Approval of Drafts: Foundations (Winding Up) (Jersey) Regulations 200- and Foundations (Mergers) (Jersey) Regulations 200-

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A decision made (05/10/2009) regarding: Approval of Drafts: Foundations (Winding Up) (Jersey) Regulations 200- and Foundations (Mergers) (Jersey) Regulations 200-.

Decision Reference: MD-E-2009-0182
Decision Summary Title :	Foundations (Winding Up) (Jersey) Regulations 200- and Foundations (Mergers) (Jersey) Regulations 200-		Date of Decision Summary:	2 October 2009
Decision Summary Author:	Finance Industry Development Executive		Decision Summary: Public or Exempt? (State clauses from Code of Practice booklet)	Public
Type of Report: Oral or Written?	Written		Person Giving Oral Report:
Written Report Title :	Foundations (Winding Up) (Jersey) Regulations 200- and Foundations (Mergers) (Jersey) Regulations 200-		Date of Written Report:	2 October 2009
Written Report Author:	Finance Industry Development Executive		Written Report : Public or Exempt? (State clauses from Code of Practice booklet)	Public
Subject: Approval of the draft Foundations (Winding Up) (Jersey) Regulations 200- (“the Winding Up Regulations”) and draft Foundations (Mergers) (Jersey) Regulations 200- (“the Mergers Regulations”)
Decision(s): The Minister approved the lodging of the following draft regulations: The draft Foundations (Winding Up) (Jersey) Regulations 200- (“the Winding Up Regulations”) The draft Foundations (Mergers) (Jersey) Regulations 200- (“the Mergers Regulations”)
Reason(s) for Decision: The Foundations (Jersey) Law 2009 (“the Law”) provides for the States to make regulations for the winding up of foundations. The Winding Up Regulations make such provision. The Law also provides for the States to make regulations for the merger of foundations. The Mergers Regulations make such provision.
Resource Implications: There are no measurable financial or manpower costs for the States associated with the Winding Up Regulations. The Royal Court will have costs associated with dealing with various applications under the regulations and in particular with winding up petitions under Part IV, but these costs will be off-set by the charging of court fees. There are no measurable financial or manpower costs for the States associated with the Mergers Regulations. The Commission and the registrar will have costs associated with considering proposed mergers for approval but these costs will be passed on to those seeking to merge.
Action required: To approve the Winding Up Regulations and the Mergers Regulations and the attached reports and for the documents to be lodged au Greffe so as to allow the Winding Up Regulations and the Mergers Regulations to be debated by the States on 17 November 2009.
Signature: Senator A.J.H.Maclean		Position: Minister for Economic Development
Date Signed:		Date of Decision (If different from Date Signed):

Approval of Drafts: Foundations (Winding Up) (Jersey) Regulations 200- and Foundations (Mergers) (Jersey) Regulations 200-

FOUNDATIONS (WINDING UP) (JERSEY) REGULATIONS 200- (“THE WINDING UP REGULATIONS”)

FOUNDATIONS (MERGERS) (JERSEY) REGULATIONS 200- (“THE MERGERS REGULATIONS”)

1 THE ISSUE AND RECOMMENDATION

It is recommended that the Minister for Economic Development (“the Minister”) should approve the Winding Up Regulations and the Mergers Regulations and the attached reports, sign the Decision Summary and that the documents should be lodged au Greffe so as to allow the Winding Up Regulations and the Mergers Regulations to be debated by the States on 17 November 2009.

BACKGROUND

The Law was adopted by the States on 22 October 2008 and came into force on 17 July 2009.
The Law introduced a new type of wealth-management vehicle, known as a “foundation”. A foundation is a distinct legal entity like a company, but, unlike a company, it does not have shareholders. It has easily recognised liabilities and accountabilities, and is openly recorded on a public registry in the same way as a company. It holds assets in its own name for the purposes set out in its constitutive documents. For clients and authorities originating in jurisdictions not familiar with the concept of trust, it is believed that a foundation may be a more attractive offering.
As well as being used for wealth management and estate planning, foundations may also have applications in more specialized areas, such as long-term charitable aims or securitizations, where it is desirable that property be given to a legal entity and applied for specific purposes. As with companies and trusts, the use of foundations will be subject to compliance with the Commission’s policy on sensitive activities.
Article 56(1) of the Law provides that:

The States may, by Regulations, provide –

(a) for the dissolution of foundations;

(b) for the continuance in Jersey as foundations of bodies corporate, whether or not incorporated in Jersey;

(d) for the merger of foundations, including the merger of foundations with any bodies corporate, whether or not incorporated in Jersey.

The Winding Up Regulations are the regulations envisaged in sub-paragraph (a) of this paragraph and the Merger Regulations are the regulations envisaged in sub-paragraph (d). (The regulations envisaged in sub-paragraphs (b) and (c) have already been passed by the States as the Foundations (Continuance) Regulations 2009.)

