Amendments to the Companies (Jersey) Law 1991 ("the Law").

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A decision made (22/12/2008) regarding: Amendments to the Companies (Jersey) Law 1991 ("the Law").

Decision Reference: MD-E-2008-0243
Decision Summary Title :	Amendments to the Companies (Jersey) Law 1991 (“the Law”)		Date of Decision Summary:	22 December 2008
Decision Summary Author:	James Mews, Finance Industry Development		Decision Summary: Public or Exempt? (State clauses from Code of Practice booklet)	Public
Type of Report: Oral or Written?	Written		Person Giving Oral Report:	n/a
Written Report Title :	Amendments to the Companies (Jersey) Law 1991 (“the Law”)		Date of Written Report:	22 December 2008
Written Report Author:	James Mews, Finance Industry Development		Written Report : Public or Exempt? (State clauses from Code of Practice booklet)	Public
Subject: Approval of the draft Companies (Amendment No. 10) (Jersey) Law 200- (“the Amendment”) and Companies (Amendment No. 3) (Jersey) Regulations 200- (“the Regulations”).
Decision(s): The Minister approved the draft Companies (Amendment No. 10) (Jersey) Law 200- and the draft Companies (Amendment No. 3) (Jersey) Regulations 200-, together with accompanying reports for the same and, having signed the declaration of compatibility with the European Convention on Human Rights in respect of the draft Law, requested that they be lodged au Greffe with a provisional date for debate by the States of 3rd February 2009.
Reason(s) for Decision: The purpose behind the Amendment and Regulations is to clarify aspects of the Law following the introduction of Companies Amendment No. 9. The proposals have undergone consultation with a steering group chaired by Jersey Finance, industry as represented by the Law Society, the Jersey Society of Chartered and Certified Accountants and the Jersey Financial Services Commission. The Law Officers Department has indicated that the amendments to the Law do not raise any Human Rights issues and that all tariffs for new offences created are commensurate with similar existing offences.
Resource Implications: There are no measurable financial or manpower costs for the States.
Action required: The documents to be lodged au Greffe in order that the Amendment can be debated by the States on 3rd February 2009.
Signature: Senator A.J.H.Maclean		Position: Minister for Economic Development
Date Signed:		Date of Decision (If different from Date Signed):

Amendments to the Companies (Jersey) Law 1991 ("the Law").

MINISTER FOR ECONOMIC DEVELOPMENT

AMENDMENTS TO THE COMPANIES (JERSEY) LAW 1991 (“the Law”)

1 THE ISSUE AND RECOMMENDATION

It is proposed to amend the Law through the draft Companies (Amendment No. 10) (Jersey) Law 200- (“the Amendment”) and the draft Companies (Amendment No. 3) (Jersey) Regulations 200- (“the Regulations”).

It is recommended that the Minister approves the Amendment, the Regulations, the Reports to the Amendment and Regulations, signs the statement of Human Rights compliance and that the documents be lodged au Greffe in order that the Amendment can be debated by the States on 3rd February 2009.

BACKGROUND

The purpose behind the Amendment and Regulations is to clarify aspects of the Law following the introduction of Companies Amendment No. 9.

All the proposals have undergone appropriate consultation with a steering group chaired by Jersey Finance, industry as represented by the Law Society, the Jersey Society of Chartered and Certified Accountants and the Jersey Financial Services Commission. Most of the amendments are clarificatory arising from proposals consulted with the public at large in 2007 prior to being placed into Amendment No 9. The remaining proposals, bar one, are limited to the use of companies by the Finance Industry.

The Law Officers Department has indicated that the amendments to the Law do not raise any Human Rights issues and that all tariffs for new offences created are commensurate with similar existing offences.

THE AMENDMENT

Articles 2 and 3 of the Amendment amend Articles 16 and 17 of the Law to create a right of appeal for a company and/or its members to the Royal Court against certain directions of the Commission, e.g. a direction that the company may become a private company even though it has more than 30 members, or a direction modifying the applicability of Article 17 of the Law to a company. This ensures that these provisions of the Companies Law are human rights compliant.

Articles 4 and 5 clarifies the position to provide that the share premium account of a par value company and the stated capital account of a no par value company may be applied for the purpose of making a distribution under Part 17 of the Law.

Article 7 clarifies that for the purposes of Part 12 of the Law, the redemption, purchase or cancellation of its own shares by a company is not to be regarded as a reduction of capital.

