Knowledge

A consultation on the most wide-ranging amendments to the Companies (Jersey) Law 1991 (the "Law") for ten years has been published, proposing a number of updates to the Law and the creation of an administration regime. The consultation is open until Friday 13 December.

The proposals have been developed following engagement with a working group run by Jersey Finance, and the specific proposals on creditors' winding up and administration were developed partly by Jersey's Association of Restructuring and Insolvency Experts. The amendments in the consultation are intended to achieve maintenance, clarification and modernisation of the Law.

While the consultation includes a significant number of potential changes to the Law and certain related amendments to other laws, some of the more notable proposals are as follows:

• Abolishing 30 shareholder rule: Private companies with more than 30 shareholders are currently deemed, subject to some exceptions, to be public and subject to more onerous requirements under the Law. It is proposed to abolish this rule, allowing companies with a large shareholder base to maintain private status.
• Simplified ratification of distribution: Before a Jersey company makes a distribution to its shareholders by way of dividend or otherwise, the directors who approve the distribution must make a solvency statement in a form prescribed by law. Where the required solvency statement is not made, an application must be made to court to ratify the distribution. It is proposed that directors would be allowed to ratify a distribution without applying to court in certain circumstances where a company is solvent.
• Abolishing headcount test for members' schemes of arrangement: The Law currently includes a "headcount" test to approve a members' scheme of arrangement, which can result in the blocking of a scheme even where the holders of 75% of the voting rights are in favour. It is proposed to abolish the headcount test, a welcome change which has already been made under Cayman law. 
• Direct voting: The consultation proposes that direct voting by shareholders should be expressly permitted, allowing shareholders to send a voting form rather than having to appoint a proxy to vote on their behalf. Direct voting is currently allowed in some other jurisdictions, including Australia.
• Removal of need for solvency statement and shareholder approvals on repurchase/redemption of shares for nil consideration: The Law currently requires solvency statements to be made by directors on any redemption or repurchase of shares, and for shareholder approvals in respect of a repurchase. Where a redemption or repurchase is made for nil consideration, the proposals seek to facilitate the process by removing the need for solvency statements and, in the case of a repurchase, shareholder approvals.
• Extending accounts and audit exemptions: Broadly, Jersey companies with shares listed on exchanges outside the EU or UK must satisfy certain Jersey-specific accounting and audit requirements in addition to those applicable to the relevant exchange. To avoid duplication, it is proposed that companies listed on regulated exchanges in the USA, Australia and Canada (and potentially elsewhere) would effectively be exempted from the relevant Jersey-specific requirements, leaving them to comply only with those of the foreign exchange.
• Clarifying alteration of capital provisions: The consultation proposes to simplify and clarify the provisions of the Law which address alteration of share capital, including to expressly cater for redesignation of shares between different classes.
• Disapplication of requirement to issue share certificates: It is proposed that the Law is updated to allow a company to disapply the requirement to issue share certificates, recognising that these are frequently not issued in practice.
• Digital changes: The consultation also makes certain proposals to facilitate or confirm digital administration and governance practices, including expressly permitting internet voting in meetings unless the articles of the company provide otherwise, confirming that a register of shareholders can be held in Jersey in electronic form and allowing electronic company seals.

It is also proposed that a number of helpful clarifications and updates are made to the creditors' winding up regime and to the provisions of the Law regarding statutory mergers and continuance (also known as migration).

New administration regime

The proposed regime - like UK administration and Chapter 11 proceedings in the USA - aims to fill a perceived gap in the current law by adding a process which assists a company to recover when it is essentially viable, but technically insolvent due to cashflow issues.

It is proposed that applications to place a Jersey company into administration would be made to the court and, to be successful, the court would have to be satisfied that the administration is reasonably likely to support either the survival of the insolvent company or a more advantageous realisation of the company's assets than would otherwise be achieved.

An administrator would be tasked with reviewing the company's operations and setting out a plan for a return to solvency. During the administration, no legal action would be permitted against the company, but the rights of secured creditors would be preserved.

Comment

Overall, the consultation proposes many helpful changes which recognise and build on current practice in Jersey and elsewhere and, if implemented, will further modernise Jersey company law and streamline corporate practice. The proposed administration process would in particular be a welcome addition, providing an express recovery regime that will be familiar to the international business community while maintaining secured creditor protections.