Securitization: Establishing a Special Purpose Vehicle in Guernsey


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Securitization: Establishing a Special Purpose Vehicle in Guernsey

  1. 1. Gsy00009SturFin/9549429 April 2006 Briefing Securitisation - Establishing a Special Purpose Vehicle in Guernsey Client briefing Preface harmonisation, financial services and company law do not have effect in Guernsey. The Island This memorandum has been prepared for the has as a result of its constitutional position assistance of clients considering incorporating a developed into a leading international finance company under the laws of Guernsey. It is centre. intended to provide only a summary of the main legal requirements and general principles Introduction applicable to the establishment of a company in Guernsey and it is not intended to be This memorandum is intended to provide those comprehensive in its scope. It is recommended involved in the establishment of a vehicle or that a client seeks legal advice on any proposed programme for the issue by an off-balance sheet transaction prior to taking steps to implement it. Guernsey special purpose corporate vehicle (‘SPV’) of securities (a ‘Securities Programme’) A series of briefings on other aspects of with an outline of the structural and regulatory Guernsey law have been produced by Ogier and issues which will need to be addressed, together are available on request. with an indication of some of the basic costs. This memorandum has been prepared on the The memorandum is prepared on the basis of the law and practice as at 1 March 2006. assumption that the securities (whether they be notes, bonds or other instruments) will be issued Constitutional position of Guernsey by the SPV in one or more tranches to a number of prospective investors by means of a Guernsey is a self-governing dependency of the prospectus or other offering document and the British Crown and does not form part of the proceeds of issue will be invested in the United Kingdom. By constitutional convention purchase of assets which will be capable of established over some 900 years the Island has meeting the coupon and repayment obligations complete autonomy in all matters of internal on the securities. Although reference is made in government, including taxation. The legal system this memorandum to a “Securities Programme” it is derived in part from the customary laws of is equally applicable to structures which involve a Normandy but has been strongly influenced by single issue of securities. We have not English law in company and commercial matters addressed such issues as security over the and the Judicial Committee of the Privy Council assets and protection from creditors. remains the Island’s ultimate court of appeal. The Island’s special constitutional position has been Structure recognised by the European Union in a protocol (No.3) attached to the United Kingdom’s Act of In order for the SPV to be off-balance sheet, the Accession to the EU. The protocol provides that shares in the SPV will normally be held by a the Treaty of Rome shall apply to Guernsey only charitable trust (the ‘Trust’) established for the to the extent necessary in relation to the purpose. The trust deed will, inter alia, set out the arrangements for the free movement of goods. purposes of the Trust and include obligations on Accordingly, European Union directives on fiscal the trustees to establish and maintain the SPV,
  2. 2. Briefing Securitisation - Establishing a Special Purpose Vehicle in Guernsey and to procure that the SPV acts in accordance protected cell company are not subject to the with the Securities Programme documentation. claims of creditors of any other cell of the protected cell company. Therefore, in the The Trust will require funding in order to be able securitisation context a protected cell company to subscribe for shares in the SPV and to pay the provides a statutory means of ring-fencing legal costs of establishing the Trust. It may also separate series or classes of assets and be necessary to fund the incorporation costs of liabilities within a single legal entity thereby the SPV through the Trust although it is possible offering the possibility of simplifying the structure Client briefing for these costs to be funded by the SPV itself on of many conduit programmes and reducing the establishment of the Securities Programme. risk of “contagion” or “cross class leakage”. We have a separate memorandum which focuses This funding will normally be provided to the specifically on the formation, operation and legal Trust by the promoter of the Securities issues relevant to protected cell companies Programme, or if there is a sensitivity regarding this, it may be possible to arrange for funding to Operation of the SPV be provided via an existing Ogier & Le Masurier controlled charitable trust which will act as the The SPV will normally require a minimum of two settlor of the Trust. directors and, for tax purposes, it will usually be necessary for a majority of the directors to be Shares in the SPV may be denominated in any resident in Guernsey. Corporate directors may unit of currency and a minimum of two shares be used in a Guernsey SPV. If there is particular must be issued. We would normally recommend sensitivity regarding the SPV being treated as that the Securities Programme provides for the UK tax resident, its Articles of Association can generation and retention of sufficient funds in the include provisions designed to reduce to a SPV to enable an annual dividend to be paid to minimum the possibility of the SPV being treated the Trust for distribution to charity. The purpose as resident in the UK. of this is to support the charitable nature of the Trust and to help defeat any suggestion by the The