One of the more frequent questions we are asked by clients in the Corporate team is: “When do I have to get the memorandum and articles of incorporation (“Articles”) updated for a Guernsey company to comply with the Companies (Guernsey) Law, 2008 (the “2008 Law”)?”. The question affects all Guernsey companies incorporated prior to the 2008 Law coming into effect on 1 July 2008 (referred to as “Existing Companies”).
Generally speaking, our answer to this question to date has been that clients should wait until the Companies (Transitional Provisions) Regulations, 2008 (the “Transitional Provisions”) are about to expire (assuming you can amend your Articles quickly) unless you have got a good reason to amend your Articles otherwise.
The reason for this is fairly simple – ever since the 2008 Law came into force on 1 July 2008, it has been acknowledged that amendments will need to be made to certain of the more controversial elements of the 2008 Law. The effect of a number of these elements has been suspended by the Transitional Provisions pending the amendments being released and coming into force. However, as a number of these amendments will affect the content of the Articles of both Existing Companies and companies incorporated with Articles under the 2008 Law (“2008 Law Companies”), a “wait and see” approach allows clients to only have to make one set of changes to their Articles (in the case of Existing Companies) rather than two, thereby saving time and costs.
The amendments themselves appear to have been delayed (for more content on the amendments, see our Red Line issued in June 2012, at www.aohall.com) (the “June 2012 Red Line”) and therefore it is hardly surprising that the Transitional Provisions have recently been extended once again, this time from 31 December 2013 to 31 December 2015.
What do the Transitional Provisions do?
The effect of the Transitional Provisions is that up until the revised transitional date of 31 December 2015:
- Any provision in an Existing Company’s Articles which conflicts with, and would be invalid under the 2008 Law (but valid under the Companies (Guernsey) Law, 1994 (as amended) (the “1994 Law”)) is not invalidated by the relevant provision of the 2008 Law.
- The application of the provisions of the 2008 Law which deem shadow directors to be directors of a Guernsey company (for certain limited purposes) is suspended.
- Section 171 of the 2008 Law which sets out the duties of a company secretary is suspended. As noted in the June 2012 Red Line it is proposed that section 171 will be repealed.
- The application of the prohibition against a company converting its shares into stock in section 283 of the 2008 Law is suspended.
- The application of sections 291 to 293 of the 2008 Law is suspended for Existing Companies. Sections 291 to 293 of the 2008 Law require that directors have authority from shareholders to issue shares in a company, whether by ordinary resolution or authority arising from the company’s memorandum and articles, if the company has more than one class of shares in issue. The effect of the suspension of these provisions is that the provisions applicable to the issue of shares under the 1994 Law apply. It is noteworthy that whilst the application of sections 291 to 293 of the 2008 Law are suspended, sections 295 and 296 of the 2008 Law which require the approval and issue of “consideration certificates” on the issue of shares are not suspended. As noted in our June 2012 Red Line, however, it is proposed that sections 291 to 293 will be repealed and further that the requirement to issue a consideration certificate under sections 295 and 296 (as applicable) will be repealed.
Given the extension of the transitional period until 31 December 2015 and the delays to the proposed amendments (a number of which will have an effect on the contents of the Articles of an Existing Company and 2008 Law Company), generally speaking, from a time, costs and certainty perspective, Existing Companies that have not yet updated their Articles for the 2008 Law should wait until the amendments come into effect, unless they have good reason to do so otherwise. It is not clear at this stage what the final amendments to the 2008 Law will be and whether further amendments will be proposed in due course. We will be publishing further articles as and when further details of the amendments become available.