Tag: Jersey

Corporate Law

Jersey Company Mergers | Jersey | Parslows International

Jersey Company | Merger Regime

Mergers Parslows International

In 2011, the Companies (Amendment No. 5) (Jersey) Regulations replaced the pre-existing merger provisions contained within Jersey’s principal companies legislation, the Companies (Jersey) Law 1991 (“Companies Law”).

Those new provisions were introduced in order to modernise and extend the statutory basis for mergers involving Jersey incorporated companies. The hope was to provide a more flexible merger regime, while at the same time ensuring shareholder and creditor protections were maintained.

It introduced a statutory mechanism enabling the merger of Jersey companies with other Jersey incorporated entities (not being companies), and also with entities incorporated outside of Jersey.

Which entities can / cannot merge?

The Companies Law provides that only “relevant Jersey companies” are capable of mergers. It defines a “relevant Jersey company” as a Jersey incorporated company which is not:

• a cell company;
• a cell;
• a company with unlimited shares; or
• a company with guarantor members.

The Companies Law goes on to identify the types of entities with which a relevant Jersey company is capable of merging. In broad terms, that encompasses:

• another Jersey company;
• another Jersey incorporated body (if the Jersey legislation under which that body is formed allows that); or
• a foreign incorporated entity (say a foreign company or foundation) which under the laws of its existing jurisdiction is able to merge with a Jersey company.

The Companies Law empowers Jersey’s Chief Minister to designate “excluded bodies” – classes of foreign incorporated entities with which a Jersey company cannot merge.

Survivor Body / New Body

Whatever the nature of the entities involved in the merger, at the end of the process a single incorporated entity exists, being either a “survivor body” or a “new body”. It will be a survivor body if one of the merging bodies absorbs all the others and continues in existence after the merger. Alternatively, it will be a new body if all the merging entities cease to exist and are reconstituted as an entirely new legal entity.

The Companies Law envisages that a survivor body, or new body, can be:

• a Jersey company;
• a Jersey incorporated body (not being a company); or
• an overseas incorporated body (e.g. a foreign company or foundation).

Types of merger

The Jersey merger process is broadly similar in each case, but with some differing steps and complexity depending on whether the merger is:
• a cross-border merger (i.e. a merger that involves a Jersey company and an overseas body),
• a merger between two or more unrelated Jersey incorporated bodies; or
• an internal group merger of Jersey companies.

Merger process

The directors of each merging company must resolve to approve the merger and execute a solvency certificate confirming the company’s solvency. The persons selected as the directors / managers of the post-merger body also have to sign a solvency certificate.
Except in the case of an internal group merger, a written merger agreement will be required. It is that agreement which governs the terms of the merger. The merger agreement has to be approved by the members of each merging company.

Once the directors’ resolutions and solvency certificates have been concluded, the directors of each merging company must submit the merger agreement for approval by its members. The members’ approval must be by special resolution, and where a company has more than one class, by special resolution of each class.

Each merging company must also give written notice of the merger to each of its creditors having claims over £5,000. The Companies Law sets out specific time periods for obtaining member approval and for notifying creditors. As well as those individual creditor notices, advertised public notice of the proposed merger is required.

As a protection mechanism, the Companies Law confers on creditors and members the right to object to the merger by application to Jersey’s Royal Court.

Jersey Regulator / Companies Registrar approval

A cross-border merger requires the approval of Jersey’s financial services regulator (the Jersey Financial Services Commission). That approval must be at the level of the Commissioners themselves. In determining whether or not to approve the merger, the Commission must be satisfied that it would not be unfairly prejudicial to the interests of any creditor of any of the merging bodies and will also have regard to its wider remit of protecting Jersey’s reputation and interests. Various documents evidencing compliance with the statutory merger process, and the effect of the merger for the purposes of the other jurisdiction(s) involved, must be submitted to the Commission together with the merger application.

A merger between Jersey incorporated companies also involves an application process, albeit a simplified joint application by the merging companies to Jersey’s Companies Registrar.

Internal group mergers

The merger process is further simplified still where the merger is between Jersey companies in the same group. The board resolutions, solvency certificates, creditor notices and advertisement are still required; however, a formal written merger agreement is not. The shareholders can approve the merger simply by passing special resolutions to that effect. The Companies Law sets out a different merger mechanism / effect depending on whether the internal merger is a holding company merger or an inter-subsidiary merger – which also dictates the prescribed wording for the shareholder special resolutions approving the merger.

Insolvent merger

If any of the merging entities are insolvent, the Companies Law provides that the merger cannot proceed without permission of the Royal Court of Jersey. The Court will not permit the merger unless satisfied it would not be unfairly prejudicial to the interests of any creditor of any of the merging bodies.

Effect of merger

The effect of the merger for Jersey law purposes is that the merging entities continue as a single merged body. Any merging Jersey body that is not a survivor body ceases to be incorporated. Assets and liabilities of the merging companies transfer to the surviving or new corporate body so that:

• all property and rights to which each merging body was entitled immediately before the merger was completed become the property and rights of that merged body;
• it becomes subject to all criminal and civil liabilities, and all contracts, debts and other obligations, to which each of the merging bodies was subject immediately before the merger was completed; and
• all legal proceedings, which were pending by or against any of the merging bodies before the merger was completed, can be continued by or against the merged body.

