The Companies (Amendment No. 5) (Jersey) Regulations 2011 came into force on 23 February.
These regulations contain provisions enabling cross-border mergers between Jersey companies and foreign body corporates.
Before Amendment No. 5 came into force, it was only possible to merge a Jersey company with another Jersey company. Although it was possible indirectly to merge a Jersey company with a foreign company, by first bringing them into the same jurisdiction, this procedure is more cumbersome, time consuming and costly than a direct merger process.
To ensure that Jersey’s company law remains competitive, Amendment No. 5 amended part 18B of the Companies (Jersey) Law 1991 so as to permit cross-border mergers of Jersey companies with any other body corporate, wherever incorporated. This includes foreign companies, foreign incorporated bodies and also bodies incorporated in Jersey which are not companies, such as foundations. The resulting merged body will be either a survivor body (one of the existing merged bodies, which absorbs the others) or a new body created by the merger.
With more and more business being conducted across national borders, there has been a growing demand for Jersey companies to be able to merge directly with foreign companies. Merging with a Jersey company will allow foreign body corporates to benefit from the tax neutrality of Jersey and the flexibility of its companies law.
The following is a summary of the key aspects of the process required under Jersey law to achieve a cross-border merger.
The directors of each merging company will be required to pass a resolution (and sign a certificate) stating their belief that the merger is in the best interests of their company and that they are satisfied on reasonable grounds that their company will remain solvent until the merger, or that otherwise they will be able to obtain the court’s permission for the merger on the basis that no creditor will be prejudiced.
In addition, each director voting in favour of such a resolution and each proposed director of the merged company will need to sign a further certificate stating that in their opinion the merged company will be able to continue to carry on business and discharge its liabilities as they fall due for a period of 12 months after the date of the merger.
The new provisions will also enable a merger to take place in circumstances where, although the merged entity will be solvent, one or more of the merging entities will not meet the test for a solvency statement before the merger.
However, the merger can only take place if the company without the solvency statement applies to a court, and the court decides to permit the merger on the basis that it will not be prejudicial to any creditor of any of the merging entities.
This will ensure that companies with significant assets that are temporarily experiencing cash flow difficulties are not unduly excluded from being able to merge, if a merger would be in the interests of all concerned.
The passing of a special resolution of the members of the merging companies will also be necessary. It is a requirement that notice of the meeting at which the special resolution is to be tabled shall be accompanied by (i) a copy or summary of the merger agreement; (ii) a copy or summary of the proposed constitutional documents for the merged body; (iii) the aforementioned directors certificate; (iv) a statement of the material interests in the merger of the directors of each merging body; (v) such further information as a member would reasonably require to reach an informed decision on the merger; and (vi) notice of the members’ right to apply to court for relief against unfair prejudice to their interests.
Notice to creditors
No later than 28 days after a merger has been approved by the shareholders, a notice must be published in the Jersey Evening Post newspaper and sent to each creditor of the company that has a claim against the company exceeding £5,000 (US$8,000). This notice must state that the company intends to merge, and that any creditor will have the right within 28 days after the date of publication of the advertisement to apply to the court to restrain the merger.
Application for consent
It is proposed that a cross-border merger will also require the consent of the Jersey Financial Services Commission, which will be required to consider the interests of the members, any creditors, the public and the reputation of Jersey.
In considering the application, the commission would require sufficient information in order to make a decision, which would include a copy of the merger agreement, the special resolutions and director certificates, and information about the effectiveness of the merger under the law of any overseas jurisdiction involved.
The commission has the power to reject an application, and impose conditions on any grounds including unfair prejudice to creditors, undesirability of the merger and procedural failures. An applicant can appeal to the Royal Court against a rejection or a condition on the ground that the decision was unreasonable.
Where the resulting merged body is to be resident in Jersey and has Jersey-resident shareholders, the Comptroller of Income Tax has indicated that he would welcome applications from advisers prior to the completion of the merger to determine (1) the tax treatment of profits arising in the pre-merged bodies and (2) the treatment of such profits in the hands of Jersey resident shareholders following the merger.
Where the resulting merged body is to be tax-resident in another jurisdiction, tax advice in that jurisdiction would need to be sought.
Daniel Walker is an English solicitor at Voisin
Jersey JE1 1AW
Tel: +44 1534 500300
Fax: +44 1534 500350