Meanwhile, Article 8 amends Article 61(3) of the Law to clarify that a distribution in accordance with Article 115 is not a reduction in capital to which Part 12 of the Law applies.

Article 10 replaces Article 67 of the Law, which relates to a company’s obligations with regard to its registered office. In particular, the amendment will expressly provide that a company does not satisfy the existing requirement to maintain a registered office in Jersey at all times, unless the occupier of the premises in which the office is situated authorizes their use for that purpose.

Although a failure by a company to comply with Article 67 will render it (and each of its officers who are in default) criminally liable, the registrar will continue to be entitled to treat its registered office of record as a valid address for the purposes of serving documents on the company. Article 67A provides a defence where a company has breached certain of the obligations in Article 67 in unavoidable circumstances.

The Law Officers Department has examined the amendments to Articles 67 and 67A of the Law and are content that they are Human Rights compatible and that the maximum penalty for the new offence, i.e. a fine at level 3 on the standard scale, is set at the right level, when compared with other similar regulatory offences in the Law.

Article 11 amends Article 90 of the Law to enable a company to provide in its articles that the majority required for special resolutions shall be greater than two-thirds of the members or class of members concerned. This amendment has been requested by industry in order to make it easier for Jersey companies to be listed on certain foreign stock exchanges, such as the Hong Kong Stock Exchange, which require companies’ special resolutions to be passed by at least a three-quarters majority.

In addition, greater flexibility will be introduced by allowing the States to amend Parts 8, 12 and 18B of the Law by Regulations. In particular, Part 18B may be extended to mergers between Jersey companies and other bodies corporate (whether incorporated within or outside Jersey) that are not companies.

THE REGULATIONS

‘OEIC’ definition

Regulation 2 amends Article 1 of the Law to widen the meaning of the expression “open-ended investment company” (“OEIC”) to include inter alia unregulated funds and COBO only funds. Under the Law, provided certain conditions are met, an OEIC may redeem its shares without the directors being required to make a solvency statement. It is important that OEICs have the benefit of this exemption, because by their nature their shares are subject to frequent redemption each time an investor wishes to call for his money and it would not be practical for the directors to make fresh solvency statements on each occasion for each investor before returning his capital.

Under the amended definition, a company will be classified as an OEIC if its sole business is to invest in securities or other property and its articles provide that substantially all of its shares are to be redeemed or purchased at the request of the holders at prices not exceeding their net asset value.

The current requirement that the company is a collective investment fund (“CIF”) will be dropped, since the argument in favour of affording the exemption to CIFs, i.e. the need to be able to make frequent redemptions, applies equally to COBO-only funds and unregulated funds, which are not CIFs.

Similarly, the current requirement that the company invests with the aim of spreading investment risk will be dropped, as this excludes so-called feeder funds from being OEICs. Feeder funds collect investments, probably from different classes of investor, and then invest in turn in a master fund. Although they also need to be able to make frequent redemptions, feeder funds cannot be said to spread risk as they invest only in the master fund.

The amendment to the definition of an OEIC will therefore allow COBO-only, unregulated and feeder funds to benefit from the exemptions afforded to OEICs in order to attract a greater amount of business to Jersey.

Other amendments

Regulation 3 amends Article 114(2) of the Law. That paragraph at present provides that, for the purposes of Part 17 of the Law (which Part controls distributions by companies), the expression “distribution” does not include reductions of capital by extinguishing or reducing a shareholder’s liability on shares that are not paid up. The effect of the amendment is to provide instead that the expression does not include a distribution by a reduction of capital that is made in accordance with Part 12 of the Law.

Regulation 4 amends Article 181 of the Law relating to the liability of a person to contribute in a creditors’ winding up the amount of money paid to him or her in respect of the redemption or purchase by a company of its shares. The liability at present arises if the payment has not been made wholly out of profits available for distribution, or out of a fresh issue of shares for the purpose of the redemption or purchase. The effect of the amendment is to replace references to payments from these specific sources by references to payments made unlawfully.

RECOMMENDATION

It is recommended that the Minister approves the Amendment, the Regulations, the Reports to the Amendment and Regulations, signs the statement of Human Rights compliance and that the documents be lodged au Greffe in order that the Amendment can be debated by the States on 3rd February 2009.

JAMES MEWS

Finance Industry Development

22 December 2008