Comment

A merger may be an attractive alternative restructuring tool as compared to a takeover or scheme of arrangement (mechanisms also provided for by the Companies Law). A merger does not require Court sanction as would a scheme of arrangement, and while, in the context of a takeover, squeeze out provisions under the Companies Law require 90% shareholder approval, a merger may proceed with the sanction of a two thirds majority. A merger may also present tax planning advantages as compared to a conventional company acquisition.

If you require any further information, advice or assistance please contact Mason Birbeck mason.birbeck@parslowsinternational.com

 

Corporate / M&A

 


Main Contact | Mason Birbeck

Corporate | Jersey


Please note that the information provided on this website is for general information purposes only and is designed to provide you with an outline of the legal services we offer.  Whilst we endeavour to ensure our information is correct and useful, we make no representations or warranties regarding the accuracy or completeness of the information offered.  Information on our website does not constitute legal advice and Parslows International accepts no liability for any loss or damage arising out of, or in connection with, the information found in this website.  Please consult a lawyer in the event that you require professional assurance that our information, and your interpretation of the same, is correct. 
Corporate Law

Company Demerger | Jersey | Parslows International

demerger regime Parslows International

Jersey Company | new demerger Regime

Following a period of consultation which closed early in the year, it is anticipated that the Companies (Demerger) (Jersey) Regulations will come into force later in 2018.

These regulations will introduce a new procedure for Jersey companies, allowing them to spin off or split up into two or more Jersey companies, with the original company’s property, rights and obligations being apportioned between them.

Will the demerger regime be available to all Jersey Companies?

Demerger will not be available to all Jersey companies.  Certain companies within Jersey’s regulated financial services sector will be excluded, and factors such as Jersey taxation status will preclude others from making use of the demerger provisions.

What will the demerger process be?

The process requires a demerger instrument which sets out the fundamental characteristics of the demerged companies following demerger.  Approval at board and shareholder level will be required, as will a confirmation of solvency from the board (a court sanctioned process will be available for insolvent companies).

Generally, a demerger will not require sanction by the Jersey courts.  It will however involve an application to Jersey’s Registrar of Companies and notification to Jersey’s tax authorities.

The regulations include measures aimed at protecting shareholders, creditors and employees.  Notice must be given to creditors and employees, and both shareholders and creditors are empowered to formally object to the demerger by way of a court application.  Continuity of employment is maintained by employment contracts being transferred to one of the demerged companies, subject to an employee’s right to object to the transfer.

Comment

It is anticipated that the new demerger rules will strengthen Jersey’s corporate law offering.  The ability to segregate a company’s business lines, assets and liabilities or effect a pre-sale restructuring utilising the new demerger process, (as an alternative to existing mechanisms such as a court sanctioned scheme of arrangement, liquidation or asset sale), will provide welcome flexibility and cost-efficiency.

If you require any further information, advice or assistance please contact Mason Birbeck mason.birbeck@parslowsinternational.com

Corporate / M&A

 


Main Contact | Mason Birbeck

Corporate | Jersey


Please note that the information provided on this website is for general information purposes only and is designed to provide you with an outline of the legal services we offer.  Whilst we endeavour to ensure our information is correct and useful, we make no representations or warranties regarding the accuracy or completeness of the information offered.  Information on our website does not constitute legal advice and Parslows International accepts no liability for any loss or damage arising out of, or in connection with, the information found in this website.  Please consult a lawyer in the event that you require professional assurance that our information, and your interpretation of the same, is correct. 
Commercial Property

Commercial Lease l Should I enter into a personal guarantee under a Jersey lease? | – Q&As

Guarantee | Parslows International

Commercial Lease l Should I enter into a personal guarantee under a Jersey lease?

As a Company Director am I obliged to give a personal guarantee?

It has become accepted practice in Jersey for Lessors to seek a personal guarantee from corporate tenants when entering into a commercial lease. While there is no lawful requirement for personal guarantees to be provided, the reality is that the provision of a lease without a personal guarantee is unlikely to be agreed.

Will I be released from my personal guarantee if I assign the lease to a new lessee?

Unless the Jersey lease specifically provides, there is no obligation on a lessor to release a guarantor.  When negotiating the terms of a lease, particularly a long lease, it is important to consider this (amongst other issues) and make sure you agree with the lessor to include a clause to release the personal guarantor on assignment.

Will I remain liable under a personal guarantee if the lease term is extended?

In general terms you cannot be bound by or liable under a Jersey lease unless you have executed it. If the term of the lease is extended and you as a guarantor had not agreed to do, then its liability may not extend to the renewed term of the lease.  However this is a general statement and you should always take legal advice on this point are there are exceptions to this general statement.

Can the Lessor choose whom to take action or does the Lessor have to action all the parties under the lease?

The Lessor under a standard Jersey guarantee will be entitled to choose whom to action.  It will come of no great surprise that the Lessor is likely to assess whom, out of the lessor and or guarantor, has the stronger asset position and take action accordingly.  Moreover if the Lessor actions, for example the guarantor, and finds there is a shortfall, the Lessor will thereafter be entitled to pursue the Lessee for the balance.

Comment

Great caution should always be taken when providing a personal guarantee under a lease (or otherwise).  If is not a document you should sign without legal advice.

