Amendments to Guernsey's company legislation03 Sep 2015
This briefing summarises the key changes made by the Companies (Guernsey), Law, 2008 (Amendment) Ordinance, 2015.
On 29 July 2015 the States of Guernsey approved a number of significant amendments to the Companies (Guernsey) Law, 2008 (as amended) (the "Law"), the principal legislation governing Guernsey companies. The changes are set out in the Companies (Guernsey), Law, 2008 (Amendment) Ordinance, 2015 (the "Ordinance") which, pursuant to the Companies (Transitional Provisions and Commencement) Regulations, 2015, came into force on 3 September 2015, subject to transitional provisions. Certain provisions of the Ordinance (for example those affecting the memorandum and articles of companies incorporated under the old Companies (Guernsey) Law, 1994) will not come into effect until 31 December 2016 when the Companies (Transitional Provisions) Regulations, 2008 (as amended) will expire.
The amendments simplify and clarify a number of administrative matters concerning Guernsey companies and make various changes to certain corporate transactions.
Incorporation of Guernsey companies
A wider category of persons will be able to submit applications for the incorporation of Guernsey companies, which could previously only be made by corporate service providers (i.e. entities holding a full fiduciary licence in Guernsey). The States of Guernsey Commerce and Employment Department (the "Department") has been given the power to prescribe other persons, bodies or officers able to make such applications. It is anticipated that law firms and other regulated bodies will be given such authority which will increase flexibility in the way companies are incorporated. This will be particularly useful where this is being done as part of a wider transaction (for example where a law firm is already instructed in respect of the establishment of a corporate collective investment scheme or is advising an individual on the structuring of their private wealth).
Names of Guernsey companies
It is now permissible to incorporate a Guernsey company with a name in non-Roman alphabet, characters or script provided the other statutory requirements relating to company names are complied with. This will give companies increased flexibility and be of particular interest where the first language of key stakeholders of a company uses non-Roman script or where this will help with marketing overseas.
Directors and company secretaries
The requirement for directors to disclose to the board their interests in transactions or proposed transactions with the company has been simplified, with directors no longer being specifically required to determine and disclose the monetary value of the transaction if this is quantifiable - they are simply required to disclose the nature and extent of the their interest.
Directors are now responsible for the duties previously identified in the Law as those of the company's secretary (where it had one) not just where the company does not have a secretary but also where the company's articles of incorporation do not specifically impose these duties on the company's secretary. The company's articles will need to specify the duties to be given to the company's secretary, which may include those previously imposed on the secretary by statute (for example, the maintenance of registers and indexes, the filing of notices and documents with the Registrar of Companies in Guernsey and the keeping of resolutions and records). Where the articles do not provide that such duties are imposed on the secretary, the directors will automatically be responsible for them.
The amendments enable directors and secretaries disqualified from acting (and therefore previously prohibited from being appointed by a Guernsey company) to apply to the Royal Court of Guernsey for an order that the prohibition does not apply to them in a particular case if it would be just for the Court to so order, taking into account matters such as human rights and the interests of justice.
The Ordinance also introduces savings for the validity of the acts of a company secretary should there be a defect in its appointment.
It is now possible for certain non-regulated companies to waive the requirement for directors to produce an annual directors' report. This will be helpful for smaller companies or companies with one or two members closely involved with the business of the company where the preparation of such a report may be disproportionate and unnecessary.
Finally, a failure by a company to have at least one director will leave the company liable to be struck off the Register of Companies in Guernsey.
The Ordinance introduced a number of clarificatory provisions concerning the way shareholder resolutions are passed, for example the amendments confirm that a unanimous resolution is agreed to by every member of the company if it is agreed to by every member entitled to vote on it and that a written resolution is agreed to by every member entitled to vote on it if it is passed by members representing all of the voting rights
of eligible members. Further, the memorandum or articles may specify the time for the closing and reopening of the register for the purposes of voting on written resolutions to ensure that the register does not change during the period in which a written resolution is in circulation.
Issue of new shares
The procedure for the issue of new shares has been greatly simplified with the previous restrictions on the directors' authority to issue shares (which had to state the maximum amount of shares which could be issued and a time limit) being relaxed. The Ordinance gives the directors the power to exercise any power of the company to issue shares in the company (or to grant rights to subscribe for or to convert any security into shares in the company) to the extent authorised by the company's memorandum or articles or by resolution of the company. The requisite authorisation is much more flexible, for example it may be given for a particular exercise of the power or its exercise generally, may be unconditional or subject to conditions, may state the maximum number and/or aggregate value of shares that may be issued or be unlimited as to number of aggregate value and may state an expiration date or be of unlimited duration - the authority (whether contained in the memorandum or articles of the company or a members' resolution) will no longer have to state the matters previously prescribed.
The requirements for directors to resolve that the consideration for and terms of the issue of shares is fair and reasonable to all existing members has been removed (the directors will only need to consider fairness and reasonableness to the company itself which reflects the fact that directors owe duties to the company, not its members). The requirement for directors to approve and sign a consideration certificate stating, amongst other things, the consideration for and terms of issue of the shares, has also been removed.
These amendments will make the administration of the issue of new shares much more straightforward particular where new shares are issued regularly, for example a weekly dealing open-ended collective investment scheme, and will avoid issues in determining the appropriate authority to issue shares where there is no need to impose any limits on the number of shares or duration of the authority.