SPV will also require administration services revenue authorities of any jurisdiction that the to be provided to it to enable it to fulfil its Trust is not independent of the promoter of the obligations and exercise its rights under the Securities Programme or is otherwise in any way Securities Programme documentation and a sham. We would normally suggest that an monitor the performance of the Securities annual dividend of £500 should be made, Programme on its behalf. There are a number of although this can vary on a case by case basis. firms in Guernsey which are experienced in The Trust will also require sufficient funding to providing such services and we are able to pay annual trustee fees and this can either be arrange appropriate introductions. The paid out of dividend income from the SPV or administrator would generally be responsible for initial settled funds. If this method of funding the providing secretarial services to the SPV, Trust is not acceptable, it may be possible to including filing statutory returns, the holding of deal with this in other ways. annual general meetings and preparing appropriate board minutes. With effect from 6 February 2001, it has been possible under Guernsey law for an SPV to be a If a SPV fulfils certain criteria, the Guernsey ‘protected cell company’. In essence, a protected Financial Services Commission (the cell company is a single legal entity which ‘Commission’) may agree to it having un-audited consists of a “core” and one or more separate status. “cells”. The assets attributable to a particular cell benefit from statutory segregation and protection Tax Status of the SPV from not only the general liabilities of the protected cell company (i.e. the liabilities of the A SPV will usually apply for ‘Exempt Company’ core), but also from the liabilities attributable to status upon incorporation. An Exempt Company any other cell. A protected cell company which is is treated as being non-resident in Guernsey for used as an SPV will be subject to all the taxation purposes. It is not subject to income tax provisions of the protected cell company (except on profits of any trade carried on in legislation and, importantly, will provide all of the Guernsey) and is liable only to pay an annual same benefits of protected cell company status. Exempt Company fee of £600 (or in the first year Accordingly, assets in one particular cell of a GUERNSEY-9549429-1
  3. 3. Briefing Securitisation - Establishing a Special Purpose Vehicle in Guernsey a monthly fraction of £600 from the date of Protection of Investors (Bailiwick of Guernsey) incorporation). It is not possible to prepay the Law, 1987 (‘POI Law’). A “licensee” for these Exempt Company fee for future years and so the purposes will include an administrator, manager, SPV will need to be able to fund this annual fee. custodian, trustee and registrar. Once licensed to carry out a particular activity, that person may Exempt Company status is applied for in provide such services to any SPV without further Guernsey on a year by year basis. reference to the Commission. Licensees are subject to certain rules that are available on Client briefing Interest and dividends are paid gross by the SPV request. without need for deduction of tax. There is no capital gains or analogous tax in Guernsey. Costs Structural Issues It is difficult to generalise on the costs of establishing a Securities Programme as to a Limited Recourse: In order to avoid the large extent this will depend upon the complexity occurrence of a technical insolvency the liabilities of the Securities Programme, the volume of of the SPV will generally be expressed to be documentation and the nature of the assets to be limited in recourse to designated assets. acquired/securitised. However, we have set out Non-consolidation: Accounting advice will below the statutory costs together with an generally be required to confirm that the SPV will indication of the other costs (other than for not be consolidated onto the balance sheet of the administration) which are likely to be involved. arranger or originator. We can arrange for quotations for administration costs to be obtained from prospective Regulatory Regime administrators in relation to the establishment and administration of a Securities Programme. (a) COBO The issue of securities by the SPV will require Statutory and Establishment Costs the prior consent of the Commission under the Control of Borrowing (Bailiwick of Guernsey) Constituting the Trust £1,000 Ordinances, 1959 to 1989 (‘COBO’). Similarly, the circulation of a prospectus or other offering Formation of Guernsey company £1,150 document in relation to those securities will to act as SPV. Includes checking require prior consent of the Commission. on availability of names and reservation; preparing standard COBO provides for the regulation in Guernsey of Memorandum and Articles of the raising of money, the issue of securities and Association; preparing application the circulation of offers for the subscription, sale for incorporation as a limited or exchange of securities. liability company; filing documents with the Registrar of Companies The consent, if granted, pursuant to COBO, will (and payment of minimum specify the maximum number and value of statutory fees); obtaining shares or securities which may be issued, Certificate of Incorporation and although generally it is only a formality to Control of Borrowing Consent; increase such limits subsequently. The consent supply of corporate seal and will also be conditional on no changes being company books. made to the documents or principal parties without further approval. Annual accounts will Take-on fee payable to TBA usually be required to be filed with the administrator Commission. There are few other reporting requirements. Annual Administration Costs (b) POI Law Annual trustee fees for TBA A ‘licensee’ providing services to the SPV from administration of the Trust within Guernsey will require a permit under the GUERNSEY-9549429-1