If you require any further information, advice or assistance please contact our head of Commercial Property Carl Parslow at carl.parslow@parslowsinternational.com

 

Commercial Property


Main Contact | Carl Parslow

Head | Commercial Property 


Please note that the information provided on this website is for general information purposes only and is designed to provide you with an outline of the legal services we offer.  Whilst we endeavour to ensure our information is correct and useful, we make no representations or warranties regarding the accuracy or completeness of the information offered.  Information on our website does not constitute legal advice and Parslows International accepts no liability for any loss or damage arising out of, or in connection with, the information found in this website.  Please consult a lawyer in the event that you require professional assurance that our information, and your interpretation of the same, is correct. 
Commercial Property

Trials and Tribulations of Exercising a Break Clause in a Commercial Lease

Break Clause Parslows International Trials and Tribulations of Exercising a Break Clause in a Commercial Lease

It is not uncommon for a commercial lease to contain a break clause in favour of the lessee. However such a break clause will often be drafted conditional upon certain events.  The most common being that the lessee will have paid the rents reserved, observed and performed the lessee’s covenants and provided vacant possession.

Lessee’s should always be wary and not underestimate the strict nature of a break clause.  Courts will strictly construe a break clause and any conditions attached to it.

An example of the break clause being considered was the English case of Avocet Industrial Estates LLP –v- Merol and another (2011).  There are numerous other examples. Here the English High Court found that the lessee owed interest of around £130 due to occasional late payment of rental.  The court found the lessee to be in default of the terms of the lease and therefore the lessee’s break notice was invalid. The level of interest involved was relatively small, the lessor had not issued a demand for the interest and the Lessor had not utilised a rent deposit that it was also holding by way of security for non-payment of rent.

Whilst there is a Code for Leasing Business Premises in England and Wales 2007 which includes recommendations as to preconditions as to a break clause, these are not compulsory. In Jersey there is no such code.  The contractual terms will determine the relationship.  It is therefore important to consider taking appropriate legal advice.

Considerations

  • If a break clause is to be included in the lease take legal advice to ensure that the terms are fully understood and reasonable
  • If you decide to exercise the break clause you must pay close attention to all the requirements of the clause, including the formal requirements, and follow them precisely.
  • If you are considering exercising a break clause take early advice before you give notice to ensure you haven’t missed anything.

Otherwise you may find the break clause is not valid and that you are contractually obliged to the lease for the remainder of the term.

If you require any further information, advice or assistance please contact our head of Commercial Property Carl Parslow at carl.parslow@parslowsinternational.com

Commercial Property

 


Main Contact: Carl Parslow

Head | Commercial Property 


Please note that the information provided on this website is for general information purposes only and is designed to provide you with an outline of the legal services we offer.  Whilst we endeavour to ensure our information is correct and useful, we make no representations or warranties regarding the accuracy or completeness of the information offered.  Information on our website does not constitute legal advice and Parslows accepts no liability for any loss or damage arising out of, or in connection with, the information found in this website.  Please consult a lawyer in the event that you require professional assurance that our information, and your interpretation of the same, is correct. 

 

Corporate Law

Company Reinstatement | Jersey | Parslows International

Company Reinstatement 


Company reinstatement | Jersey | Parslows InternationalDissolution

Jersey companies can be dissolved either through

(a) formal procedures contained in the Companies (Jersey) Law 1991 (the “Companies Law”) or the Bankruptcy (Désastre) (Jersey) Law 1990 which laws provide for the solvent and insolvent winding up of Jersey companies or

(b) being “struck off” under the provisions of Article 205 of the Companies Law as a result of a failure to submit the annual fee and file the annual return to the Registrar of Companies (the “Registrar”) in Jersey.

If the Registrar has not received the necessary payment/annual return filing by the end of February in each year following the incorporation of the company, then a notice will be sent to the registered office of that company and if there is continued non-compliance for a further period of three months then, at the end of that period, the company will be “struck-off” the Register of Companies pursuant to Article 205 of the Companies Law (a gazette notice is subsequently published in Jersey disclosing these companies).

Company Reinstatement

It is recognised that there will be circumstances when it is necessary for an interested party to seek a company reinstatement of a dissolved Jersey company which is provided for by Article 213 of the Companies Law.

Examples of situations that give rise to an application under Article 213 are as follows:-

(a) as a result of the company being inadvertently “struck-off” (often because the company administrators have not been provided with funding for the annual fee in good time);or

(b) on discovery of further assets owned by a company that was dissolved under a solvent winding-up procedure (a summary winding -up) under the Companies Law; or

(c) on an application of a creditor of a company that has been dissolved where it is perceived that property is held by that company and available to satisfy the claim.

Application

Pursuant to Article 213 of the Companies Law, the Royal Court may declare the dissolution void and order that the company be reinstated.

Who may apply?

The liquidator of the company as well as “any other person appearing to the court to be interested” may make an application for reinstatement. Both shareholders and creditors of the company would be interested parties under Article 213.

Preparation for application for Company Reinstatement

The applicant will firstly need to contact the Jersey Financial Services Commission (the “JFSC”), advising of the intention to seek reinstatement of the company and to confirm whether the JFSC has any objection to the application.

