Royal Court Provides Guidance to Companies that Make Distributions

The Royal Court has, for the first time, provided helpful guidance as to the need to provide the Court with full explanations in order to help it consider an application to rectify distributions made in contravention of Article 115 of the Companies (Jersey) Law 1991 (as amended) (the "Companies Law").

The decision in In the matter of the Representations of The Royal Bank of Scotland International Limited and The Royal Bank of Scotland International (Holdings) Limited [2017] JRC 120A was borne out of applications made by The Royal Bank of Scotland International Limited ("RBS International") and The Royal Bank of Scotland International (Holdings) Limited ("RBSI Holdings"), seeking orders under Article 115ZA of the Companies Law that various distributions made by each of those companies be taken as having been made in compliance with the requirements of Article 115 of the Companies Law.

The Law

In recent years, the Companies Law has seen significant amendments, which include amendments to Article 115 that were brought in by the Companies (Amendment No. 9) (Jersey) Law 2008 (the "2008 Amendments"). Article 115 of the Companies Law deals with restrictions on distributions made by a company and makes clear that the Companies Law only restricts or seeks to control distributions which reduce the net assets of the company or which are to be regarded as liabilities in the accounts of the company. The 2008 Amendments introduced, inter alia, a new regime governing distributions made by a company such that, pursuant to Article 115(3), where the company is not an open-ended investment company, a distribution may only be made if the directors make a statement of solvency in accordance with Article 115(4) (the "Statement of Solvency"). A Statement of Solvency is required even where the company has distributable reserves and must state that the directors have formed the opinion that:-

  • Immediately following the date of the proposed distribution, the company will be able to discharge its liabilities as they fall due;
  • and

  • Having regard to (i) the prospects of the company and the intentions of the directors with respect to the management of the company’s business and (ii) the amount and character of the financial resources that will, in their view, be available to the company, the company will be able to continue to carry on its business and discharge its liabilities as they fall due until the expiry of the period of 12 months immediately following the proposed date of distribution, or until the company is dissolved on the basis of a solvent winding up.

The 2008 Amendments also enabled distributions to be made from both profits and any account save for nominal share capital and any capital redemption reserve fund (prior to the 2008 Amendments, distributions to shareholders could only be made out of profits, the governing principle being the maintenance of capital).

 

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