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PRESENTED BY
Company Law Update14 September 2016
Adrian Sarchet
INTRODUCTION
Introductory remarks based on ‘The Undertaker of Panama’ by Marcus Killick OBE in the September 2016 Issue of the IFC Journal
OVERVIEW
1. Company law legislation which has been introduced between 8 September 2015 and now.
2. The implications of the Companies (Transitional Provisions) Regulations coming to an end.
3. Practical lessons from the Royal Court Judgment on Bordeaux’s Arch Cru appeal.
4. The Register of Beneficial Ownership.
1. NEW COMPANY LAW LEGISLATION
1(1) The Companies (Registrar) (Fees) Regulations, 2015.
1(2) The Amalgamation and Migration of Companies (Fees payable to the Guernsey Financial Services Commission) (Amendment) Regulations, 2015.
1(4) The Companies (Recognition of Auditors) (Amendment) Regulations, 2016 which came into force on the 7th of April 2016.
1(5) The Companies (Guernsey) Law, 2008 (Amendment of Part XVIA) Regulations, 2016 which came into force on the 17th June 2016.
1(3) The Companies (Registrar) (Credit Arrangements) Regulations, 2015.
1. NEW COMPANY LAW LEGISLATION
1(6) The old definition of "market traded company" covered every company the transferable securities of which are admitted to trading on a regulated market, but does not include a company that is an issuer exclusively of debt securities admitted to trading on a regulated market the denomination per unit of which is at least €50,000 (or currency equivalent).
1(7) The new definition of "market traded company" covers every company the transferable securities of which are admitted to trading on a regulated market, but does not include: » a company which is an issuer exclusively of debt securities admitted to
trading on a regulated market the denomination per unit of which is, at the date of issue:• in the case of debt securities admitted to trading on a regulated market
prior to 31 December, at least €50,000 (or currency equivalent);• in the case of debt securities admitted to trading on a regulated market
on or from 31 December, at least €100,000 (or currency equivalent); or» a company which is an open-ended investment company.
1. NEW COMPANY LAW LEGISLATION
1(8) The Companies (Treasury Shares) Regulations, 2016 and the Companies (Treasury Shares) (Amendment) Regulations, 2016 which both came into force on 22 July 2016.
Before its amendment, section 327 of the Companies Law provided that:
“the number of shares of any class held as treasury shares must not at any time exceed 10% (or such other percentage as may be prescribed by the Commerce & Employment Department) of the total number of issued shares of that class at that time.”
“at least one non-redeemable share in the company…must be held by a person other than the company.”
Before its amendment, section 327 of the Companies Law provided that:
“the number of shares of any class held as treasury shares must not at any time exceed 100% (or such other percentage as may be prescribed by the Commerce & Employment Department) of the total number of issued shares of that class at that time.”
“at least one share in the company…must be held by a person other than the company.”
2(A). TRANSITIONAL PROVISIONS
2(A)(1) Radical Reform of Company Law in 2008
2(A)(3) Breathing Space
2(A)(4) The key elements of these Transitional Provisions were sections 2 and 3, which provided that where a Guernsey company's memorandum or articles were valid under the 1994 Law but would be rendered invalid under the 2008 Law, such provisions would continue to be valid, notwithstanding the provisions of the 2008 Law, until the deadline set out in the Transitional Provisions.
2(A)(2) “Capital Maintenance Model” to “Solvency Model”
2(B). CATEGORISATION OF AFFECTED COMPANIES
2(B)(1) Firstly, companies incorporated under the 1994 Law whose memoranda and articles (“Mem & Arts”) have not been updated to take account of the 2008 Law ("Category 1 Companies");
2(B)(3) Thirdly, companies incorporated under the 2008 Law, but before September 2015 ("Category 3 Companies"); and
2(B)(4) Fourthly, companies incorporated under the 2008 Law, during or after September 2015 ("Category 4 Companies").
