Jersey: Asset Holding Company Regime – A Jersey Perspective
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The UK’s new Asset Holding Company (AHC) regime is due to come into force in April 2022. This is part of a wider set of UK Government initiatives aimed at delivering positive outcomes for the financial sector and improving the competitiveness of the UK as a location for asset management and for investment funds.
Although the driving force behind this scheme is to promote the UK, it should be noted that to qualify as an AHC a company need not be a UK incorporated company. To qualify as an AHC a company must (amongst a number of other conditions) be tax resident in the UK, but it can be a company registered in Jersey.
We therefore expect funds and managers to continue to use Jersey incorporated companies for their AHCs under this regime with the following benefits:
- Knowledge and reputation of Jersey as a jurisdiction
- Jersey company law flexibility
- Benefits on an outing
FAMILIARITY AND REPUTATION OF JERSEY AS A JURISDICTION
Jersey enjoys an excellent reputation as a well-regulated and transparent international financial centre. It has strong anti-money laundering laws and has concluded more than 30 tax information exchange agreements based on the OECD model.
In addition, Jersey has a world-class professional infrastructure with numerous law and accounting firms and business service providers. Investors will find that they receive solid and timely advice based on a high degree of expertise and deep and extensive experience.
Most major financial institutions in the UK, US and EU (including clearing banks and alternative lenders (such as funds)) are familiar with Jersey structures, which means that the Involvement of Jersey entities would not be a hurdle to overcome in obtaining credit approval for financing. .
The Security Interests (Jersey) Act 2012 (SIL) creates a modern and effective security regime for the creation of security interests in present and future intangible assets in Jersey. Security can easily be taken, by means of a Jersey law surety agreement, on (among other things):
- bank accounts maintained in Jersey;
- shares in a company registered in Jersey;
- units of a Jersey real estate unitary trust; and
- interests in a Jersey limited partnership.
SIL also makes available broad enforcement powers that provide lenders with a number of options in the event of default in financing agreements (including both the power of sale and the power to take).
FLEXIBILITY OF JERSEY COMPANY LAW
Jersey company law is very closely aligned with English company law and so there is a sense of familiarity in incorporating a Jersey company and when navigating the legal framework for Jersey incorporated entities.
However, there are some key differences which can provide a number of advantages, namely:
- a Jersey company may make distributions based on a forward looking cash flow solvency analysis and is not limited to making distributions out of accrued profits. This allows a Jersey company to continue to make distributions even when it has not yet accrued profits or has accrued losses;
- similarly, shares of a Jersey company may be redeemed or redeemed from any company account (including most capital accounts) based on a prospective cash flow solvency analysis (in the form of a statement of solvency prescribed by the directors) from the date payment for the shares is offered;
- the shares may be denominated in any currency, which may be different from the functional currency used in the accounts of the company;
- Jersey law allows companies to issue shares with or without par value. No par value company can offer additional flexibility if needed (such as converting shares into different classes);
- capital contributions – where shareholder contributions can be credited to share premium or stated capital accounts without the issuance of additional shares – are permitted;
- there are no restrictions under Jersey law on financial assistance in connection with the acquisition of shares in a Jersey company; and
- only public companies (or companies considered by law to be public companies) are required to draw up audited accounts, unless the statutes provide otherwise. In addition, private companies are not required to file their accounts publicly.
ADVANTAGES ON A TRIP
There is no stamp duty payable on a transfer of shares in a Jersey company and no stamp duty is payable on redemptions of shares and loan capital. This is broader relief than that currently offered under the AHC scheme.
As a further alternative to a traditional sale or transfer of shares, Jersey also has a statutory merger and division regime. Jersey companies may merge with one or more other companies (which need not be other Jersey incorporated companies) to form a successor company. In addition, the division regime, introduced in 2018, provides flexibility on how the assets and liabilities (and therefore the final structure) of the company concerned should be treated during the division. It should be noted that the flexibility offered by the scheme allows shareholders to be cashed in and can therefore be used as a means to facilitate takeovers etc.
Businesses are also allowed to continue (otherwise known as migration or redomicile) to and from Jersey while retaining their business existence. As the UK government is currently considering whether or not to allow companies to continue operating in the UK, this could create an additional element of flexibility.
As part of an IPO, a Jersey company may also issue non-certified securities which can be traded electronically via CREST on exchanges that use this system (such as the LSE Main Market and AIM). With the exception of UK domestic companies, there are more companies incorporated in Jersey trading on LSE and AIM than in any other jurisdiction. Jersey companies may qualify for inclusion in the FTSE indices.
Jersey companies have always been a popular vehicle for acquisition and investment structures in relation to UK property and other assets. For the reasons set out above, the use of Jersey companies is only expected to increase under the AHC regime.
The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.
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