In order for the JFSC to consider the matter and confirm that it has no objection to the application, it will request, amongst other things, the following:-

(a) a draft of the Representation (a form of court pleading and further details of which

are explained below);

(b) in the case of an application made by a shareholder/beneficial owner of the company, a signed letter of confirmation by the beneficial owner confirming certain matters in relation to the company, including any change in its beneficial ownership together with submission of all annual returns of the company that should have been filed but for the dissolution of the company together with outstanding annual filing fees and fines; and

(c) payment of the prescribed fee for the JFSC’s consideration of the application.

The applicant will also require confirmation from the Comptroller of Tax that he has no objection to the application. If there are Tax liabilities owed by the company, then they will have to be satisfied before the Comptroller will provide his confirmation that he has no objections to the reinstatement.

Where the applicant is a creditor, the JFSC will require an undertaking over the discharge of its fees and costs from the creditor and the Comptroller of Income Tax will need to be contacted in order that any tax claims against the company are considered as part of the approval process for the application.

Representation to the Royal Court for Company Reinstatement

Following approval by the JFSC, the ‘Representation’ is filed by the ‘Representor’ (or on its behalf by its legal advisers) with the Judicial Greffe (the administrative arm of the court) for consideration by the Royal Court in relation to company reinstatement.

The Representation must include:-

(a) details of how the company came to be dissolved;

(b) why it is now needed to be reinstated; and

(c) information concerning the current activities of the company (if any).

The Representation must be accompanied by copy letters received by the applicants from the Income Tax Department and the JFSC confirming that they have no objection to the application (see above).

The application does not require an appearance before the Royal Court. However, it should be noted, the resulting “Act of Court” is a public document that may include detailed information in respect of the beneficial ownership of the company.

Effect

The reinstatement will come into effect on the date that the Act of Court is issued by the Royal Court. However, the Representor must send a copy of the Act of Court to the Registrar for registration by the Registrar within 14 days, otherwise the

Representor will be guilty of an offence.

Upon the issuing of the Act of Court, the dissolution of the company will be declared void.

Power of the Court to make additional orders

The Court has the power to include in the Act of Court such orders, give such directions and make such provisions as seem just for placing the company and all other persons in the same position as nearly as may be as if the company had not been dissolved.

Limitation Period

Article 213(1) of the Companies Law provides that the application must be brought within a 10-year limitation period commencing from the date when the company was dissolved. The result is that there is an absolute bar on the reinstatement of the company after this time.

Comment

Great caution should always be taken when providing a personal guarantee under a lease (or otherwise).  If is not a document you should sign without legal advice.

If you require any further information, advice or assistance please contact Mason Birbeck mason.birbeck@parslowsinternational.com

Company Reinstatement | Jersey


Main Contact | Mason Birbeck

 

 


 

Please note that the information provided on this website is for general information purposes only and is designed to provide you with an outline of the legal services we offer.  Whilst we endeavour to ensure our information is correct and useful, we make no representations or warranties regarding the accuracy or completeness of the information offered.  Information on our website does not constitute legal advice and Parslows International accepts no liability for any loss or damage arising out of, or in connection with, the information found in this website.  Please consult a lawyer in the event that you require professional assurance that our information, and your interpretation of the same, is correct. 
Corporate Law

Directors’ Duties Under Jersey Law

Directors duties Parslows InternationalJersey Directors Duties  | A brief guide

The general statement of  directors duties in  is set out in Article 74(1) of the Companies (Jersey) Law 1991. It is set out in two parts and states:

‘A director, in exercising the director’s powers and discharging the directors duties, shall:

  1. a) act honestly and in good faith with a view to the best interests of the company; and
  2. b) exercise the care, diligence and skill that a reasonably prudent person wold exercise in comparable circumstances.’

There have been numerous decisions of the courts which elaborate on these general statements and as such it is important to consider key aspects of the case law when explaining the scope and nature of such Jersey director duties.

Acting honestly and in good faith with a view to the best interests of the company

In order to understand this aspect of directors duties, it is necessary to define what is meant by the best interests of the company. Companies are comprised of shareholders, directors, employees and agents and these respective groups’ interests may conflict and compete over time. The guiding principle is generally taken from the English authority Gaiman v National Association of Medical Health [1971] Ch 317 (England and Wales), which states that when acting, directors should consider the future of the company and balance any short-term benefits against the long-term interests of present as well as prospective members as a whole. Put more simply, a director should consider the collective interests of present and potential future shareholders in the company.

As regards whether any act is itself in the best interests of the company, the key authority is the English case of Charterbridge Corporation v Lloyds [1970] Ch 62. The court held that what is in the best interests of the company is that which an intelligent and honest person in the position of a director would believe to be for the benefit of the company (taking into account all the circumstances in relation to the relevant transaction).

It should also be noted that all the acts of the director must be intra vires. Essentially, this means that a director must exercise the powers available to them for the purposes for which they were intended. This stands even if the director feels that the relevant act would benefit the company. The powers of a director must always be used to benefit the company, fulfil its objectives or be used in a manner that is reasonably incidental to the business.

Further, directors should be aware that their duty to the company persists post-resignation in certain circumstances. Should a director, who has resigned from a company, use knowledge gained from his prior position for personal enrichment, he may be called to account for this benefit to the company of which he was a director.

Exercising the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances

The director must not only act honestly and in good faith, but must also exercise the care, diligence and skill of a reasonably prudent person. Historically the test was simply that as set out in the statute, which effectively set a very low bar. An illustration of this is provided in the case of Re Brazilian Rubber Plantations [1911] 1 Ch 425. There were three directors of the company, one who was deaf, one who knew nothing of the relevant business, and a third who liked the other two directors and took up the position as a favour. None of them was held accountable for the subsequent failure of the company.