2(B)(2) Secondly, companies incorporated under the 1994 Law whose Mem & Arts have been updated to take account of the 2008 Law, but before September 2015 ("Category 2 Companies");
2(B)(1). CATEGORY 1 COMPANIES
The main (this is not an exhaustive list) areas of concern for Category 1 Companies are:
the issuance of shares; the payment of dividends; the objects of the company; directors' indemnification; and changes to the practice and procedure for holding corporate meetings.
2(B)(2)&(3). CATEGORY 2 AND 3 COMPANIES
The main (this is not an exhaustive list) areas of concern for Category 2 Companies and Category 3 Companies arising out of the Amendment Ordinance are:
the simplification of the original 2008 Law power to issue shares; the simplification of the directors' disclosures requirements; the clarification of the secretaries' duties provisions; and the shortening of the notice periods when sending notices to shareholders.
2(B)(4). CATEGORY 4 COMPANIES
Should not need to amend their Mem & Arts.
2(B)(5). The $64,000 Question
“Do I have to amend the memorandum and articles before 30 December 2016?”
3(A). ARCH CRU – THE COMMISSION’S DECISION
3(A)(1) The Commission imposed financial penalties of: £150,000 on Bordeaux; £50,000 on Mr. Radford; £30,000 on Mr. Meader; and £30,000 on Mr. Tostevin.
3(A)(2) The Commission's criticism was grouped under 11 headings, namely those on the slide: conflicts of interest; calculation of net asset values and notification to the CISX; NAV methodology; compliance with fund documentation; record keeping; payment of fees; board minutes; deficiencies in compliance function; client take-on procedures; anti-money laundering awareness; and staff training deficiencies.
3(A)(2) The Commission's criticism was grouped under 11 headings, namely those on the slide: conflicts of interest; calculation of net asset values and notification to the CISX; NAV methodology; compliance with fund documentation; record keeping; payment of fees; board minutes; deficiencies in compliance function; client take-on procedures; anti-money laundering awareness; and staff training deficiencies.
3(B). BOARD MINUTES (ARCH CRU OVERVIEW)
3(B)1 In relation to board minutes the Commission's decision notice said the following: "As company secretary to the Fund, one of Bordeaux’s responsibilities was to create and
maintain minutes of meetings of the Fund boards. A review of the minutes kept by Bordeaux has shown that they are perfunctory in their nature considering the number and depth of issues discussed.
Minutes should be an accurate and clear record of the discussion and decisions made at a meeting. Mr Meader understood that the corporate secretarial department of Bordeaux was “very poor”. This should have prompted the Bordeaux Directors to take action to remediate this failing. During the Relevant Period, the board was responsible for ensuring compliance with Principle 9 of the FNCC Rules which states that a licensee should be controlled and organised in a responsible manner so as to keep proper records, it is clear that this was not the case with Bordeaux.
Mr Meader confirmed during a compelled interview that Bordeaux used template minutes for meetings in relation to listing of cells on the CISX rather than minuting the discussion that had taken place. There is no evidence that Mr Meader, as a director of Bordeaux, queried or challenged this procedure for drafting minutes ahead of meetings. Mr Tostevin was not aware that minutes were being produced in respect of meetings that had not taken place.
As a result of the failure, the records of the company would not have been accurate and complete and represented a misleading record of affairs. The conduct of the Board of Bordeaux demonstrates a failure to understand the requirement to keep full, proper and not misleading records in respect of the controlled investment business undertaken".
3(B). BOARD MINUTES(ARCH CRU OVERVIEW)
3(B)2 The judgment of the Royal Court at paragraph 55 provides said:■ "The final matter addressed in the findings of the Senior Decision Maker to which Advocate
Edwards objected is at para. 171. It relates to Board minutes. In his submission, it is common practice for there to be template minutes used. This was something to which Mr Meader had referred (as recorded in para. 168). This reality should have been taken into account by the GFSC.";
■ "I acknowledge that companies will often use templates and that prepared draft minutes can be used.";
■ "However, there was also evidence referred to that some meetings were apparently minuted by a person not actually in attendance. In those circumstances, I reject the submission that the finding at para. 171 was one that could not be made and consider that the Senior Decision Maker was justified in concluding that “the records of the company would not have been accurate and represented a misleading record of affairs”, with the result that “The conduct of the Board of Bordeaux demonstrates a failure to understand the requirement to keep full, proper and not misleading records in respect of the controlled investment business undertaken."
