Several changes to company law in Guernsey will provide new opportunities for those using the island as a centre for international business.
Incorporation in Guernsey is effected by registering the company's memorandum and articles of association with the States of Guernsey Greffe (public records office) following an application to the Royal Court to form a company. The companies are incorporated under the provisions of the Companies (Guernsey) Law 1994.
Changes to the Companies (Guernsey) Law 1994 are being introduced by two provisions:
the Companies (Amendment) (Guernsey) Law 1996; and
the Companies (Enabling Provisions) (Guernsey) Law 1996.
Both provisions have been enacted. But they are being brought into effect at different times.
The Companies (Amendment) (Guernsey) Law 1996 was brought into effect on 1 March this year. It contains a number of measures designed to assist the operation of companies in Guernsey while ensuring that the directors of the company and other individuals responsible for the running of the company are properly accountable for their actions.
Also being introduced is a concept known as companies limited by guarantee.
Subject to the approval of the detailed measure by the States of Deliberation in Guernsey it will be possible for companies to be incorporated in the island that are either wholly or partly limited by guarantee.
As with other companies it will be necessary to obtain the consent of the Advisory and Finance Committee of the States of Guernsey before incorporating a company limited by guarantee. In practice this authority will be delegated to the Financial Services Commission.
Any company formed in Guernsey that is limited by guarantee, regardless of whether it has any share capital, will have to include the words Limited by Guarantee, or LBG, in its name.
The Companies (Enabling Provisions) (Guernsey) Law 1996 provides for a further measure to be introduced permitting a Guernsey company to transfer its place of registration to another jurisdiction or for a company incorporated elsewhere to transfer to the Guernsey register of companies.
The migration of a company in this way will be permitted only if adequate steps have been taken to safeguard the interests of the company's creditors.
Merger relief is another issue being addressed.
Guernsey company law currently provides that where a company issues shares at a premium, whether for cash or otherwise, a sum equal to the premium must be credited to the company's share premium account. It is common accounting practice not to recognise such a premium where it arises as the result of one company acquiring another, in the course of a merger or as the result of an internal group reorganisation. Changes are to be made to clarify that this treatment is acceptable for companies registered in Guernsey.
The treatment will be available when a Guernsey company issues shares in consideration for acquiring 90 per cent or more of the equity of another company or when it issues shares to another group member in consideration for acquiring assets from its holding company or one of its holding company's other subsidiaries.
There are also changes on the rules governing amalgamations. At present, companies wishing to merge can do so under Guernsey company law only if one of the companies concerned acquires the shares of the other and then arranges for the business and assets of the acquired company to be transferred to it.
Under the proposed change it will be possible for two or more companies simply to amalgamate, either into one of the existing companies or into a new company. Shares of any company ceasing to exist will either have to convert into shares of the surviving or new company or will have to be cancelled.
The legislation will provide for the protection of existing shareholders and creditors of companies involved, and there will be a simplified method of amalgamating companies that are members of the same group of companies. Approval will be required from the Guernsey Financial Services Commission if any of the companies involved are subject to regulation in Guernsey.
It will not be necessary for the companies concerned to be registered in Guernsey. Thus subject to the company law considerations elsewhere it will be possible for companies incorporated elsewhere to amalgamate in this way.
Shares in companies registered in Guernsey currently have to have a nominal or par value. Under the proposed change, qualifying companies will be able to issue shares that have no nominal or par value.
The change is directed principally at companies established as collective investment schemes. It will enable collective investment schemes established as companies to issue a single class of redeemable share capital rather than having to operate such companies through the issue of management, nominal and redeemable preference shares. Approval for both the issue of no par shares and the terms on which they are issued will be required from the Guernsey Financial Services Commission.
Further changes to company law in Guernsey are planned. In particular a provision allowing companies to repurchase their own shares is likely to be introduced. Further revision of the company law is likely to follow so that Guernsey continues to offer a modern company law which is both helpful to the promoters of the companies and protective of the interests of shareholders and creditors.