Demergers have been introduced in Jersey with the aim of facilitating corporate restructuring. A company may wish to use the demerger regime if, for example, it only wishes to sell off part of its business. The demerger allows the company to effectively transfer assets and liabilities into a separate company which would then form the target entity for a purchaser.
The new demerger regime
This regime applies to Jersey companies wishing to demerge into two or more companies. When demerging, there may be a 'survivor' company (company A in the picture) or alternatively, the original company ceases and new companies are formed (companies B and C in the picture).
Eligibility
Some companies are not eligible to become a demerged company. This includes companies that:
- are under investigation in relation to an offence
- have been charged with an offence and against which there is a criminal prosecution pending
- are cell companies or cells, unlimited companies or guarantee companies
- are registered under the Banking Business (Jersey) Law 1991 or a permit holder within the meaning of the Insurance Business (Jersey) Law 1996
- are defined with specific reference to the Income Tax (Jersey) Law 1961 Law in Regulation 2 such as financial services companies, utility companies, etc. (hence the requirement for a declaration of eligibility to be made to the Comptroller of Taxes before a demerger is approved).
Necessary documentation
You need to file the following:
- copy of the demerger instrument
- copies of the proposed memorandum and articles of association of any demerged company which is a new company
- any proposed amendments to the current memorandum and articles of association of the demerging company if it is to become a survivor company after the demerger
- a statement of solvency and/or a court order.
- The directors of the demerging company must pass a resolution that the demerger is in the best interests of the demerging company.
- The directors of the demerging company who vote for the resolution and the proposed directors of each demerged company, must make statutory solvency statements in connection with the solvency status of the demerging company up to completion of the demerger and the solvency status of the demerged companies for a 12 month period following completion of the demerger, respectively, which must include the grounds for making the statement.
- If the directors and proposed directors are unable to properly make the required solvency statements, a demerger will require the approval of the court, which has implications on the process. The court approval process is set out in Regulation 9 of the Companies (Demerger) (Jersey) Regulations 2018. The directors must instead sign a certificate confirming that he or she is satisfied on reasonable grounds that there is a reasonable prospect of obtaining the permission of the court under Regulation 9 and setting out the grounds for the statement.
- Proof that notice was given of a meeting(s) to approve a demerger
- Special resolution(s) passed and filed with registrar within 21 days
- Proof that declaration of eligibility made to Comptroller of Taxes, in the form of a certificate showing lodgement number
- Certificate signed by the directors who signed a Regulation 4(5) certificate confirming that the requirements of the Regulations have been met and where a solvency statement has been made that there has been no material change to the position stated in the solvency statement
- All new companies formed to submit to the Registrar of Companies a completed C2A or C2B form (as applicable).
The Registrar cannot complete the demerger until all shareholder applications objecting to the demerger have been disposed of and all creditor objections and objection application periods have expired.
The demerger takes effect when all necessary registrations have been made on the public register by the Registrar of Companies.
Demerger instrument
The following information must be contained in a demerger instrument:
- the terms and means of effecting the demerger
- details of the proposed demerging company, including:
- whether or not it is to be a survivor company
- the names and addresses of the persons who are the directors of the demerging company
- details of any arrangements necessary to complete the demerger
- details of any payment proposed to be made to a member or director of the demerging company
- in relation to any securities of a demerging company:
- if the securities are to be converted into securities of a demerged company, the manner in which that conversion is to be done
- otherwise, the kind of the payment that the holders of any securities in the demerging company are to receive instead of the securities of a demerged company and the manner in which and the time at which they are to receive it.
Licences held by the demerging company
A licence held by a demerging company shall not be transferred to a demerged company on completion of the demerger unless with the permission of the authority that granted the licence ("licence" includes an authorization, a certificate, a consent, a permit, a registration or any other permission. See Regulation 13).
Offences
The offences are set out in Regulation 16. An offence will be committed where a person knowingly or recklessly provides to the registrar or the Comptroller:
- any information which is false, misleading or deceptive in a material particular
- any document containing any information which is false, misleading or deceptive in a material particular.
A person shall not sign a certificate without having reasonable grounds for the opinion expressed in the certificate or for the statement made in the certificate.
A person who contravenes these provisions shall be guilty of an offence and liable to imprisonment for a term of two years and a fine.