Restructuring of Guernsey companies
Conversion of a cell of a protected cell company in to a non-cellular company
The Ordinance has broadened the existing range of statutory procedures enabling conversions from non-cellular companies to protected cell companies (PCCs), incorporated cell companies (ICCs) and incorporated cells by introducing a procedure to convert a cell of a PCC into a non-cellular company. This will enable the assets and liabilities comprised in a cell of a PCC to be entirely separated from the PCC when the cell becomes a standalone company, with those assets and liabilities becoming those of the company. Upon conversion, the company which was formerly a cell will be like any other company - a separate legal entity, with its own board of directors and shareholders and able to contract in its own name.
Flexibility in amalgamations
The amendments enable Guernsey companies of different types to amalgamate using the existing statutory procedure which previously only applied to companies of the same type (so for example, a company limited by guarantee can now amalgamate with a company limited by shares). Changes have also been made to the existing short form amalgamation procedure which applies to amalgamations between a parent company and its wholly-owned subsidiary and wholly-owned subsidiaries with the same parent and was previously limited to amalgamations between Guernsey companies. The changes allow for amalgamations with overseas companies, provided at least one of the amalgamating bodies is a Guernsey company.
The Ordinance revises the procedure applicable to the takeover of a Guernsey company making significant changes to the squeeze out provisions. The changes are intended to bring the procedure into line with market practice and to align the statutory provisions more closely with provisions which apply in other jurisdictions which fall within the scope of The City Code on Takeovers and Mergers.
The amendments enable a bidder for shares in a Guernsey company to serve a compulsory acquisition notice on any dissenting shareholder as soon as its offer is approved by shareholders comprising not less than 90% in value of the shares affected, provided that happens within 4 months of the offer
(whereas currently the bidder has to wait 4 months, even if the 90% threshold is met sooner).
The new provisions provide that where a bidder gives a choice of consideration in the offer, the same choice must be given to any dissenting shareholder and clarify how the squeeze out provisions apply to non-Guernsey residents. The amendments also clarify that the squeeze out provisions will only apply if the offer relates to all of the shares in the company or (as the case may be) to all of the shares in the particular class to which the dissenting shareholder belongs, excluding any shares held as treasury shares (unless the bidder elects that they should be included) and any shares held by the bidder or which it has otherwise contracted to acquire. Shares held as treasury shares and shares held by the bidder or its nominee or other closely related entities (including its holding company, subsidiaries and fellow subsidiaries) and, where the bidder is an individual, certain family members will not be taken into account in calculating the 90% threshold.
Protected cell companies
The amendments allow separate accounts to be prepared for each cell of a PCC and the core of that PCC which will preserve confidentiality for shareholders in different cells and the core and ease administration in larger and more complex PCCs.
Incorporated cell companies
The Ordinance widens the categories of companies which may be incorporated as ICCs to include companies which are (or when incorporated will be) licensed to carry on controlled investment business within the meaning of the Protection of Investors (Bailiwick of Guernsey) Law, 1987 (as amended).
Winding up of Guernsey companies
A Guernsey company regulated by the Guernsey Financial Services Commission (the "Commission") now needs to give notice of any ordinary or special resolution for its voluntary winding up to the Commission within a period of 30 days after the day of the resolution being passed. The Commission must also be given not less than 7 days' notice before the hearing date of any court application by a company or liquidator in the course of the winding up of a company which is regulated by the Commission or engaged in a financial services business.
The Ordinance allows the members of a company being wound up voluntarily to grant the liquidator of the company a release from liability by ordinary resolution. From the time determined in the resolution, the liquidator will be discharged from all liability in respect of his acts and omissions in the winding up and otherwise in relation to his conduct as liquidator, other than liability arising from his own fraud, recklessness or gross negligence or except to the extent that he has acted in bad faith. The Royal Court of Guernsey has power in certain cases to revoke such a release (for example, where it was obtained by fraud) and also to itself grant a release to liquidators.
Electronic records and service of documents
The Ordinance permits documents which have been received by or issued by or on behalf of the Registrar of Companies in Guernsey (including documents in electronic form or sent by electronic means) to be destroyed or otherwise disposed of, provided a copy is retained in electronic form, subject to certain time limits. In the case of a document in electronic form and sent by electronic means, it can be destroyed at any time and in any other case (i.e. a hard copy document) it can be destroyed on the expiration of a period of 3 years from the date of receipt or issue, as applicable.
The Ordinance also contains provisions which specifically enable the service of documents under or for the purposes of the Law to electronic addresses.
Secondary legislation concerning corporate transactions
The Ordinance gives the Department various powers to make regulations concerning corporate transactions (such as amalgamations, conversions and migrations) and company administration (for example, the simplification of the statutory requirements for resolutions and meetings of small companies and the exemption of directors of certain types or class or descriptions of companies from preparing a directors' report for each financial year). This will give flexibility to a number of statutory provisions as regulations can be introduced relatively quickly.
Company administrators and directors should review company memoranda and articles and procedures concerning the administration of companies in respect of which they are appointed to update them in line with changes made by the Ordinance.
The Ordinance is available publicly on the States of Guernsey website and should be reviewed in full by interested parties. Professional advice should be taken where appropriate.