This content is from: Local Insights

Jersey

Changes are proposed to Jersey's companies and bankruptcy laws to introduce protected cell companies (PCCs) into Jersey law and to streamline local solvency test provisions. The Economic Development Committee of the Island of Jersey, a leading offshore finance centre, has issued a consultation paper on the proposed amendments.

The proposals are supported by the local finance industry, which has kept a close eye on the development of PCCs (companies with an umbrella structure of separate cells in which assets of one cell can be ring-fenced from the liabilities of other cells) in other jurisdictions. In particular, the draft Jersey provisions include several features designed to enhance the equivalent existing legislation of the nearby island of Guernsey, which already permits these vehicles. One important change will be to enable cells to have separate legal personality. This can be an advantage, especially when dealing with jurisdictions that do not themselves have PCCs. In addition, on the insolvency of a cell, the only assets available to settle the creditors' claims will be the assets comprised within that cell; single cells can be the subject of a winding-up while the PCC as a whole can continue. Separate boards of directors are required for each cell of the PCC (although different cells may have the same individuals serving as directors).

PCCs have obvious advantages for use, for example, by multi-strategy investment funds, which are a big part of the Jersey industry, which is becoming increasingly popular for real estate and private equity funds and other alternative investment funds, including hedge funds. It is expected, assuming the draft law is adopted, that PCCs will become a popular tool for the funds industry.

The existing solvency test provisions (which apply in relation to a financial assistance whitewash, to authorize a breach of directors' duties, to declare certain dividends and to make certain redemptions or share purchases) will be replaced with a simpler cashflow-based solvency test. Where redemptions (or share purchases) are being considered, directors will also need to confirm that they have considered the company's prospects as well as its present position.

The overall theme of the proposed amendments is that, subject to appropriate creditor protection, Jersey companies should have greater flexibility in establishment and operation.

Jersey has established a reputation as a leading well-regulated jurisdiction and is seeking to ensure that the legislation evolves in line with client demand to support more diverse and complex investment structures.

Jersey is politically and economically stable and, although it is geographically and politically proximate to the UK and Europe, it is not part of the European Community and not required to implement EU directives. Coupled with its tax neutrality, robust legal and regulatory regime and quality service providers locally, Jersey has established a reputation as a leading offshore financial centre.

Another example of Jersey's increased flexibility is the introduction in 2004 by the Jersey Financial Services Commission of the expert funds regime, which was designed to fast track the local regulatory approval process for specialist alternative investment funds (including hedge funds). Jersey now has a regime that will enable it to compete with the leading jurisdictions in this field by providing a regulatory regime that is less intrusive and less expensive.

The draft legislation on PCCs and the new solvency test was produced after a lengthy consultation period within industry and it is expected to go before local government in February 2005.

Natalie Sullivan

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