WINDING UP REGULATIONS

The provision for the winding up of foundations is very similar to that for companies under Part 21 of the Companies (Jersey) Law 1991.
However, one significant difference from companies is that the ‘voluntary’ winding up of a company occurs when the members pass a special resolution to that effect: there are then different procedures depending on whether the company is solvent at the time. The more flexible foundation structure allows the founder to specify the circumstances in which the foundation will be wound up: on the happening of an event, the end of a period of time or the application of a specified person. Once these circumstances occur, there are again different procedures depending on whether the foundation is solvent at the time.
This is dealt with in Part 2 of the Regulations. Chapter 1 sets out the general procedure, requiring the registrar to be notified. The qualified member may certify that the foundation is solvent; if he or she does not, the foundation will be treated as insolvent. Chapter 2 deals with solvent foundations (corresponding to Chapter 2 of Part 21 of the Companies Law) and Chapter 3 deals with insolvent foundations (corresponding to Chapter 4 of Part 21 of the Companies Law).
In a solvent winding up under Chapter 2, the foundation council can choose whether or not to appoint a liquidator. If they do not appoint a liquidator, they will wind up the affairs of the foundation themselves. In either case, once the foundation’s liabilities have been met and any remaining assets distributed in accordance with the charter, the registrar must be notified, and the foundation will be dissolved.
If, in the course of a solvent winding up under Chapter 2, it becomes apparent that the foundation is not in fact solvent, then there is provision (in Regulation 9) for the winding up to be converted to an insolvent winding up.
Chapter 3 deals with insolvent winding ups. In these circumstances it is the foundation’s creditors who have the principal interest in it, since they are entitled to be paid as much of their debts as the foundation’s assets will allow. Therefore a creditors’ meeting must be held (Regulation 12) at which the creditors will appoint a liquidator (Regulation 13). Once the liquidator has wound up the affairs of the foundation, a final meeting must be called (Regulation 16) and the registrar notified, at which point the foundation will be dissolved.
A liquidator under Chapter 3 has similar powers to a liquidator under Chapter 4 of Part 21 of the Companies Law, i.e. general powers (Regulation 18), power to disclaim onerous property (Regulation 19), power to apply to have transactions at an undervalue set aside (Regulation 23), power to apply to have unfair preferences set aside (Regulation 24), power to apply to make foundation council member personally liable (Regulation 25), power to apply to apply to remedy fraudulent acts (Regulation 26) and power to apply to set aside extortionate credit transactions (Regulation 27). Those responsible for the foundation must co-operate with the liquidator (Regulation 29) and he or she must report any possible misconduct to the Attorney General (Regulation 30).
Part 3 of the Winding Up Regulations allows the registrar to strike off a foundation for non-payment of its annual fee or of the additional amount prescribed by the States.
Part 4 of the Winding Up Regulations allows for a foundation to be wound up on the direction of the Royal Court either on the basis that it is just and equitable to do so, or in the public interest. This reflects Chapter 3 of Part 21 of the Companies Law.
Part 5 deals with some matters of general application: references to the Royal Court, the disposal of any remaining assets and the treatment of the foundation’s records.
Part 6 allows the Royal Court to declare a dissolution void. This corresponds to Article 213 of the Companies Law.

MERGERS REGULATIONS

As with the Continuance (Jersey) Regulations 2009, the Mergers Regulations utilise the concept of ‘recognized entity’. These are bodies corporate, outside of Jersey, that are a type of vehicle which the Minister designates as being suitable subjects of mergers with foundations. In the first instance, it is intended that the following entities will be designated as Recognized Entities: Panama Private Interest Foundations, Bahamas Foundations, Liechtenstein Stiftungs, Liechtenstein Anstalts, St Kitts Foundations and Nevis Multiform Foundations.
The Mergers Regulations have three substantives parts, Parts 2, 3 and 4. These three parts run in close parallel with each other, but deal with different sorts of mergers. Part 2 deals with mergers where all parties are Jersey foundations. Part 3 deals with mergers where a foundation (or more than one) mergers with a recognized entity (or more than one), and the result of the merger is a Jersey foundation. Part 4 deals with mergers between foundations and recognized entities where the result is a recognized entity.
In each case, there must be a formal merger agreement (Regulations 4, 14 and 26). Notice of the merger must be given to the creditors, who have an opportunity to object (Regulations 5, 15 and 27). If one of the parties is insolvent, the merger may only proceed with the permission of the Royal Court, on the basis that no creditor will be prejudiced (Regulations 6, 16 and 28).
Under Parts 3 and 4 (which deal with cross-border mergers), the permission of the Commission is also required (Regulations 17-20 and 29-32). This is because a cross-border merger poses a potential risk to the reputation of Jersey. The Commission may refuse an application (a) in order to protect the reputation and integrity of Jersey in financial and commercial matters; (b) in the best economic interests of Jersey; or (c) to protect the international standing of Jersey.

HUMAN RIGHTS IMPLICATIONS

5.1 The Law Officers’ Department have stated that in their opinion Article 6 and Article 1 of Protocol 1 of the European Convention on Human Rights are engaged, but they consider two sets of regulations to be human rights compliant.

RECOMMENDATION

6.1 It is recommended that the Minister should approve the Winding Up Regulations and the Mergers Regulations, the attached reports and also sign the Decision Summary and that the documents should be lodged au Greffe so as to allow the Winding Up Regulations and the Mergers Regulations to be debated by the States on 17 November 2009.

Finance Industry Development Executive

2 October 2009