeks from its completion, and the court may then amend, vary or confirm the arrangement as it thinks just.
Although we do not advise on English law, we understand that the above statutory provisions on Schemes are similar to Sections 425 to 427 of the UK Companies Act 1985, which have now been superseded by Part 26 (Sections 895 to 901) of the UK Companies Act 2006. Therefore as confirmed in the Jersey case of Re TSB Bank Channel Islands Limited  JLR 160, English cases will be highly persuasive in this area and the Jersey courts will have the fullest regard to the interpretation given by the English courts to the corresponding sections of the English legislation.
As established in a line of Jersey cases including Representation of CPA  JRC 021, when considering applications for shareholders’ Schemes under Article 125 of the Companies Law, the Royal Court must consider the following three-fold test:
(i) whether the provisions of the Companies Law have been complied with;
(ii) whether the class of shareholders to be affected by the proposed Scheme was fairly represented by those who attended the meeting and whether the statutory majority are acting bona fide and not coercing the minority in order to promote interests adverse to those of the class whom they purport to represent; and
(iii) whether the arrangement is such that an intelligent and honest man, a member of the class concerned and acting in respect of his interest might reasonably approve.
Schemes and Restructurings
There is no direct equivalent in Jersey of the English administration procedure, meaning a Scheme cannot be used in conjunction with administration to obtain a moratorium protecting the company from its creditors enforcing their security or other rights (unless an English administration is sought for this purpose, on which please see our separate client briefing entitled Jersey Companies and English Administration). There is no automatic stay on proceedings in connection with a Scheme.
The advantages of Schemes are that if the appropriate approvals and court sanction are obtained, they are binding on all the creditors (or class of creditors), including secured and preferential creditors, or on all the shareholders (or class of shareholders). In the current economic climate, we expect to see increasing use of Schemes as alternatives to consensual restructurings, as well as for a wide range of corporate transactions.