Guernsey Company Law Series: Conversions – Changing from one type of company to another

• Guernsey entities can change company type via a statutory conversion procedure

• The rights and obligations of the converting entity transfer to the converted entity

• This guide sets out the procedures and effects of conversion

In Guernsey, there are several different options available for the type of company upon incorporation, these include:

• a non-cellular company;

• a protected cell company (a "PCC"); and

• an incorporated cell company (an "ICC").

Under the Companies (Guernsey) Law, 2008 (as amended) (the "Law"), it is possible to convert from one type of company to another. It might be that the directors and shareholders make the decision to convert a company into another type following incorporation to better suit their needs.

Types of conversion

It is possible to convert:

• a non-cellular company into a PCC or an ICC;

• a non-cellular company into a protected cell of a PCC or an incorporated cell of an ICC;

• a protected cell of a PCC into a non-cellular company; and

• an incorporated cell of an ICC into a non-cellular company.

In order to convert an ICC into a non-cellular company, the incorporated cells of the ICC are subsumed into the ICC and the conversion to non-cellular company then occurs, with the two stages being a single process. If the aim is to convert the ICC into a PCC, the process for subsumption of cells and conversion to non-cellular company must first be followed before the new non-cellular company is then converted to a PCC.

It is also possible to transfer incorporated cells between ICCs. However, it is not possible to transfer protected cells between PCCs, as they do not have separate legal personality. If such a transfer was required, the protected cell would need to be converted into a non-cellular company, and then converted a second time into a protected cell of the new PCC.

The conversion process is a statutory procedure, which is similar for each type of conversion. In each case, the written consent of the Guernsey Financial Services Commission ("GFSC") is required for the conversion.

Procedure for conversion of non-cellular company into PCC or ICC

An application is made to the Guernsey Registry containing the following:

• a copy of the written consent of the GFSC;

• the amended / new memorandum and articles of incorporation ("New M&A");

• a special resolution authorising, among other things, the conversion, new name and New M&A; and

• a declaration of compliance made by the directors of the converting entity containing a statement that (a) the converting company (and where applicable any cell) will satisfy the statutory solvency test immediately after the conversion, and (b) there are no creditors of the company (and where applicable any cell) whose interests will be unfairly prejudiced by the conversion.

The Guernsey Registry then issues a certificate of conversion.

Procedure for the conversion of a PCC into an ICC or a non-cellular company

An application is made to the Guernsey Registry containing the following:

• a copy of the written consent of the GFSC;

• if applicable, an application for the incorporation of each cell as an incorporated cell of the ICC;

• the New M&A;

• if applicable, amended / new memorandum and articles of incorporation of each incorporated cell;

• a special resolution of the PCC authorising, among other things, the conversion, new name and New M&A;

• special resolution of each cell authorising the conversion; and

• a declaration of compliance made by the directors containing a statement that:

• the converting entity (and any appliable cells) will satisfy the statutory solvency test immediately after the conversion); and

• there are no creditors of the company (and where applicable any cell) whose interests will be unfairly prejudiced by the conversion.

Following a notice period of at least 28 days, the Guernsey Registry then issues a certificate of conversion.

Procedure for subsumption of cells and conversion of an ICC into a noncellular company

In order to convert an ICC into a non-cellular company the incorporated cells must either be converted to non-cellular companies, as set out below, or subsumed into the ICC. The subsumption of cells and conversion to a non-cellular company is a single process.

An application is then made to the Guernsey Registry containing the following:

• a copy of the written consent of the GFSC;

• the New M&A;

• (including the manner in which the interests and liabilities will be subsumed or any consideration
  the member will receive), new name and New M&A; and

• a declaration of compliance made by the directors of the converting entity containing a statement
  that:

• the converting company (and each cell) will satisfy the statutory solvency test; and

• there are no creditors of the company (and each any cell) whose interests will be unfairly prejudiced by the subsumption and conversion.

Following a notice period of at least 28 days, the Guernsey Registry then issues a certificate of subsumption and conversion for the ICC.

Procedure for conversion of an incorporated cell of an ICC or a protected cell of a PCC into a non-cellular company

The procedure for conversion of an incorporated cell into a non-cellular company is analogous to the above, with a special resolution of both the ICC and the relevant incorporated cell being required.

The procedure for conversion of a protected cell into a non-cellular company is again similar, with the special resolution of the holders of the cell shares also approving the translation of their capacity, status and interest of members and translation of shares, rights, interests, debts and liabilities (among other things) to that of a non-cellular company. In addition, the conversion of a protected cell to a non-cellular company requires that the PCC give written notice to all of its creditors advising them of the intention to convert the cell into a non-cellular company, with the application to the Registry only being made 28 days after the date of notice to creditors.

Effect of a conversion

In each case, upon completion of a conversion:

• all property and rights to which the converting entity was entitled become the property and rights of the converted entity;

• the company remains subject to all criminal and civil liabilities, and all contracts, debts and other obligations to which the converting entity was subject;

• all actions and other legal proceedings, which, immediately before conversion could have been instituted or continued by or against the converting entity may be instituted or continued by or against the company; and

• a conviction, ruling, order or judgment in favour of or against the converting entity may be enforced by or against the company after the conversion.

The information contained in this guide is necessarily brief and general in nature and does not constitute legal or taxation advice. Appropriate legal or other professional advice should be sought for any specific matter.