In finance transactions, legal opinions are often sought from local counsel as to the capacity of entities formed under the laws of Guernsey to enter into transactions and documents and as to the laws of Guernsey generally. This briefing summarises issues that might arise for instructing counsel or clients when requesting a Guernsey legal opinion. It is not intended to be exhaustive and specific advice should be sought in specific cases.
Information required by Guernsey counsel
When instructed, Guernsey counsel will typically request at the outset:
- details of the Guernsey entity's local administrator, if any;
- a structure chart;
- a certified true copy of the entity's constitutional documents;
- a certified true copy of the entity's certificate of incorporation and any certificate of change of name;
- if relevant, a copy of any Guernsey regulatory consents relating to the entity/the transaction in question;
- draft board minutes relating to the transaction, including approval of the transaction documents which are the subject of the opinion;
- if relevant, a copy of any draft shareholder resolutions; and
- the latest drafts of the documents in relation to which the opinion is to be given.
Issues commonly raised by Guernsey counsel when reviewing transaction documents
As part of the instruction, Guernsey counsel ordinarily would review any transaction documents being entered into by the Guernsey entity in question and may raise the following issues in relation to non-Guernsey law transaction documents:
- inclusion of Guernsey in any definition of "Business Day": Guernsey has its own public holidays;
- inclusion of Guernsey-specific insolvency (and similar) references;
- whether there is clear corporate benefit to any Guernsey company entering into the transaction: if in doubt, Guernsey counsel is likely to suggest obtaining a shareholder resolution in relation to the transaction;
- if opining on non-Guernsey law security, Guernsey counsel acting for a lender will notify the lender that it is unlikely that such security will create valid security over any Guernsey situs assets;
- if any transaction document contains a guarantee, Guernsey counsel acting for a lender would suggest wording to waive customary law rights known as the "droit de division" and the "droit de discussion". The droit de discussion is a procedural remedy that may be available in Guernsey even if the guarantee is not governed by Guernsey law and would require a lender to exhaust its remedies against the primary debtor first, before pursuing the guarantor. The droit de division is a substantive remedy only available when the guarantee is governed by Guernsey law and provides that where there is more than one guarantor, a lender could only recover from each guarantor a proportionate part of the debt owed. It is standard practice to agree the waiver of the droits; and
- whether the transaction being entered into by a Guernsey company constitutes a distribution for the purposes of Guernsey company law – if so, the Guernsey company would need to satisfy a statutory solvency test. For example, financial assistance constitutes a distribution and Guernsey counsel often consider an upstream guarantee to be a distribution to the extent that it results in an accounting loss being recognised in the accounts of the guarantor company.
Searches of public records in Guernsey are limited in respect of the information they produce and not all documents filed physically before 1 July 2008 may be shown on the Guernsey Registry website. In addition:
- there is no requirement to file information regarding shareholders or the secretary of a company, or regarding mortgages, security interests or charges over the shares or assets of Guernsey companies (other than real property in Guernsey and ships registered in Guernsey). A search also does not determine conclusively whether or not an order or application has been made or a resolution passed for the winding up of a company or for the appointment of a liquidator, administrator or other person to control the assets of a company, as notice of such matters might not be filed immediately and, once filed, might not appear immediately on a company's public file;
- a company search in Guernsey is unlikely to reveal any information as to any insolvency, administration or receivership procedure initiated in any other jurisdiction; and
- there is no official register of pending actions in Guernsey available for inspection by the public and no official litigation search procedure. Information given in Guernsey legal opinions in relation to legal proceedings for winding up, administration and pending actions generally is based upon a search of computerised records of matters already raised in the Guernsey court and enquiries made at the office of HM Greffier in Guernsey (the Greffe) as to the existence of claims or actions before the courts of Guernsey to which a company is a party. The records at the Greffe are maintained for its own use and not pursuant to any public obligation and therefore the accuracy of such records is not guaranteed. The records depend on input by Greffe officials and any time delay could give rise to an inaccurate search report.
Guernsey counsel will update searches on the day on which the opinion is issued. The Greffe is open on weekdays only, from 9am until 4pm. Opinions issued outside these hours may be subject to qualifications if searches cannot be concluded.
As only limited information is ascertainable from public records, Guernsey counsel will also rely on a certificate from a director of the company as to factual matters. A director's certificate will need to be signed by a director and dated the date of the opinion (or reconfirmed as at that date) and will deal with matters such as the following:
- confirmation that the copy constitutional documents provided are true, complete and up-to-date;
- confirmation that board meetings held to approve transaction documents were validly convened and quorate;
- confirmation as to the authorised signatories of the company;
- confirmation that the company is existing and has complied with all registration, regulatory and other requirements and that all consents and approvals received from the Guernsey Financial Services Commission remain extant;
- confirmation that no application has been presented or order made or resolution passed or analogous proceedings taken for appointing an administrator or liquidator of or for winding up the company;
- confirmation that the company is solvent and is able to pay its debts as they fall due and will not become insolvent or unable to pay its debts as they fall due as a result of the entry into the transaction documents and that no action has been taken or threatened to wind up the company or to have its assets declared "en désastre" and no receiver has been appointed; and
- confirmation that the company is not involved in any litigation or other proceedings, nor is any litigation pending or threatened against the company.
The director's certificate is a document of Guernsey counsel and is not usually the subject of negotiation, save with the director providing it or his advisers. The giving of the director's certificate should be authorised at the relevant board meeting.
Assumptions and qualifications
Partly because only limited information is ascertainable/verifiable by Guernsey counsel and partly because opinions given may require further explanation, the opinions given will be subject to a number of assumptions and qualifications, for example:
- assumptions will be made as to matters such as authenticity of signatories, compliance with applicable laws, that the parties are dealing with each other in good faith, commercial benefit of the transaction and good title to assets being secured; and
- qualifications will deal with matters such as legal limitations on enforceability of documents, limited nature of information available from company searches and the requirements for perfecting Guernsey law security after the relevant documents have been entered into.
There will also be transaction-specific qualifications and assumptions.
If there is a requirement for transaction management, witnesses or attendance at meetings, this may affect the estimated costs of providing an opinion.
Issue of the opinion
The basis on which the opinion is issued is a matter for agreement between Guernsey counsel and instructing lawyers/client. For example, the Guernsey legal opinion may be:
- issued on the basis of executed and dated transaction documents;
- issued on the basis of signed but undated documents;
- issued on the basis of draft, unsigned documents; or
- issued contingent on the happening of certain events. For example, where timing of completion is tight, Guernsey counsel may agree to sign the opinion on the basis of having reviewed signed, undated documents, such opinion to be held to the order of Guernsey counsel and then deemed to be automatically released/issued by the dating of the documents the relevant date.