That original test remained until as recently as 1989 until the decision in Dorchester Finance v Stebbings and Others [1989] BCLC 498. A group of non-executive directors delegated the management of the company to an executive director and provided pre-signed cheques for his use. Following the misuse of company funds, all directors were sued and each of the non-executive directors was held liable for negligence. The court altered the relevant test and declared that from that point on directors must show such skill and care as may be reasonably expected from persons of their knowledge and experience, take such care as an ordinary person might be expected to in the conduct of their own affairs, and exercise any and all powers in good faith in the best interests of the company. The courts can therefore consider the particular skills and experience of a director in considering whether or not the duty has been met.

Breaches of duty

Should the actions of a director be in breach of their directors duties, they may be liable for any losses incurred and be required to compensate the company. Should such a transaction personally benefit the director, it may be made void.

If a director is intending to or performs an act and is concerned of committing a breach, Article 74(2) of the Companies Law may provide some protection. If all of the members of the company (including those who hold shares which typically carry no voting rights) authorise or ratify the act or omission of the director, the offending act is no longer a breach of the duty, provided that the company will still be able to discharge its liabilities as they fall due. It should be noted that full disclosure of the relevant act or omission is essential for any such ratification to be valid.

Conclusion

It is essential that directors always keep the duty to the company in mind and that they are upfront in declaring any interests they may have in transactions to ensure that their duty is not breached. If a director is ever concerned about the consequences of any act, they should seek guidance notwithstanding the possibility of a retrospective ratification of their decisions.

If you require any further information, advice or assistance please contact Mason Birbeck at mason.birbeck@parslowsinternational.com

Corporate / M&A


Main Contact|  David Hill

Head |  Corporate/M&A


Please note that the information provided on this website is for general information purposes only and is designed to provide you with an outline of the legal services we offer.  Whilst we endeavour to ensure our information is correct and useful, we make no representations or warranties regarding the accuracy or completeness of the information offered.  Information on our website does not constitute legal advice and Parslows Jersey accepts no liability for any loss or damage arising out of, or in connection with, the information found in this website.  Please consult a lawyer in the event that you require professional assurance that our information, and your interpretation of the same, is correct. 
Trust Foundations & Private Client

Trust Investment – Lessons Learned In Hard Times (2)

Trust Investment – Lessons Learned In Hard Times (2)

The recent global economic crisis proved a catalyst for breach of trust actions inter alia involving trust investment, with beneficiaries asserting that trust losses resulted from trustees’ negligence. How can the trustees of a Jersey proper law trust guard against such claims?Trust investment Parslows International

The starting point must be to understand the scope of a trustee’s powers and duties with respect to the trust assets and trust investment.

The Trusts (Jersey) Law 1984, as amended (the “Trusts Law”), gives trustees broad powers to deal with trust property and with trust investment; all the same powers as a natural person acting as beneficial owner of that property.

That legislation recognises that not every settlor will want the trustees to have such broad discretion, so trustees’ powers to deal with trust property are made subject to the terms of the trust.  Save in the case of reserved powers trusts, most modern discretionary trusts do vest trustees with very broad powers to administer the trust assets.

With power comes responsibility, and a trustee’s freedom to deal with trust assets and trust investment is made subject to irreducible duties that the legislation imposes on trustees.  A trustee must act with due diligence, as would a prudent person, to the best of his ability and skill, and observe the utmost good faith.

The Trusts Law also provides, that subject to the trust terms, a trustee shall, so far as reasonable, preserve and enhance the value of the Trust Fund. It is, however, common for trust instruments to expressly exclude these obligations.

In relation to a trustee’s investment duty, the English Court of Appeal judgment in the case of Learoyd v Whitely (1887) 12 AC 727 considered that such duty “is not to take such care only as a prudent man would take if he had only himself to consider; the duty rather is to take such care as an ordinary prudent man would take if he were minded to make an investment for the benefit of other people for whom he felt morally bound to provide.”  That is an old English case, but likely to resonate in the approach of the Jersey courts.

An appropriate investment strategy is fundamental to ensuring that the trustee meets the high standard expected.  The settlor’s rationale for establishing the trust will inform that strategy, and it must be formulated having regard to the powers conferred, and duties imposed, upon the trustee by the Trusts Law and the trust terms.

The Trusts Law does not impose an obligation on trustees to diversify trust assets, however, it may well be difficult to reconcile losses caused by lack of diversification with the fundamental obligation of prudence to which trustees must adhere.

Case authority recognises that diversification can afford protection.  In the English case of Nestle v National Westminster Bank (1996) 10(4) TLI 112 the court advocated the principle that trustee investment performance should be assessed by reference to the risk level of the entire portfolio, rather than the risk attaching to each investment in isolation.

Trustees must also consider whether they possess the necessary skills to enable them to manage the trust assets effectively.  The Jersey courts are likely to apply the general principle set out in the English case Cowan and others v Scargill and others [1985] 1 Ch 270.  Namely, if trustees do not possess the requisite expertise, then it is their duty to seek investment advice, and to act on that advice with the same degree of prudence as is imposed on them in relation to trust investments.

