David Postlethwaite, Technical Manager at Jersey Finance, examines a number of changes to corporate law on the island and what they mean in real terms
Several recent and upcoming developments in Jersey’s legal framework demonstrate the island’s commitment to retaining its position as one of the world’s premier locations for structuring cross-border investment.
LLPs
On 1 August 2018, Jersey introduced a major overhaul of its limited liability partnerships (LLPs).
LLPs were highly innovative when introduced in Jersey in 1997. Offering some of the benefits usually reserved for companies, such as limited liability for members and separate legal personality, they nevertheless retain their status as partnerships. This means they are highly flexible, being governed by a private partnership agreement that can be extensively tailored.
LLPs have already undergone changes over the years to remove obstacles to their use. The new Limited Liability Partnerships (Jersey) Law 2017 will make LLPs even more attractive as a vehicle for local and international business.
Key changes include:
• A broader range of contribution options Partners will now have the ability to make contributions of capital, as well as effort and skill, opening up LLPs to use as investment vehicles
• Administrative simplification The new law will remove the requirement for annual solvency statements. Instead, there will be a requirement to issue a solvency statement when a partner makes a withdrawal (unless such a statement has been given in the previous 12 months)
• Flexible yet robust governance The new law replaces the ‘designated partner’ function with a Jersey-based secretary, responsible for the record-keeping and filing obligations of the LLP. The secretary must either be a Jersey-based partner in the LLP or a person registered under part 2 of the Financial Services (Jersey) Law 1998 to carry on trust company business.
New regulations, which also come into force on 1 August 2018, clarify the dissolution and winding-up provisions relating to LLPs.
Transitional arrangements provide for LLPs established under the previous legislation to continue, subject to a requirement to appoint a secretary in line with the new law’s requirements.
The new LLP provides a streamlined, cutting-edge structure that works for both professional services businesses and investment activity.
Demergers
From 1 September 2018, Jersey will also have a new company demerger regime. The Companies (Demerger) (Jersey) Regulations 2018 introduce a new, simple way to demerge a Jersey company into two or more Jersey companies without having to go to the Royal Court.
This new regime will be particularly helpful in the context of mergers and acquisitions (M&A) activity, corporate reorganisations or restructurings. Scenarios where demergers may be used include a pre-sale hiving-off of assets into a target entity, or the division of a portfolio of assets at the end of a fund’s life.
The regulations include protections for stakeholders, including shareholders, creditors and employees.
The principal document for a demerger will be a demerger instrument, which must include prescribed information, including details of the assets and liabilities of the demerging company that will transfer to the new demerged company/companies. The demerger instrument must be approved by shareholders by special resolution.
As part of the process, a declaration to the Jersey tax authorities must be made, who must then issue a tax certificate if the demerging company is eligible to demerge. The demerging company must also apply to the registrar of companies in Jersey to complete the demerger.
Certain companies won’t be eligible to demerge under the regulations, including companies carrying on banking or insurance business. Initially, there will also be restrictions on the demerger of companies that, broadly, are liable to pay tax in Jersey at the company or shareholder level.
We anticipate that, in time, the regime will be further extended to allow more companies to demerge and to permit demergers into non-Jersey bodies corporate.
LLCs
Following a consultation earlier this year, the government of Jersey has also published draft legislation to bring in limited liability companies (LLCs). The States Assembly is expected to debate this draft legislation in September 2018.
The proposal to introduce LLCs is specifically aimed at US-based institutions and fund managers.
LLCs combine the flexibility and privacy of a partnership with the protective limited liability of a company, while also enabling a choice between the management structures and tax treatments of both.
As a result, they have a wide variety of uses, including as joint venture vehicles. The use of LLCs is particularly widespread for US fund structures.
The Jersey LLC would be a particularly flexible vehicle, governed by a private LLC agreement that can be extensively tailored. They are expected to have the ability to create individual series, each with their own separate legal personality and allowing for the ringfencing of assets.
Conclusion
Jersey has deservedly achieved a reputation as a forward-thinking international finance centre. Its robust, modern and sophisticated legal framework is the source and foundation of Jersey’s finance industry. With new LLPs, a demerger regime and LLCs on the horizon, Jersey’s corporate offering will be further enhanced.