3(C). CONFLICTS OF INTEREST (ARCH CRU OVERVIEW)
3(C)(1) In relation to conflicts of interest the Commission's decision notice said the following: "Any properly organised entity operating a business of financial services should ensure
that there were procedures for dealing with conflicts of interest. Bordeaux should have done so and the Bordeaux Directors should have ensured that it did. It is no answer to this criticism to rely upon the Articles of Association or any Investment Management Agreement. There was no evidence that the Bordeaux Directors managed a conflict of interest appropriately within the Fund structure."; and
"In failing to put in place and implement procedures for dealing with conflicts of interest Bordeaux acted in breach of paragraph 2(1) of Schedule 4 of the Protection of Investors Law under which Bordeaux was required to carry on business with prudence and integrity and with professional skill appropriate to the nature and scale of its activities".
3(C)(2) The Royal Court said that: "On the basis that any failure to manage conflicts of interest that were acknowledged as
being likely to exist, … is going to result in a finding of non-fulfilment of the minimum licensing criteria, it follows that multiple failings are likely to be regarded as making the non-fulfilment worse"; and
"Accordingly, I cannot quibble at the conclusion of the Senior Decision Maker that "These were serious failings"".
3(C). CONFLICTS OF INTEREST - COMMON LAW
3(C)(3) Phipps v Boardman [1967]: "The fundamental rule of equity [is] that a person in a fiduciary capacity must not make a profit
out of his trust which is part of the wider rule that a trustee must not place himself in a position where his duty and his interest may conflict".
3(C)(4) Two Strands: The “no conflict rule”; and The “no profit” rule.
3(C)(5) They do not apply where the company gave its “informed” consent.
3(C). CONFLICTS OF INTEREST – EVOLUTION OF THE ARTICLES AND THE COMPANIES LAW
3(C)(6) "A Director must, immediately after becoming aware of the fact that he is interested in a transaction or proposed transaction with the Company, disclose to the Directors the nature and extent of that interest, in each case unless the transaction or proposed transaction is between the Director and the Company, and is to be entered into in the ordinary course of the Company's business and on usual terms and conditions".
3(C)(7) "Subject to the provisions of the Law, and provided that he has disclosed to the other Directors in accordance with the Law the nature and extent of any material interest of his, a Director notwithstanding his office shall not by reason of his office, be accountable to the Company for any benefit which he derives from any such office or employment or from any such transaction or arrangement or from any interest in any such body corporate and no such transaction or arrangement shall be liable to be avoided on the ground of any such interest or benefit“.
3(C). CONFLICTS OF INTEREST – RISKS FOR THE INDEPENDENT DIRECTORS
3(C)(8) The potential risk to the Independent Directors is that, in the fullness of time, they could be found to have breached their duty to act in the best interest of the company, by either: failing to ensure that they had sufficient information from the Conflicted Director on
which to grant "informed" consent; or failing to put in place appropriate safeguards to deal with the conflict.
3(C). CONFLICTS OF INTEREST – WHAT SHOULD THE CONFLICTED DIRECTOR DISCLOSE
3(C)(9) Section 162(1) of the Companies Law requires the disclosure of "… the nature and extent of his interest".
3(C)(10) In Gwembe Valley Developments Co Ltd v Koshy [1998] 2 BCLC 613, Mr. Justice Harman said that disclosure had to be "… clear and precise …" and that the conveying of "… a general understanding …" was not adequate disclosure;
3(C)(11) In Motivex Ltd v Bulfield [1988] BCLC 104, Mr. Justice Vinelott said that the disclosure must be such that the other director or directors can see "… what his interest is and how far it goes".
3(C). CONFLICTS OF INTEREST – SO WHAT SAFEGUARDS SHOULD THE INDEPENDENT DIRECTORS PUT IN PLACE?
