Jersey company law – reform of the prospectus regime
12 October 2021
The Companies (Amendment of Law) (No. 2) (Jersey) Order 2021 (the "Order") was made on 12 October 2021 and will come into force on 19 October 2021.
The Order amends the Companies (Jersey) Law 1991 (the "1991 Law") by introducing a new definition of prospectus.
The reform brings the definition of prospectus more in line with the UK and EU prospectus regimes.
Bedell Cristin was part of the industry working group that worked with government and others on the drafting of the Order.
Benefits of the reform
The reform will streamline the administrative and regulatory requirements involved in raising new share capital. This will, therefore, provide transaction efficiencies for Jersey companies looking to raise new share capital.
The reform will also promote legal certainty in relation to other transactions (such as debt for equity swaps) where analysis is needed as to whether the transaction involves the circulation of a prospectus. It is expected that many transactions will benefit from the new exceptions as to what constitutes a prospectus.
These reforms will be particularly helpful in the coming months, with many companies needing to repair their balance sheets following the economic impact of COVID.
What is a prospectus?
A prospectus is an invitation to the public to become a member of a company or to acquire or apply for any securities.
The previous regime
Under the previous regime, an invitation was not treated as being made to the public where the invitation was addressed exclusively to a restricted circle of persons.
In order for there to have been a restricted circle of persons, the previous law imposed a limit on the number of persons to whom the invitation could be communicated.
Under these requirements, the number of persons in Jersey or elsewhere to whom the invitation was communicated could not exceed 50.
If this number was exceeded, then the company would be circulating a prospectus.
What are the consequences of circulating a prospectus?
There are a number of consequences that arise from circulating a prospectus.
Consent to circulate a prospectus
Under the Companies (General Provisions) (Jersey) Order 2002, unless certain conditions are complied with:
- no person may circulate a prospectus in Jersey;
- no company may circulate a prospectus outside Jersey; and
- no company may procure the circulation of a prospectus outside Jersey.
The conditions that need to be complied with include obtaining the consent of the Jersey Companies Registrar to the circulation of the prospectus and the prospectus must also contain certain prescribed statements and information.
If a private company issues a prospectus, it will be treated under the 1991 Law as if it were a public company.
This would mean, for example, that the private company would have to have its accounts audited in accordance with the 1991 Law.
The 1991 Law contains a liability regime relating to prospectuses.
A person who acquires or agrees to acquire a security to which a prospectus relates and who suffers a loss as a result of the inclusion in the prospectus of a statement of a material fact which is untrue or misleading (or the omission from the prospectus of a statement of a material fact) may be entitled to compensation.
In the case of securities offered for subscription, the body corporate issuing the securities and each person who was a director of it when the prospectus was circulated are liable to pay such compensation.
If a Jersey private company files a prospectus with the Jersey Companies Registrar, this will cause the Takeover Code to apply to the Jersey private company if its place of central management and control is in the UK, the Channel Islands or the Isle of Man.
The new law
The Order introduces a new definition of prospectus.
In keeping with the previous definition, a prospectus is still defined to mean an invitation to the public to become a member of a company or to acquire or apply for any securities.
However, the new definition provides that an invitation will not be considered to be made to the public in a number of situations.
These exceptions include the following:
- the invitation is addressed to qualified investors (as defined) or professional investors (as defined) or both;
- the number of persons (other than qualified investors and professional investors) to whom the invitation is addressed does not exceed 50 in Jersey and 150 elsewhere;
- the minimum consideration which may be paid or given for securities to be acquired by a person is at least EUR 100,000 (or an equivalent amount in another currency); and
- the securities to be acquired or applied for are denominated in amounts of at least EUR 100,000 (or an equivalent amount in another currency).
These exceptions will provide a company with greater freedom to raise share capital without the need to comply with the regulatory regime that would otherwise apply to a formal prospectus.
In practice, the ability to circulate an invitation to no more than 150 persons outside of Jersey should be particularly helpful.
Where an invitation is made to persons located in a different jurisdiction, there will still be a need to comply with any prospectus and other applicable laws in that jurisdiction. However, the reform outlined above should be very helpful in ensuring that there is no unnecessary duplication under the Jersey prospectus regime.
In addition, the Order excludes the following from the prospectus regime:
- an invitation relating to scrip dividends (i.e. where a company allows existing shareholders to opt for additional shares as an alternative to a cash dividend); and
- an invitation relating to a scheme intended to facilitate or to encourage the holding of shares by or for the benefit of (amongst others) directors, employees and certain of their family members.
If you would like any further information, please get in touch with your usual Bedell Cristin contact or one of the contacts listed.