The Trusts Law requires that trustees only delegate their powers to investment managers whom they consider to be competent and qualified.  It also acknowledges that trustees who delegate in good faith and without neglect should not be liable for losses arising due to that delegation.

Devising a creditable investment strategy will be inadequate of itself.  Ongoing monitoring of investments and delegates is essential.  Regular reviews and reports will alert the trustees when underperformance needs to be addressed.

Being aware of investment powers and duties, formulating an appropriately diversified investment strategy, with appropriate delegation and ongoing performance monitoring, can guard against claims against trustees if investments do not perform.

For further information contact Mason Birbeck on 00 44 1534 630530 or email mason.birbeck@parslowsinternational.com

Trusts, Foundations & Private Wealth


Main Contact: Mason Birbeck

Head | Trusts & Private Wealth


Please note that the information provided on this website is for general information purposes only and is designed to provide you with an outline of the legal services we offer.  Whilst we endeavour to ensure our information is correct and useful, we make no representations or warranties regarding the accuracy or completeness of the information offered.  Information on our website does not constitute legal advice and Parslows International accepts no liability for any loss or damage arising out of, or in connection with, the information found in this website.  Please consult a lawyer in the event that you require professional assurance that our information, and your interpretation of the same, is correct. 
Trust Foundations & Private Client

Trust Investment – Lessons Learned In Hard Times (1)

Trust Beneficiaries Parslows InternationalTrust Investment – Lessons Learned In Hard Times (1)

In the Matter of the Y Trust | Beneficiaries

When one considers at first glance the trust arrangement in relation inter alia beneficiaries that the Royal Court was being asked to sanction, it is unsurprising that it identified this as an “unusual application”.

The proposal put to the Court would see trust powers exercised so as to exclude minor beneficiaries whom one might otherwise have anticipated would benefit, for the purpose of enabling the remaining adult beneficiaries to terminate the trust and apply a large proportion of the trust assets in favour of a person expressly excluded from benefit by any exercise of the trustees’ powers.

The application was brought by the trustee of a Jersey discretionary trust caught in the midst of protracted U.S. divorce proceedings.

The children and grandchildren of the husband and wife were beneficiaries of the trust, as was the wife.  The husband’s sister and her grandchildren were also beneficiaries.

As “Appointor” and “Guardian”, (functions provided for in the trust terms), the husband had inadvertently become an “Excluded Person”, and consequently unable to benefit directly or indirectly in any manner from the exercise of any powers vested in the trustee.

As a consequence of the matrimonial proceedings and disputes relating to the trust, the trust fund had, since 2012, effectively been frozen.  The husband and wife had finally agreed to settle, with a divorce hearing imminent, lending urgency to the trustee’s application to the Jersey court.

The divorce settlement, (supported by all the adult beneficiaries), anticipated the termination of the trust, with the bulk of the trust assets being apportioned equally between the husband and wife, and the remainder distributed to their children.

The adult beneficiaries recognised that, in giving effect to the divorce settlement, the trustee would be distributing trust property in the knowledge that the husband, as an Excluded Person, would benefit, and that this could carry some residual exposure for the trustee.

They, therefore, proposed that the class of beneficiaries of the Trust be closed and limited to themselves, enabling them to exercise the power under Article 43(3) of the Trusts (Jersey) Law 1984, whereby all the beneficiaries of a trust acting together can terminate a trust.

As a first step, this would require the Trustee to vary the trust terms to remove certain beneficiaries, extend the class of Excluded Persons, and release its power to add beneficiaries.

The proposal had been formulated specifically to remove any risk to the trustee and so recognised a potential conflict for the trustee, between its personal interests and its duties as trustee.  Accordingly, the arrangement also anticipated that the trustee would apply to surrender its discretion to the Court.

The Court considered whether or not the exercise of the trustee’s powers as proposed would constitute a “fraud on a power”, an exercise for the impermissible purpose of benefiting a non-beneficiary.  It referred to the following passage from the practitioners’ text, Lewin on Trusts:

It is open to an appointee, moreover, to apply the property appointed as he wishes and in particular to apply it in favour of persons who are not objects of the power.  An exercise of a power is not vitiated merely because the donee [of a power] is aware that the proposed appointee intends to do so, nor even if there is an arrangement that the appointee should do so, as long as the donee’s purpose in making the appointment is the benefit of the appointee and not the benefit of those who are not objects.”.

On the question of excluding a beneficiary, the Court held that it is incumbent on the trustee to consider the position very carefully, to take into account the position of the person to be excluded and whether therefore it is reasonable in the interests of the other beneficiaries.

The Court acknowledged that the proposal was not intended to defeat the grandchildren’s interests.  On the contrary, it was framed so that new arrangements could be made for their protection into the future.

The Court was of the view that the primary purpose of the proposal was to benefit the wife and the children, albeit the husband would also indirectly benefit, and was therefore satisfied that the proposal would not amount to a fraud on the relevant powers.

The Court identified that a surrender of discretion should be regarded as a last resort, and considered whether or not the trustee should instead be making the “momentous” decisions itself, and only asking for the Court’s blessing in that regard.

However, the Court accepted that, in this case, the trustee seeking the Court’s blessing to a “momentous” decision presented a difficulty.  The relevant test required the Court to be satisfied that the trustee’s decision had not been vitiated by potential conflict of interest, and the proposal recognised that the trustee did have a conflict.

