Significant changes to the Companies (Jersey) Law 1991 are anticipated to come into effect in September 2014. These changes, most of which are designed to increase the flexibility of the Jersey company, will be of particular interest to all those who use Jersey companies in their structures. The key changes include the following:
- Removal of the prohibition on paying commissions and offering discounts on issued shares. It was felt that these should be removed given the move away from the concept of capital maintenance which has been replaced in Jersey with a solvency based approach to creditor protection.
- There is expected to be an Order made at the time of the amendments the effect of which will exempt certain securities issues which typically require a “prospectus” from the need for regulator consent.
- Both par and no par value companies will be permitted to transfer amounts to certain capital accounts without a special resolution of their shareholders.
- The Law will clarify that branch registers can also contain details of shareholders not resident in the jurisdiction in which the branch register is located. This will be of help to Jersey companies whose shares are listed in certain jurisdictions who might have been concerned that the law limited those who can trade in its shares to just those located in that jurisdiction.
- The share redemption and buy back regimes will be extended to apply to securities representing shares of a company (e.g. depositary receipts) as well as shares. Previously, a company would need to repurchase or redeem its underlying shares where it wanted to repurchase or redeem depositary receipts, adding an extra level of complexity.
- A new procedure is introduced whereby companies can reduce their share capital without court sanction by directors making an immediate and 12 month forward looking solvency statement not more than 15 days before a special resolution is passed by shareholders authorising the reduction. The court procedure is still available in case companies want the blessing of the court.
- It is clarified that the current requirements of the Law to be met before the making of distributions by a company apply only to distributions reducing the amount of the company’s net assets or in respect of shares recognised as a liability. This has been done to remove the perceived risk that certain common commercial transactions (such as the giving of a guarantee by a subsidiary in respect of its parent’s indebtedness) might breach the Law if the distribution requirements (in summary, directors making an immediate and 12 month forward looking solvency statement before the act) have not been met.
- Where distribution requirements are not followed, a court process will be available to ratify incorrectly made distributions. If it is clear that the failure to make a solvency statement was an innocent mistake by the directors and the solvency of the company is not in doubt and there is no other reason contrary to the interests of justice, a court order should generally be made as a matter of course. No notice of an application to the court will need to be given to creditors.
Takeovers, mergers, demergers and continuance overseas
- In respect of “takeover offers” the generally accepted practice (and common law position) has been to exclude from an offer shareholders in jurisdictions where an offer made to them would contravene the laws of those jurisdictions. The Law is therefore changed so as to follow English company law which makes specific provision for takeover offers to lawfully exclude shareholders where the company risks breaching the laws of their jurisdictions by making an offer in those jurisdictions.
- Various amendments streamline the merger process. The changes reduce the periods from 28 to 21 days for various parties to apply to court, for the court to allow before determining an application where a merging company is insolvent and the time period after which application can be made to the registrar of companies following the taking of the steps required in the Law. A merger application to the registrar can be made earlier than the times specified in the Law with the agreement in writing of all the members and creditors of the merging companies and it will also be possible to serve notice of a proposed merger on a company’s creditors at the same time as notice is given to members.
- There is a new power inserted in the Law conferring a power to make Regulations for demergers. These will enable an existing company to “split” into two or more companies. Details will be set out in future Regulations.
- Certain time periods in respect of continuance in another jurisdiction are reduced to 21 days including the notice period to be given to creditors before an application is made for authorisation to seek continuance and the period in which an objection may then be made by a creditor to the application. The amendments also allow creditors to waive the requirement for notice.
Corporate governance and shareholder meetings
- Shareholders, apart from shareholders connected with the relevant director, can ratify a breach of a director’s duties by ordinary (or special if required by the articles of association) resolution. This supplements the existing ability for unanimous shareholder approval of a breach of duty but gives a company far more flexibility to seek approval. The new regime is similar to that available under English company law.
- Companies will not be required to hold annual general meetings unless their articles specify otherwise and, in the case of an existing company with a requirement to hold annual general meetings in its articles, a special resolution is passed after the amendments to the Law come into effect requiring them to be held. Opting out of holding annual general meetings was previously only available to private limited companies whose shareholders would all need to have agreed to do so.
- A company will be able to stipulate different thresholds (not being less than two-thirds of members voting) for the passing of special resolutions concerning different matters. This should be particularly helpful where complex shareholder voting arrangements are required (for instance, in joint ventures).
- Written shareholder resolutions will be capable of being passed by a majority stipulated in the articles of association, rather than by unanimity. This removes the need for shareholder meetings when there is no guarantee of unanimity.
- As a protection for shareholders in relation to the above change, a regime governing how written shareholder resolutions must be circulated is included and specific rights are given to shareholders together holding at least 10% of the voting rights (or less, if stipulated in the articles of association) to have written resolutions proposed by them circulated.
- Unless a company’s articles require it, the threshold for shareholders to consent to short notice of a general meeting (not being an annual general meeting) will be reduced from 95% to 90%.
- Multiple representatives may be appointed to represent a corporate shareholder at a meeting, any of whom may exercise powers on the shareholder’s behalf unless the representatives disagree.
- It is clarified that where a company requires notices of appointments of proxies to be delivered by a certain time, which cannot be more than 48 hours before the meeting, that time period does not include non-working days. This mirrors the English company law position and addresses problems of proxies being received where a meeting falls shortly after a weekend.
- Certain classes of companies that were previously required to appoint an auditor will be allowed to disapply the requirement to appoint an auditor for a particular period if all the company’s members agree.
- Auditors’ powers of access to certain persons for the purposes of audit is increased.
- Directors and employees of not only a company but its group companies are excluded in calculating if a company is deemed a public company (this occurs if a private company has more than 30 members, although the changes also allow for Regulations to be passed exempting certain companies from this requirement). This is of practical benefit to companies with large groups which run share incentive schemes but do not want to be treated as public companies.
- The registrar of companies is given express power to strike off companies for failure to maintain a registered office in Jersey.