3(C)(11) For the purposes of this example we have: a Guernsey company; with a number of minority shareholders; and a majority shareholder who was also a director and the major player behind the
structure (we'll call him "Mr. Major Player"); Mr. Major Player approaches the Independent Directors with a fait accomplit for them
to approve; the fait accomplit is that:
– he has obtained valuable I.P. Rights to a revolutionary new web-based product delivery platform;
– a corporate financier has valued these I.P. Rights at £750 million and has produced a formal valuation; and
– the company is to buy the I.P Rights off Mr. Major Player in consideration for the issuance of £750 million of shares in the company.
Mr. Major Player declares his interest in the transaction and demands to be part of the board meeting approving the transaction (which is permitted by the Articles and the Companies Law).
4. COMPANY LAW INITIATIVES - THE REGISTER OF BENEFICIAL OWNERSHIP
4(3) Response to consultation requested by Friday 8 July 2016.
4(4) Exchange of Notes with UK signed on Tuesday 12 July 2016.
4(5) Formal declaration of commitment to G5 initiative on Thursday 14 July.
4(1) The legal background to Guernsey's requirement for a Register of Beneficial Ownership is based on: the Financial Action Task Force's "International Standards on Combating Money
Laundering and the Financing of Terrorism“; and The Fourth Money Laundering Directive (EU 2015/849) ("MLD4").
4(2) The critical points arising from Article 9 of MLD4 are that: in order to protect the proper functioning of the internal market, the European
Commission is to identify third-country jurisdictions (such as Guernsey) that have "strategic deficiencies" in their national AML/CFT regimes that pose significant threats to the EU financial system;
such third countries will be "blacklisted" (i.e. prevented market access) by the European Commission; and
The Member States of the European Union are required to bring MLD4 into force by 26 June 2017.
4. COMPANY LAW INITIATIVES - THE REGISTER OF BENEFICIAL OWNERSHIP
4(6) The Technical Protocol provides for the following: Guernsey will establish and maintain a "Central Guernsey Database of Beneficial
Ownership";
the Guernsey Database will contain adequate, accurate and current beneficial ownership information on "corporate and legal entities" incorporated in Guernsey;
the Guernsey Database will be held electronically and will be searchable by both name of corporate and legal entity and name of individual;
United Kingdom law enforcement authorities will be able to request from the Guernsey law enforcement authorities all of their adequate, accurate and current beneficial ownership information contained by the Guernsey Database;
the designated point of contact will provide the information sought within 24 hours, unless urgent, in which case it will provide the information within 1 hour;
the designated point of contact will be permanently staffed – 24/7 365 days a year;
4. COMPANY LAW INITIATIVES - THE REGISTER OF BENEFICIAL OWNERSHIP
Members of the designated point of contact will have full authority to respond to requests for information and will not be required to seek any further authorisation or confirmation that they may respond;
Information supplied through the designated point of contact to law enforcement authorities in accordance with the terms of the Protocol may be disclosed by law enforcement authorities in accordance with applicable legal provisions; and
These arrangements will come into effect no later than 30 June 2017.
COMPANY LAW INITIATIVES - THE REGISTER OF BENEFICIAL OWNERSHIP
No. Function Guernsey UK1. Are all formation
agents regulated?Yes No (NB they should be registered with HMRC, but HMRC does not
publish a list, so no-one ever knows whether an agent is registered)
2. AML CDD is verified?
Yes No
3. Register is of beneficial owners?
Yes No (NB Register of Persons with "Significant Control")
4. Entities covered? Companies, Limited Partnerships, LLPs, Foundations
Companies, LLPs and Societates Europaeae (NB Limited Partnerships not covered)
5. Identifies beneficial owners of trusts?
Yes No (NB unless the beneficiary has "significant control", the applicable test identifies the shareholders of a corporate trustee)
6. Required to report changes within 14 days?
Yes No (NB changes have to reported annually)
7. Is the system policed?
Yes (via the Commission's regulation of fiduciary licensees)
No (critics say there is no money to police the system)
This presentation is intended for educational purposes only, is not for circulation and does not constitute legal advice. Legal advice should be sought for specific queries or circumstances.