Accordingly, the Court accepted the surrender and directed the exercise of the trustee’s powers so as to give effect to the proposal.

The Court’s judgment does not appear to address whether or not there is any essential difference in character between the exercise of trust powers facilitating, on the one hand, incidental benefit to a person who is simply outside the class of beneficiaries and, on the other hand, such an exercise of powers which benefits a person who, by the trust terms, is expressly excluded from benefitting by any exercise of the trustees’ powers.

The case with which the Court drew an analogy, In re X Trust [2002] JLR 377, involved incidental benefit to a person outside the class of beneficiaries.  However, there is no suggestion in that judgment that the non-beneficiary was expressly excluded from benefit.  Neither is that distinction addressed by the passage in Lewin to which the Court referred.

The Court acknowledged that the application was an unusual one, so perhaps its decision should not be regarded as establishing any general principle.  It does, however, suggests that provided a trustee’s purpose in exercising its powers is to benefit a beneficiary, such exercise of powers will not necessarily be vitiated only because an excluded person receive an incidental benefit as a result.

For further information contact Mason Birbeck on 00 44 1534 630530 or email mason.birbeck@parslowsinternational.com

Trusts, Foundations & Private Wealth


Main Contact: Mason Birbeck

Head | Trusts & Private Wealth


Please note that the information provided on this website is for general information purposes only and is designed to provide you with an outline of the legal services we offer.  Whilst we endeavour to ensure our information is correct and useful, we make no representations or warranties regarding the accuracy or completeness of the information offered.  Information on our website does not constitute legal advice and Parslows International accepts no liability for any loss or damage arising out of, or in connection with, the information found in this website.  Please consult a lawyer in the event that you require professional assurance that our information, and your interpretation of the same, is correct. 
Trust Foundations & Private Client

Which Territory’s Laws Apply When Problems Occur with Cross Jurisdictional Trust to Trust Transfers?

Cross Jurisdictional Trust Transfers

cross jurisdictional trust transfersThe recent judgment by Jersey’s Royal Court in the case of Representation of Schroder Cayman Bank and Trust Co Ltd contains interesting commentary on cross jurisdictional trust transfers regarding the  recognition of foreign judgments in the context of dispositions of assets between Jersey trusts and trusts governed by the laws of other jurisdictions, and the interaction of conflicts of law principles with Article 9 of the Trusts (Jersey) law 1984.

It also highlights the importance of including express governing law clauses in instruments appointing assets between trusts established in different jurisdictions.

The case involved the validity of appointments made in 2011 from a Cayman law governed discretionary trust to three separate and substantially identical Jersey law governed discretionary trusts, all having the same trustee.  The Jersey trusts had been established, following tax advice, specifically to receive those appointments from the Cayman trust.

All three appointments were flawed in two key respects.  Firstly, they purported to benefit a class wider than that permitted under the appointing Cayman trust.  Secondly, they were predicated on the mistaken belief that the beneficial class of each of the recipient Jersey trusts was identical to that of the appointing Cayman trust, and that making the appointments would not give rise to a charge to UK IHT.

On application by the trustee, the Cayman Court had ruled that the appointments to the Jersey trusts were void on the ground of excessive execution (as the trustee was not empowered to appoint assets to a trust having a wider class of beneficiaries than that expressed in the Cayman trust).  The Cayman Court made it clear that, had it found the appointments valid, it would in any event have been willing to set them aside on the ground of mistake.

On the basis that the trustee was, by the time of the Cayman Court’s ruling, supposedly holding the appointed assets as part of the trust funds of the Jersey trusts, it subsequently sought a declaration by Jersey’s Royal Court that the Cayman Court was the proper forum for determining the validity of the appointments, and that accordingly the Royal Court should give effect to the Cayman Court’s ruling that the assets being the subject of the purported appointments should be returned to the Cayman trust.

The starting point for the Royal Court was therefore the question of which jurisdiction’s laws should be applied.

The court referred to Article 9 of the Trust (Jersey) Law 1984.  Article 9(1) sets out a list of trust related matters which fall to be determined by Jersey law without reference to foreign law.  This includes any question concerning the validity or effect of any transfer or other disposition of property to a trust.  Article 9 goes on to provide that the law of Jersey relating to conflicts of law shall not apply to the determination of any question concerning those matters listed in Article 9(1).

However, Article 9(2A)(c) caveats that prescriptive requirement have regard only to the domestic law of Jersey.  It provides that this applies subject to any express proviso to the contrary in the terms of the trust or disposition.

With regard to that, the Royal Court determined that it was sufficient for the disposition to simply state expressly that it is governed by a law other than that of Jersey.  It was not necessary for it to go further and also state expressly that the disposition’s validity is governed by that other law.

However, the Court did identify that an express choice of governing law was required.  If the disposition was silent, that would not oust the application of Article 9(1), and the proper law would in that case fall to be determined in accordance with Jersey law, by reference to its closest connection or by implication.

Applying that to the appointments from the Cayman trust to the three Jersey trusts, the Court’s conclusion was that the express governing law provision in the appointments meant that the validity of the dispositions they purported to effect fell to be determined in accordance with the law of the Cayman Islands.

The Court went on to consider the appropriate order it should make, distinguishing enforcement and recognition of foreign judgments.  The Court identified that the applicable conflicts of law principles were more limiting in terms of the Court’s ability to enforce cross jurisdictional trust transfers as compared to merely recognising them.

