posted 10 Aug 2007 in Volume 10 Issue 3

Country report: Proposed amendment of Guernsey Company Law

By Ian Kirk, head of commercial department, Collas Day

It has been apparent for a number of years that Company Law in Guernsey would benefit from revision. The Companies (Guernsey) Law 1994 was the last attempt at comprehensive legislation and it has since been amended and extended by a raft of additional laws, ordinances and regulations between 1994 and 2006. Guernsey’s Commerce and Employment department, recognising the need for up-to-date legal infrastructure to maintain the jurisdiction’s competitiveness, has set out to consolidate existing legislation and to extend it, taking into account developments in other jurisdictions and the results of consultation in Guernsey.

Although comprehensive reform of the Company Law has been mooted for some years, momentum was generated by a report to the States of Guernsey (the island’s parliament) in 2005. This led to further consultation with the finance and business community. The formal proposal and draft law appeared earlier this year and will be debated in October 2007. It is anticipated that the new legislation will come into force some time after mid-2008.

The principal proposals

Consolidation of existing legislation is the greatest and most helpful change proposed. Consolidation of the raft of ‘legacy’ legislation understandably results in a large number of detailed proposals for change. However, certain themes stand out:

There is an intention to make a number of procedures administrative, rather than requiring an appearance at the Royal Court. For example, the incorporation of companies will no longer require a court application;
A new post will be created - the Registrar of Companies (“Registrar”) - with a broad remit to develop further the reputation of Guernsey as a leading jurisdiction. The detail of the Registry and the Registrar’s role will be the subject of a separate report to the States;
A single, new solvency test will replace capital maintenance as the basis for assessing whether certain corporate actions and decisions are appropriate. It will be used for everything from dividends and distributions to reductions of share capital.

Other proposed changes

A raft of other changes is proposed. These include measures aimed at increasing the flexibility with which businesses can make use of the Guernsey jurisdiction, in particular;

Making migrations of companies to and from Guernsey easier and cheaper by changing migration from a court process into an administrative procedure; and
Allowing companies to convert from one type to another more easily.

With high expectations in respect of corporate governance now the norm and an increasingly tough environment for company officers, it is noted that the draft law:

Allows for a codification of directors’ duties which replicates the provisions in the new Companies Act 2006;
Requires every company to have a company secretary and will set out the minimum duties of the company secretary in statute; and
Increases auditors’ powers and duties.

There are some measures aimed at making it easier to set up companies and manage routine corporate administration:

Simplifying incorporation by the creation of standardised Articles of Association. (Currently each firm of Advocates by default uses its own set of Articles, which will have unique details);
Allowing direct access to the Registrar by Company Formation Agents;
Permitting a company to have unlimited objects, by default. Hence a company and its advisers will have to identify a specific reason to limit its objects and draft accordingly to achieve that;
Making it possible to create single-member companies to reflect current practice in the UK;
Extending the range of companies that may be incorporated to include unlimited liability companies and mixed liability companies;
Waiving the requirement that companies must hold an annual general meeting, unless the members resolve otherwise;
Removing the requirement for companies to send annual returns of members’ details to the Registrar but requiring a slightly more detailed disclosure of other administrative matters in the annual return;
Facilitating the greater use of electronic media for storing and distributing information about a company to the Registrar, to members and to other interested parties.

The draft law has still to be debated by the legislature and refinements can be expected. Among the issues, proposals to disclose directors’ residential addresses are being questioned, while the requirement for directors to know details of the ultimate beneficial owners of companies is meeting opposition.

Once the new law has come into force, it will be open to amendment and updating by ordinances approved by the States and not by the Privy Council, making it easier to ensure the law addresses specific requirements as they emerge.

Guernsey company law will benefit hugely from this overhaul, which will contribute to maintaining the attractiveness of Guernsey as a premier commercial jurisdiction. The cumulative effect of proposals is substantial and should reassure business principals and their advisers of Guernsey’s commitment to remaining an offshore jurisdiction of choice.