© Copyright 2014
CONTACT DETAILSADRIAN SARCHETSenior Associate, Carey Olsen T 01481 741514E [email protected]
Cutting edge technology with historic integrity
ICSA Presentation
September 2016
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Team Update
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• Team Details:– Alan Bougourd– Helen Proudlove-Gains– Joe Le Page– Dave Adams– Rachel Renouf– Stella Harris– Alison Le Page– Liz Hodder
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Registry Statistics
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1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Q2
14500
15000
15500
16000
16500
17000
17500
18000
18500
Limited companies register size
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Registry Statistics
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2011 2012 2013 2014 2015 2016 Q20
200
400
600
800
1000
1200
1400
1600
1800
2000
Limited partnerships register size
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Registry Statistics• LLPs
61 on the register since its introduction in May 2014 – recent addition of a number of local law firms
• Foundations56 on the register since its introduction in January 2013
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Company Law Amendments
• Reminder on the expiration of transitional provisions will be included once again in our Annual Update
• Still to come Who can incorporate a companyAwaiting response to the P&R
consultation
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Fee Regulations
• the Companies (Registrar) (Fees) Regulations, 2015
• the Amalgamation and Migration of Companies (Fees payable to the Guernsey Financial Services Commission) (Amendment) Regulations, 2015
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Initiatives• Company Formation Agents Directory
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Registry Updates
• Alternative Names
– Not being used– Can only be used for foreign character
names
– Validate does not check whether the name is available
39
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Company Annual Validation 2017
• Classification Check• Annual Validation fee for 2017 remains
unchanged• 31 October – Voluntary Strike Off
deadline• 1 November – AV form in draft• 1 December – Voluntary Liquidation • 1 January 2017 – AV submissions
accepted40
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System Enhancements• Reminder of some of the features
recently introduced – Data Download – suggestions for improvement– Ability to change PINs– My Registry Relationships– Mac compatibility – Automated email alerts – LLPs & Foundations searchable on greg.gg
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Computer Says No!• Restorations• Change Name Submissions• Voluntary liquidations – Make the right
submission– The need for at least one director
• Company name on incorporation– Prohibited names– Font & upper and lower case requirements
• Registered Office – Can’t Backdate– PO Box and PO Box postcode– CSPs – list of entities with a specific registered
office 42
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The Companies (Registrar) (Credit Arrangements) Regulations, 2015
• Registry Account Balances– Appreciate account holders signing the
new Credit Policy• Unfortunately need to emphasise the need
to pay accounts in full each month• Potential for accounts to be blocked and
interest charged43
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• Beneficial Ownership
– Awaiting the Policy Paper on the consultation
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Limited Partnerships
• As mentioned last year the plan is still to bring in Modernised Legislation
• Likely to include a re-registration exercise c.100 will disappear
• Registration will be on-line• Will move AV to middle of Year
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Intellectual PropertyRegistered Rights – as at August 2016
No on registerTrade Marks 4864Patents 138Image Rights 63
Designs 8• Unregistered Rights• Copyright• Commercial Group
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IP Consultations• We have recently consulted on a number
of changes to improve the IP Regime in Guernsey
• International Agreements remain a key objective – and we have an active Plan to develop the required legislation
47
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• Guernsey Finance Funding Levy– Reminder for current and new licenses
will be sent in December 2016– Levy submission should be made
between 1 and 31 January 2017 – There is no change to the levy charge or
the FTE cap in 2017 • £80 per FTE & cap of 150
48
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Charities and Not for Profit
• Looking to reduce duplication of effort across different legislation
• Working closely with Policy Council and Association of Guernsey Charities to enhance the regime to better suit Guernsey’s needs
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Here For You• Guernsey Registry wants to be your
first choice Registry– We are developing a Marketing Strategy to
promote our services– We believe we are missing opportunities to
cross-sell !– Does your company protect its IP? – Have you registered your trade mark?– Registry training sessions
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Thankyou
• Thanks to the User Group– We welcome feedback
• Any Questions?
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