Companies
Redomiciling: Jersey holding companies
Mourant explains the options open to boards considering relocating group holding companies
A number of UK multinationals have in the past year relocated their headquarters offshore, in most cases to Ireland. All of the recent redomiciliations (also known as migrations or inversions) have involved the insertion of a listed Jersey holding company at the head of the relevant group.
We advised Experian, Shire, WPP, Regus and Charter on their redomiciliations and this briefing examines the reason why Jersey has become the jurisdiction of choice. The start of the redomiciliations In June 2007, the UK government announced that it proposed to revisit the way in which the foreign profits of UK companies would be taxed. The proposals were perceived to be considerably wider in scope and more complex that the existing CFC regime and were unpopular in the business community.
At the same time other jurisdictions, such as Ireland and Luxembourg, have developed tax regimes which offer much greater stability and certainty, as well as a lower headline rate of tax, for multinational groups with a UK holding company.
The UK government has in its July 2008 and September 2008 updates backtracked from its June 2007 proposals, but great uncertainty still remains. It is this uncertainty which has caused redomiciliation to be mooted as a possibility for an increasing number of UK multinationals.
Procedure
Each redomiciliation involves a scheme of arrangement under Part 26 of the Companies Act 2006, pursuant to which a new Jersey holding company (Newco) is inserted above the existed holding company. Shareholders in the former holding company receive shares in Newco and those shares are admitted to trading on the London Stock
Exchange (LSE).
The principal public documents to be prepared for the redomiciliation are therefore a scheme circular (relating to the scheme of arrangement) and a prospectus (relating to
the admission of the new shares).
Redomiciliation tax issues
It is critical to ensure that Newco is not tax resident in the UK and that, therefore, it is centrally managed and controlled outside the UK - usually in Ireland. This usually means that:
(a) all Newco board meetings must be held outside the UK;
(b) directors not attending meetings in person must participate from outside the UK; and (c) all matters of policy and strategy should be decided upon at board meetings.
It is important to ensure there are no adverse tax effects for Newco’s shareholders arising from the redomiciliation itself. A key issue here is the tax treatment of dividends
and in the redomiciliations of Shire, Experian, WPP, Charter and Regus a “dividend access scheme” has been established under which shareholders may elect to receive
their dividends from a UK tax resident subsidiary of Newco, rather then from Newco itself.
Why Jersey?
There are a number of reasons why companies such as Shire, Regus, Charter, WPP and Experian chose a Jersey company as their holding company.
Tax
In most cases Newco will be deemed to be not resident in Jersey for tax purposes, and so is outside the Jersey “tax net”. Even if Newco were deemed to be tax resident in
Jersey, it should be taxed at 0%. No withholdings on account of tax will be made by the
Jersey company when paying dividends or when paying interest on loans.
No stamp duty on share transfers
No stamp duty is payable in Jersey on the transfer of shares in Newco.
Takeover Code
The Takeover Code applies to Jersey companies in the same manner as it does to UK companies.
FTSE 100/250 index
A Jersey company is eligible for inclusion on the FTSE 100/250 index.
UK as home member state
As Newco is a non-EU issuer for the purposes of the Listing, Prospectus, Disclosure and Transparency Rules, it may elect the UK as its home member state.
Uncertificated securities
The shares of Jersey companies listed on the LSE or Alternative Investment Market (AIM) can be traded in uncertificated form through CREST, without the need for depositary receipts or other similar instruments which may be required when listing other non-English companies on the LSE or AIM. Company law benefits Jersey companies can offer a number of benefits in this area, including:
• Familiarity - a Jersey company is similar to an English company, and Jersey company law is similar to, though simpler than, English company law. Shareholders in Newco are not therefore faced with new concepts and hold an investment in an entity with which they are already familiar.
• Non-prescriptive company law - Jersey company law is in most respects non-prescriptive, with the result that members of a Jersey company may generally regulate their affairs in accordance with the company’s articles of association. This means that powers conferred on UK companies by, and rights of investors under, English law can be replicated, if desired, in the articles of association. For example, Newco may wish to include in its constitutional documents provisions relating to matters such as authority to allot shares, pre-emption rights, directors’ loans, disclosure of interests in shares, shareholders’ rights to circulate statements / resolutions, a right to call for an independent report on poll results and a right to nominate a third party to receive information. This is designed to give Newco the resemblance of a listed English PLC.
• Treasury shares - a Jersey company is, subject to the requirements of the law, able to hold limited shares it redeems or repurchases as treasury shares, rather than having to cancel such shares.
• No financial assistance prohibition - the concept of unlawful financial assistance was abolished in January 2008.
• Issuing shares - there is no requirement under Jersey law for the directors of a Jersey company to obtain shareholder approval before allotting shares, or any statutory pre-emption rights, or any requirement that a particular amount of the issue price must be paid up before shares can be allotted, although such requirement can be included in a company’s articles of association if desired.
• Dividends, redemptions, repurchases, reductions of capital - there are less restrictions on a Jersey company making payments to its shareholders than there are for a UK company. For example, a Jersey company can make a distribution direct from its share premium account. There is doubt whether such a payment is of a capital or income nature and for this reason a reduction of the Jersey company’s capital to create profits is generally included as part of the redomiciliation process.
• Simpler directors’ duties - Jersey companies law requires a director of a Jersey company to act honestly and in good faith with a view to the best interests of the company, and to exercise the care, diligence and skill that a reasonably prudent person would in equivalent circumstances. A director also has a duty to avoid conflicts of interest. There is no requirement equivalent to that in the English Companies Act 2006 for a director to have regard to the interests of the company’s employees, the need to foster business relationships with suppliers and customers, or the impact of the company’s operations on the environment.
A “tried and tested” regime Jersey is now established as the jurisdiction of choice for those looking to redomicile. Many of the difficult legal and tax questions which arise on a redomiciliation have been raised and answered in relation to Jersey. The result is that groups can be confident when choosing Jersey that the expertise and experience exists to achieve the redomiciliation and that there are unlikely to be hiddenpitfalls.
A respected jurisdiction Jersey is a well-regulated and respected jurisdiction, in the same time zone as the UK. The future - AIM redomiciliations? It is likely that a number of LSE-listed multinationals will continue to consider redomiciling. It is also likely that a number of mid to upper tier AIM listed companies will consider the potential benefits of redomiciling (particularly those with sizeable non-UK based activities). The benefits of redomiciling may not have been considered at the time of listing.
Robert Hickling
robert.hickling@mourant.com
James Hill
james.hill@mourant.com
Michael Williams
michael.williams@mourant.com