  4. 4. Briefing Securitisation - Establishing a Special Purpose Vehicle in Guernsey Suggested minimum annual £500 4. Provide Securities L distribution for charitable purposes Programme documentation to Ogier Annual administration fee and TBA directors’ fees 5. Submit Securities O Programme documentation and Annual Statutory Fees licence applications (if Client briefing any) to the Commission Annual Return fee £100 to obtain Commission’s views Annual Tax Exempt Company fee £600 6. Agree tax status of SPV O/P/L and name of SPV It is essential that adequate provision is made in the structure for the costs of the SPV and the 7. Agree form of trust deed O/L Trust to be made during the lifetime of each. for the Trust Provision should also be made for the costs of winding up the SPV at the end of its life. 8. Agree form of O/L Memorandum and Legal Fees Articles of SPV and provide information The legal fees will depend on the complexity of necessary for the Securities Programme and the extent of the incorporation of SPV documentary review and drafting required. They will also vary depending on the level of liaison 9. Agree form of O/A/L/P and negotiation with the Commission that is administration required. We would be pleased to provide agreement for estimates of legal fees for a particular Securities administrator Programme, on receipt of basic information. 10. Agree amount of initial P/O/T Steps to be Taken settled funds for the Trust and provide funds Once the decision has been made to establish a to trustee Guernsey vehicle, the following steps need to be taken: 11. Hold board meeting of T trustee and execute trust deed Action Responsibility 12. Incorporate SPV O 1. Select a trustee (and P/T agree terms of 13. Draft board minutes of O/L appointment) SPV approving Securities Programme 2. Select an administrator P/A documentation (and agree terms of appointment) 14. Obtain consent and O licences from the 3. Select directors and P/A/O Commission auditors (if any) (and agree terms of 15. Hold board meetings of O appointment) SPV to establish the SPV and approve Securities Programme documentation GUERNSEY-9549429-1
  5. 5. Briefing Securitisation - Establishing a Special Purpose Vehicle in Guernsey 16. Execute Securities O/L/P securitisation/capital markets transactions having Programme an aggregate principal amount exceeding US$50 documentation and billion. issue securities Ogier is able to deliver high quality and cost 17. File final documentation O effective legal advice in all aspects of structuring with the Commission and documenting asset securitisation transactions. If you would like further information Client briefing about our Structured Finance Group and the Key O Ogier services we can provide. P Promoter/Agent About Ogier A Administrator Ogier is one of the world's leading providers of offshore legal and fiduciary services employing T Trustee over 700 professional and support staff. The group has a presence in nine jurisdictions around L Lawyers the world, namely the British Virgin Islands, the Cayman Islands, Guernsey, Hong Kong, Ireland, Jersey, London, Montevideo and New Zealand. Timing Ogier provides advice on all aspects of BVI, It is possible to establish a Securities Programme Cayman, Guernsey and Jersey law and within a very short time-scale. In particular, associated fiduciary services through a global regulatory approvals from the Commission network of offices that cover all time zones and should be obtainable within two weeks and, if key financial markets including the rapidly required, it is possible to shorten that period. A growing Asian and Chinese markets. particular matter which needs to be addressed Ogier continues to be recognised as a leading early on is the selection and appointment of an law firm by the leading legal directories, including administrator, particularly if the role of the Legal 500 and Chambers. administrator is more than simply the provision of basic secretarial/administration services. General The above is intended to provide an outline of the various issues to be addressed in relation to the establishment of a Securities Programme through a Guernsey SPV together with a summary of the steps to be followed. However, each Securities Programme will necessarily be different from the next and it is therefore essential to seek advice at an early stage as to how the above issues will apply to the particular programme. Services Offered by Ogier Ogier is the largest legal practice in the Channel Islands with associated offices in both Jersey and Guernsey. The firm has substantial experience in advising on structured finance transactions involving corporate and trust structures and is organised to produce innovative structures to meet business needs. During 2000 the firm acted and advised in relation to GUERNSEY-9549429-1
  6. 6. Briefing Securitisation - Establishing a Special Purpose Vehicle in Guernsey Contact details Guernsey Client briefing Legal: William Simpson +44 (0) 1534 504264 Fiduciary: Chris Le Tissier +44 1481 737169 Jersey Legal: Chris Byrne +44 1534 504264 Fiduciary: Peter Gatehouse +44 1534 504288 This client briefing has been prepared for clients and professional associates of the firm. The information and expressions of opinion which it contains are not intended to be a comprehensive study or to provide legal advice and should not be treated as a substitute for specific advice concerning individual situations. Ogier includes separate partnerships which advise on BVI, Cayman, Guernsey and Jersey law. For a full list of partners please visit our website.