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2008 Company Law Changes
Written by Paul Wilson and Andrew Pinel
Some of the most important and widely-welcomed amendments have recently been introduced to the Companies (Jersey) Law 1991.The changes will assist service providers and their clients to use Jersey companies with more speed, efficiency and simplicity and will provide increased flexibility and choice upon the establishment of company structures.
In January 2008, the Companies (Amendment No. 2) Regulations 2008 (the “Regulations”) and the Companies (Amendment No. 9) Law (the “Law”) were passed by the States of Jersey.The Regulations came into force on 22 January 2008, but the Law is with the Privy Council for approval and should be brought into force in the second quarter of 2008.
The Regulations
Corporate Directors
Jersey companies can now appoint corporate directors, provided that any company acting as a corporate director is authorised to do so under the Financial Services (Jersey) Law 1998.
Abolition of Financial Assistance Restrictions
The provisions preventing Jersey companies from providing financial assistance in relation to the purchase of their own shares have been abolished.To date, companies providing such assistance, no matter how relatively insignificant the financial assistance, were required to go through a convoluted ‘whitewash’ procedure.
The changes significantly reduce the regulatory burden for companies, although the companies still need to ensure that the proposed actions are in the best interests of the company and that there is a clear commercial benefit to any transaction.The UK will not be removing the similar prohibition under its Companies Act until October 2009 and, even when it does, the abolition will only be with respect to English private companies.
Cell Companies
Cell companies were introduced into Jersey law on 1 February 2006 and the Regulations rectify a few important problems which have arisen since their inception.
The most notable amendment is the removal of the need for a cell company and its cells to have the same directors.This is particularly important where cell companies are used for investment fund structures.No longer will a director of one cell, specifically chosen for his or her expertise in the cell’s investment area, be required to be a director of another cell, in which he or she may have no relevant knowledge.
Treasury Shares
The introduction of treasury shares allows a limited company to redeem or purchase its own shares and hold them before selling, cancelling or transferring them to an employee share scheme.
Previously a company was unable to hold its own shares but it can now do so for a limited period, although it cannot exercise any voting rights in respect of such shares that it holds.
The ease with which shares can now be redeemed or bought back from investors and then transferred to new investors (without the need for them to be cancelled and new shares issued) will prove attractive to the investment funds sector.
Statements of Solvency
The solvency statement that directors are required to sign before redeeming or purchasing shares has been amended so that directors are no longer required to confirm that they have made “full enquiry into the affairs and prospects of the company”.It has long been acknowledged that the wording was unduly onerous and so the change is to be welcomed.
The Law
Distributions
Jersey companies will be permitted to make distributions to shareholders from any source, without reference to the distributable reserves of the company.Directors will be required to make a statement of solvency, but this statement of solvency will not be required to be filed with the companies registry.Distributions will be able to be made from any capital account of the company, save for the capital redemption reserve (if any) or, in the case of par value companies, the nominal share capital account.
PLC Abbreviation
Public companies will be able to use the term “public limited company” or the abbreviations “PLC” or “plc” as suffixes to their company name.
Accounts
Jersey companies must, at present, prepare accounts in accordance with generally accepted accounting principles (GAAP).However, any company required to appoint an auditor will be able to prepare accounts which show either a “true and fair view” of or “present fairly on all material aspects” the financial position of the company.
Share buyback / redemptions
Shares will be able to be redeemed or bought back from any source, including from any capital account.Currently, any shares to be redeemed or bought back must be funded from a distributable reserve account or from the proceeds of a fresh issue of shares.Directors authorising the redemption or buyback will be required to make a statement of solvency, similar that to be made upon a distribution.
Meetings to consider special resolutions
A general meeting to consider a special resolution will be able to be called with 14 days’ notice, as opposed to the current 21 day requirement.