On 23 May 2014, the States of Jersey passed the Companies (Amendment No. 11) (Jersey) Law 201- (the Amendment Law). This will now be sent to the UK Privy Council for consideration, then laid before the States of Jersey for a final time before coming into force. The latest information we have is that the Privy Council will be approving the law on 19 July 2014 and it may come into effect as soon as 4 August 2014.
The Amendment Law will make a number of changes to the Companies (Jersey) Law 1991 (the Companies Law), aimed at ensuring that the corporate law framework in Jersey continues to adapt to the demands of its cross border client base.
- The Amendment Law amends the provisions of the Companies Law relating to reduction of share capital of all Jersey companies (including public companies), to follow the approach taken in the UK Companies Act 2006 in respect of private companies. Therefore, it will be possible for a Jersey company to reduce its share capital by the passing of a special resolution, where supported by a solvency statement made by the directors in the 15 day period prior to the passing of the special resolution. A copy of the special resolution and solvency statement must be filed with the registrar of companies within the 15 days following the special resolution being passed; the resolution takes effect upon registration, not on being passed. However, given that there are circumstances where a court approved reduction may still be preferable (as a result of the comfort / requirement elsewhere for a third party to sanction the reduction), this has been retained as an alternative procedure, rather than removed.
- The Amendment Law resolves a drafting point in the Companies Law by expressly permitting transfers of amounts from other accounts (such as the profit and loss account) to the stated capital account (for a no par value company) or the share premium account (for a par value company), in each case without the need for a special resolution.
- Article 55 of the Companies Law is amended to make it clear that the proceeds of a redemption or repurchase by a Jersey company of its own shares may be paid in specie (or partly in cash and partly in specie).
- Further amendments extend the redemption and repurchase provisions to cover depositary certificates or receipts; these are used on certain stock exchanges where shares of a Jersey company are not capable of being traded or settled. This clarifies uncertainty in the Companies Law which has existed for some time.
- The permitted period of authorisation required for the on market repurchase of Jersey shares is extended from 18 months to 5 years, to track the equivalent UK legislation.
- The Amendment Law removes the prohibition on the payment of commissions and discounts, as these were felt to be "unnecessary and unduly restrictive", given the general shift away from the concept of maintenance of capital to protection of creditors via the use of solvency statements.
- There has been debate in Jersey, as in London, on whether the giving of a guarantee by a Jersey subsidiary in respect of its parent's obligations constituted a distribution. Article 115 of the Companies Law is amended to make it clear that the law only restricts or seeks to control distributions which reduce the net assets of the company. Net assets are determined in accordance with the GAAP adopted by the company. Therefore, a guarantee which is to be entered in the accounts as a note only because of the contingent nature of the obligation will not be a distribution.
- The Amendment Law seeks to address the concern as to whether a distribution made unlawfully because of, for example, a failure to obtain the requisite solvency statements prior to such distribution, could be ratified. The Companies Law will be amended to allow an ex parte application to be made to the Royal Court so that it can make an order that the distribution was lawful. The Court would need to be satisfied that (a) the relevant solvency tests could have been passed immediately after the distribution and at the time of determination of the application and (b) it would not be contrary to the interests of justice to do so. No shareholder approval is required. It would still be open to a company to treat the purported distribution as a loan to shareholders until such time as the directors pass the solvency statement to convert this to a distribution. However, in such circumstances, the passing of the solvency statement has no retrospective affect unlike the Court approval process.
Fiduciary duties of directors
- Article 74(2) of the Companies Law provides that an act or omission of a director shall not be a breach of his or her fiduciary duties to the company (as set out in Article 74(1)) if (a) all the members of the company authorise or ratify such act or omission and (b) after the act or omission, the company is able to discharge its liabilities as they fall due. The Amendment Law seeks to introduce an additional procedure for ratification, following an equivalent procedure in the UK Companies Act 2006 but being a simplified process.
- The procedure requires the cashflow solvency test to be satisfied but, instead of unanimous member approval, the ratification can be by ordinary resolution or, if required by the articles, special resolution. For these purposes, where the director whose acts or omissions are being ratified is a member of the company, he or she (and any member connected with such director) is not treated as a member entitled to vote for the purposes; they may still attend and count in a quorum (subject to the articles of association of the company). The definition of persons connected with a director is set out in some detail in the Amendment Law, and will include members of the director's family, any body corporate with which the director is connected (by virtue of, for example, holding more than 20% of the equity share capital or voting rights at a general meeting). The definition of "connected with a director" is derived from s252 of the UK Companies Act 2006.
Existing investment funds will have to opt in to this additional procedure via a unanimous vote of the members.
The Amendment Law allows for an order to be made disapplying the requirement for categories of companies which are otherwise required by the Companies Law to appoint an auditor. This only applies where the company has also resolved to make such disapplication by resolution passed by all members entitled to vote. This is intended to apply, for example, to dormant investment funds, where the remaining assets do not support the costs of a full audit.
Broadly speaking for investment funds which are companies, if the fund has not had any investors / participants in it for the relevant financial period, it will be able to avail itself of the exemption.
Changes to "squeeze out" procedure on takeovers
The minority shareholder compulsory acquisition procedure (or "squeeze out") on takeovers has been amended in line with the English law position. In particular, the Companies Law has been amended to make specific provision for the situation where the laws of some jurisdictions make it impossible for an offer to be made to shareholders resident in them, or for such shareholders to accept the offer.
The Amendment Law introduces a range of provisions designed to assist in the ongoing administration of a Jersey company. These include:
- the ability to discount directors and employees of subsidiaries of the Jersey company who are members when calculating the total number of members for the purposes of ascertaining whether or not a company is a public company (this number is set at more than 30 members);
- confirming that a company can maintain a branch register outside Jersey showing all or any members, not just those resident in that place. This will assist with Jersey companies listed on exchanges outside the UK;
- removing the need for private companies to hold AGMs unless the articles of association require one to be held;
- clarifying that a written resolution need not be signed by all members, but by the relevant majority required to pass such resolution. This is subject to all members receiving a copy of such written resolution;
- the majority required for consent to short notice of a general meeting other than an AGM is reduced from 95% to 90%, unless the articles provide for a greater majority or unanimity;
- the Companies Law is clarified to specifically provide for multiple corporate representatives of a body corporate at a general meeting, in line with the UK Companies Act 2006. Provision is made for what happens when representatives of the same corporate member vote in the same way and in opposite ways; if they disagree then they may not act;
- non-business days can be ignored for the purpose of calculating the 48-hour period specified in the Companies Law as the maximum which may be required for giving notice of appointment of proxies. This now corresponds to the position under the UK Companies Act 2006;
- a reduction in certain time periods for the merger procedure (where two or more Jersey companies may be merged with each other);
- the existing provisions on migrations are being improved, for example to shorten the statutory timetable; and
- provisions allowing the registrar to strike off a company for failure to maintain a registered office in Jersey.
Matters for future consideration
The Amendment Law provides for a future order to be made to amend the definition of what constitutes a prospectus for Jersey law purposes. The current level of 50 offerees without any other carve outs is out of date. The intention is to change the law to allow more flexibility in terms of numbers of offerees and carve outs. However, these changes are going to be reviewed alongside a general review of the investment funds regulatory environment and therefore any changes are unlikely to occur in 2014.The Amendment Law inserts new provisions into the Companies Law to enable it to be amended at a later date to allow for demergers. The new regime will allow the undertaking, property and liabilities of an existing company to be divided among two or more companies. These regulations are currently being progressed.