Guidelines for Jersey Directors Fifth edition By Advocate Robert Gardner and Advocate Edward Drummond 1 IoD Guidelines v6 .indd 1 07/06/2018 16:30 www.iod.je 2 IoD Guidelines v6 .indd 2 07/06/2018 16:30 Guidelines for Jersey Directors Fifth edition By Advocate Robert Gardner and Advocate Edward Drummond Updated by Bedell Cristin to 1st January 2018 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, facsimile reproduction, recording or otherwise, without the prior written permission of Bedell Cristin. No responsibility for any loss arising as a consequence of any person relying upon information or views contained in this publication is accepted by Bedell Cristin as the authors of this booklet, or the Institute of Directors. Points of contact and further suggested reading are set out in Appendix 6. Advocate Robert Gardner Advocate Edward Drummond Bedell Cristin 26 New Street St Helier Jersey Channel Islands JE2 3RA www.bedellcristin.com © Bedell Cristin 2018 ISBN: 978 1904520-85-6 3 IoD Guidelines v6 .indd 3 07/06/2018 16:30 LEGAL SERVICES BVI | GUERNSEY | JERSEY LONDON | SINGAPORE Offshore legal services Experience, with agility We are an award-winning law firm with expertise in BVI, Guernsey and Jersey law. Our unique approach combines commercial acumen with service excellence to help you stay ahead. WINNER - OFFSHORE CLIENT SERVICE bedellcristin.com FIRMCHAMBERS EUROPE 2017 4 IoD Guidelines v6 .indd 4 07/06/2018 16:30 LEGAL SERVICES BVI | GUERNSEY | JERSEY LONDON | SINGAPORE Robert Gardner Partner Expertise: Insolvency, litigation Rob is head of Bedell Cristin’s litigation team. He is a very experienced commercial litigator and insolvency specialist, having practiced with leading firms in London, Cayman/BVI and Jersey. He is one of the co-editors of Jersey Insolvency and Asset Tracking by Dessain and Wilkins (now in its fifth edition) and regularly publishes articles on Jersey law and speaks at or chairs national and Offshore international conferences. On the insolvency side he works closely with insolvency practitioners in Jersey and elsewhere. He regularly advises companies, directors, shareholders, creditors and insolvency office holders on all aspects of contentious and non-contentious insolvency and restructuring and on all aspects of contentious corporate work generally, particularly where there is a cross border element. Rob legal services is also involved in a broad range of commercial litigation, particularly disputes involving trusts. Professional: Advocate, Jersey and non-practicing Solicitor, England and Wales Experience, with agility We are an award-winning law firm with expertise in BVI, Guernsey and Jersey law. Our unique approach combines commercial acumen with service excellence to help you stay ahead. WINNER - OFFSHORE CLIENT SERVICE bedellcristin.com FIRMCHAMBERS EUROPE 2017 5 IoD Guidelines v6 .indd 5 07/06/2018 16:30 Edward Drummond Partner Expertise: Insolvency, litigation, regulatory Edward is an experienced commercial litigator who has appeared before the Courts of Jersey, England, the Cayman Islands and the British Virgin Islands. Having obtained an MA in Jurisprudence at Oxford University he began his career at Norton Rose in London as a solicitor-advocate before moving to the Cayman Islands to practise Cayman Islands and British Virgin Islands law. He joined Bedell Cristin in 2008 and is a qualified Jersey advocate. Edward has extensive experience of commercial litigation, contentious insolvency and regulatory matters (including investigations), acting for companies, directors, financial institutions, insolvency office-holders, trustees and beneficiaries, hedge funds, insurance companies (and insureds) and other entities, both onshore and offshore. He is one of the co-editors of Jersey Insolvency and Asset Tracking by Dessain and Wilkins (now in its fifth edition). 6 IoD Guidelines v6 .indd 6 07/06/2018 16:30 Contents Introduction 10 Chapter 1: The Company 1.1 The nature of companies 11 1.2 Limited liability of members 11 1.3 Types of companies 12 1.4 The company’s best interests 13 Chapter 2: The Directors 2.1 Eligibility and appointment 15 2.2 Legal status 16 2.3 Limits on authority 17 2.4 Types of director 18 2.5 Directors’ accountability 21 2.6 Induction and training 21 2.7 Employment and remuneration 22 2.8 Succession planning and evaluation 23 2.9 Resignation 23 2.10 Removal 25 Chapter 3: The Board 3.1 Function 26 3.2 Operation 28 3.3 Collective responsibility 29 3.4 Directors’ meetings 30 3.5 Information 34 3.6 The board’s relationship with others 36 3.7 Delegation and committees 39 3.8 The importance of corporate governance and internal controls 40 3.9 Four practical examples 44 Chapter 4: Directors’ Duties 4.1 General duties 48 4.2 Certain administrative duties 53 4.3 Accounting duties 56 4.4 