Jersey Company | Merger Regime
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.
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.
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.
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 firstname.lastname@example.org