While not ruling out the possibility that it could have enforced the Cayman Court’s judgment, the Court was satisfied that the trustee’s application was properly categorised as a case of recognition and, as there was no restriction on the type of judgment that could be recognised, that the Cayman Court’s judgement could be properly recognised in Jersey.

For further information contact Mason Birbeck on 00 44 1534 630530 or email mason.birbeck@parslowsinternational.com

Trusts, Foundations & Private Wealth


Main Contact: Mason Birbeck

Head | Trusts & Private Wealth

 


Please note that the information provided on this website is for general information purposes only and is designed to provide you with an outline of the legal services we offer.  Whilst we endeavour to ensure our information is correct and useful, we make no representations or warranties regarding the accuracy or completeness of the information offered.  Information on our website does not constitute legal advice and Parslows International accepts no liability for any loss or damage arising out of, or in connection with, the information found in this website.  Please consult a lawyer in the event that you require professional assurance that our information, and your interpretation of the same, is correct. 

Cross Border & International Transactions, Trust Foundations & Private Client

4MLD Money Laundering – Still Some Uncertainty!

beneficial ownership

Beneficial ownership registers

The final text of the Fourth Anti-Money Laundering Directive was agreed by the Council of Ministers and EU Parliamentary committee on 27 January 2015.  It is anticipated that the full Parliament will adopt it into law within the next few months.  Member States will then have two years to transpose the Directive into domestic legislation.

But for one unexpected amendment introduced into the draft Directive by the EU Parliament in 2014, the finance industry might have regarded its adoption with the limited interest afforded to many a fourth sequel namely beneficial ownership registers.

In most respects the anti-money laundering measures that 4MLD will require EU Member States to implement will be entirely familiar to anyone involved in financial services locally.

It introduces the concept of a “risk-based” approach, an obligation on businesses to maintain comprehensive due diligence on their clients / customers, and make that available to competent government authorities and investigatory bodies.  Jersey’s AML regime has of course mandated equivalent measures for a number of years.

However, the EU Parliament’s amendment called for the implementation of a pan-European central register of companies, trusts and similar legal arrangements detailing their beneficial ownership, which would be freely accessible to the public at large.

Concerns were voiced internationally as to the disproportionate effect on legitimate privacy and confidentiality of financial structures.  The Council of Ministers itself did not favour public registers.

Inevitably, the Directive’s final text reflects a compromise reached by the EU’s Council, Commission and Parliament.

Each Member State will be obliged to create a central register of companies, other legal entities and trusts.  However, only trusts that “generate tax consequences” need to be registered.

Beneficial ownership registers not open to general public

These registers will not be open to the public at large.  They will be accessible to the Member State’s competent authorities and investigatory bodies, as well as  “obliged entities” (e.g. banks) in the context of fulfilling client due diligence.  Company (but not trusts) registers will also be accessible to persons that can demonstrate “a legitimate interest”, but in a manner consistent with data protection rules.

Who exactly can demonstrate a “legitimate interest” remains undefined.  EU press releases suggest this would include investigative journalists and NGOs.  In what circumstances a trust will “generate tax consequences” is also unclear.  So, even now, some ambiguity remains with this controversial aspect of 4MLD.

Locally, the Chief Minister’s Department pointed out that Jersey is not bound to adopt 4MLD.  However, it seems likely that both the UK and EU will place pressure on Jersey to conform.  David Cameron’s open letter last year encouraging the Crown Dependencies to implement company registers of the type proposed by separate UK legislation is a case in point.

The stance taken by the Chief Minister’s Department is that Jersey’s existing AML regime already conforms to the spirit of 4MLD in any event.  The JFSC maintains central register of company beneficial ownership, (though this may need to be supplemented by an ongoing duty on service providers to ensure information held by the JFSC on their client companies remains up to date).  Local service providers are also obliged to maintain comprehensive records on persons connected to the trusts they administer.

So will it be business as usual for Jersey’s AML regime?  That probably depends on those remaining ambiguities inherent to 4MLD.  If the scope of persons who can demonstrate “a legitimate interest” is narrowly defined and balanced with data protection rights, and (as the Chief Minister’s Department assumes will be the case), the register of trusts need only include trusts which generate tax consequences domestic to the jurisdiction, then complying with 4MLD should have little material impact.

The nature and extent of the central registers contemplated by the Directive may well evolve further over time.  4MLD tasks the Commission with preparing a report on achieving interconnection of each Member State’s registers.  So, ultimately, it appears that automatic pan-European access remains the EU’s longer-term goal.

For further information contact Mason Birbeck on 00 44 1534 630530 or email mason.birbeck@parslowsinternational.com

Trusts, Foundations & Private Wealth

Main Contact: Mason Birbeck

Head | Trusts & Private Wealth

 


Please note that the information provided on this website is for general information purposes only and is designed to provide you with an outline of the legal services we offer.  Whilst we endeavour to ensure our information is correct and useful, we make no representations or warranties regarding the accuracy or completeness of the information offered.  Information on our website does not constitute legal advice and Parslows International accepts no liability for any loss or damage arising out of, or in connection with, the information found in this website.  Please consult a lawyer in the event that you require professional assurance that our information, and your interpretation of the same, is correct.