Special Purpose Vehicles in Jersey


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Special Purpose Vehicles in Jersey

  1. 1. Special Purpose Vehicles in Jersey A special purpose vehicle is a vehicle established for one specific purpose or transaction. A special purpose vehicle may be established where it is desirable to isolate the purpose or transaction from the other activities of a party involved in the transaction, or where the transaction dictates that the vehicle should not be treated as controlled or owned by any other party to that transaction. Examples for uses of special purpose vehicles are in securitisations, debt defeasance, off balance sheet investment and Islamic funding. Jersey's low tax regime coupled with the availability of experienced professional resources make it an ideal environment in which to establish special purpose vehicles meeting the requirements of corporate and financial entities. Jersey is self-governing in all domestic matters, including taxation. The legislative assembly is the States of Jersey. The Island is neither a member state nor an associate member of the European Union but is a member of the Organisation for Economic Co-operation and Development ("OECD"). The Jersey authorities regulate the development of business in the Island in order to protect the interests of both the inhabitants and investors and they seek to maintain Jersey's reputation in the financial world for integrity and respectability. Whilst trusts have occasionally been utilised as special purpose vehicles, the most widely used special purpose vehicle is an "orphan" company, that is, one in which the equity share capital is held by the trustees of a general charitable or purpose trust. This guide concentrates on the corporate special purpose vehicle owned by the trustees of a charitable trust established specifically to hold the shares of that company (referred to hereafter as the "SPV"). Legal and taxation framework for incorporation of SPV Company Law − Jersey companies are governed by the Companies (Jersey) Law 1991 (the "1991 Law"). − The liability of a shareholder of a Jersey company is limited so that a holder of fully paid up shares will incur no further liabilities (save in very specific and limited circumstances on insolvency following redemptions and repurchases of shares). − Shares may be issued as ordinary, deferred, preference or redeemable shares with differing rights as to dividend, voting, winding up etc., and may be issued at par or at a premium, generally at a price not exceeding one thousand times the par value. − There is no requirement to issue more than 2 shares, or to have any minimum level of authorised or paid up share capital. Trust law − Jersey Trusts are created and governed pursuant to the Trusts (Jersey) Law 1984, as amended, (the "1984 Law"). The 1984 Law is essentially a permissive law which provides, in effect, that the terms of the particular trust determine the duties and obligations of the trustee thereof.
  2. 2. − In order to establish that the trustees of a charitable trust which owns an SPV have acted properly they must ensure that any SPV owned by them makes some residual profit which is distributed to them to be paid to charity in accordance with the terms of the trust. − There is no registration or other formality required in order to establish a charitable trust in Jersey. Taxation − A Jersey company owned by non-Jersey residents may obtain exemption from assessment to Jersey income tax. It is usual for SPVs to be held by a trustee (who may be Jersey resident) upon trusts for charities outside the Island or tax exempt charities in the Island, and thereby qualify for exempt status. − An exempt company is exempt from income tax on income arising outside Jersey and (by longstanding concession) bank interest arising in Jersey. The company is not required to deduct Jersey income tax from payments of interest or dividends; neither need it make a return of income (save in respect of Jersey income, other than bank deposit interest.) Directors of an exempt company can meet in Jersey and conclude contracts without incurring income tax on profits. The Comptroller of Income Tax takes the view that clerical functions do not amount to the carrying on of a trade. − There are no other corporate, capital transfer or stamp taxes. Establishment of a Jersey Special Purpose Vehicle − Under the 1991 Law a company must be a public company if it has more than 30 members or if it circulates a prospectus. − Prior to incorporation, an application must be made seeking consent to issue shares pursuant to the Control of Borrowing (Jersey) Order 1958 (as amended) (the "COBO Legislation"). − Once the necessary information and forms have been submitted to the Registrar, and provided everything is in order, in most cases a company will be incorporated within two or three working days of the papers being submitted. In urgent cases upon the payment of an additional £40 fee the SPV can be incorporated within 2 hours of the documents being submitted to the Registrar. − A judicial fee is payable on the incorporation of a Jersey company and this is currently £120. Treasury Duty is also payable on incorporation of 0.5% of the company's authorised share capital, subject to a minimum of £50. Thus the minimum amount payable to the Jersey authorities on incorporation will be £170. The maximum capital duty payable is £5,000. − There is no duty payable on the issue or transfer of shares by a Jersey company. Administration of a Jersey Special Purpose Vehicle − A Jersey company must have at least two shareholders, unless it is a wholly-owned subsidiary. − A public company is required to file audited accounts. − A Jersey company must have a registered office in Jersey, the address of which must be given on all business stationery. Every company must keep a register of shareholders at its registered office or at such other place as is notified to the Registrar of Companies. A company must keep a register of its directors and secretary. The register of directors of a public company must be filed annually. There is no requirement that a company keep a register of mortgages or charges. − The directors of a Jersey company are not required to be resident in Jersey.
  3. 3. − A public company must have at least two directors. A private company must have at least one director. Bodies corporate are not permitted to act as directors. − Directors' meetings may be held in Jersey although there is no requirement that they must be held in Jersey. Subject to satisfying certain criteria specified in the 1991 Law, it is permissible to hold meetings by telephone. − The Secretary of a public company is required to be appropriately qualified. − The ongoing statutory requirements are fairly straight-forward. The company must make an annual return (and pay an annual fee, currently of £120) to the Registrar before the end of February in each year. In order to maintain exempt status the annual application must be made and the fee paid (currently £500) before the end of March in each year. Issues of securities by Jersey Special Purpose Vehicles − If the company raises money by the issue of securities further consents may be required under the COBO Legislation. These are obtained immediately prior to the issuance of the securities. In order to obtain these consents substantially final drafts of all material documents need to be sent to the Financial Services Commission in Jersey. − There are no fees payable to the Jersey authorities in respect of such approval. − If any securities are offered to the public the Prospectus must be filed with the Jersey Registrar of Companies in Jersey and it must also contain certain information and statements pursuant to the Companies (General Provisions) (Jersey) Order 1992 (the "1992 Order"). This Client Briefing cannot form a complete check list and refers only briefly to the provisions of the various laws relevant to this area. Specific legal advice should always be sought in particular cases. For further information or advice, please contact one of the following:- Nicola Davies nicola.davies@mourant.com Julia Chapman julia.chapman@mourant.com The Mourant Group 22 Grenville Street St Helier Jersey JE4 8PX Tel +44 1534 609000 Fax +44 1534 609333 Printed from The Library at www.mourant.com © The Mourant Group 1998