Duties in relation to auditors 58 4.5 Duties to comply with the general law 59 4.6 Duties for regulated financial services businesses 61 4.7 Specific duties arising for directors of trust companies 68 4.8 Duties for council members of foundations 70 7 IoD Guidelines v6 .indd 7 07/06/2018 16:30 4.9 Duties in relation to pension funds 71 4.10 Duties in relation to taxation 72 Chapter 5: The risks faced by Directors (and how to minimise them) 5.1 Insolvency and financial difficulty 73 5.2 Wrongful trading 74 5.3 Fraudulent trading 76 5.4 Market manipulation, misleading information and insider dealing 76 5.5 Criminal acts 77 5.6 Tortious acts 78 5.7 Personal representations 80 5.8 Breach of warranty of authority and holding out 80 5.9 Constructive trust claims 81 5.10 Indemnification, insurance, ratification and relief 83 5.11 Directors’ involvement in their company’s litigation 84 5.12 Regulatory sanction notices 84 5.13 Overseas trading and other overseas connections 85 Chapter 6: Practical management tips to reduce risk of personal liability 6.1 Introduction 86 6.2 Before accepting office of director and thereafter periodically 86 6.3 To avoid exceeding powers and personal liability 88 6.4 To avoid breach of warranty of authority 89 6.5 Delegation and monitoring 90 6.6 Avoiding personal liability for wrongful trading 91 6.7 General insolvency concerns 91 6.8 The dissenting director 92 6.9 Prescription 92 Chapter 7: Shares, shareholders and shareholders’ rights 7.1 Issuing and transferring shares 94 7.2 Capital 95 7.3 Purchase and redemption of a company’s own shares 95 7.4 Financial assistance for the acquisition of a company’s own shares 96 7.5 Distributions and dividends 97 7.6 Members’ rights, the rule in Foss v Harbottle and unfair prejudice 98 Chapter 8: Takeovers, compromises, mergers and migration 8.1 Takeovers, compromises and mergers 100 8.2 Migration 101 8 IoD Guidelines v6 .indd 8 07/06/2018 16:30 Contents Chapter 9: Winding up and désastre 9.1 Various procedures 102 9.2 Summary or solvent winding up 102 9.3 Creditors’ winding up and désastre 103 9.4 Just and equitable winding up 106 9.5 Changed powers and duties in a winding up 106 9.6 Disqualification 107 Appendix 1 Offences contained in the Companies (Jersey) Law 1991 109 Appendix 2 Offences contained in the Bankruptcy (Désastre) (Jersey) Law 1990 118 Appendix 3 Offences contained in the Financial Services (Jersey) Law 1998 119 Appendix 4 Offences contained in the Proceeds of Crime (Jersey) Law 1999 121 Appendix 5 Companies: Current Review Summary 122 Appendix 6 Useful points of contact and websites 145 Useful publications 146 9 IoD Guidelines v6 .indd 9 07/06/2018 16:30 Introduction The following points should be made in relation to these updated guidelines: (i) They have been drafted for directors (wherever situate) of Jersey registered companies. There are many directors based in Jersey who provide services to companies registered both in and outside Jersey. Care must be taken, as different rules will apply to non-Jersey companies, albeit there may well be similarities with the position applicable to Jersey companies, especially when looking at the underlying principles. (ii) They are in general terms relevant to all Jersey registered companies, whether trading or holding companies, public or private, large or small, regulated or unregulated, although materially different considerations will inevitably apply depending on the type of company under consideration. (iii) They are not intended to be a substitute for the specialised legal advice that many circumstances will demand. (iv) References are made to developments in case law in jurisdictions other than Jersey, in particular England. This is because Jersey law in general draws on many external legal influences and, so far as company law and directors’ duties are concerned, the influence of English law is very strong. There are also material similarities (as well as important differences) in aspects of the legislation, so the way English legislation is interpreted may be informative. Jersey company law is heavily based on statute, principally the Companies (Jersey) Law 1991 and on case law of the Royal Court of Jersey and Jersey customary law. The Companies Law has been frequently amended. Indeed, as at the time of writing there have been eleven major amending laws and other laws and regulations amending the Companies Law. (v) References to certain statutes have been shortened for ease of reading so the Companies (Jersey) Law 1991 is simply referred to as the “Companies Law” and the Bankruptcy (Désastre) (Jersey) Law 1990, as the “Désastre Law”. Where a statute is referred to it will include all amendments. Court cases are given their official references, so Jersey cases can be identified from those of other jurisdictions.