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Proposed Amendments to the Companies (G'sey)

Comments on the consultation document dated 1 April 2010 regarding the proposed amendments to Guernsey Company Law

 

 

 

 

Section 16 (3)

Use of standard articles from time to time.

 

 

 

We agree in principle. However, we suggest that a separate consultation process be implemented regarding the standard articles.

 

 

Section 30

Failing to have a registered office

 

 

 

The ability of a CSP to file a notice of ineffective registered office is a useful tool when dealing with an undesirable client. This would be undermined if the CSP were liable to prosecution for causing a company to have no registered office, particularly in cases where it had provided directors. CSPs should be encouraged to exit from undesirable cases and care is needed to avoid frustrating this process.

 

Also, we question the point in having an offence of the type proposed when there must surely be difficulties in mounting a successful prosecution.

 

 

Section 94 (2)(b)

Fees to be paid to HMP and Tax Office re migrations

 

 

 

We suggest that these be embedded in the Registry fees in order to reduce administration for both the company concerned and the offices of the Director of Income Tax and H M Procureur.

 

 

Section 137

Ineligibility of directors with criminal convictions

 

 

 

Whilst we agree that offences involving dis-honesty should render the offender liable to dis-qualification, we question why, for example, someone who has been imprisoned for drink driving be barred from being a company director or someone who is homosexual be barred because it is illegal in another country?  As such we are against automatic dis-qualification. In addition, regarding foreign convictions, should it read “punished” rather than “punishable” as many offences carry at least one year’s imprisonment as a maximum (eg theft in UK Law).

 

We suggest that the proposal should (a) be limited to convictions in Guernsey and (b) not be automatic but instead allow the Court to order disqualification where it sees fit where an offence is punished by a term of imprisonment of six months or longer.

 

 

Section 145

Temporary alternate directors

 

 

 

Is a period of 7 days sufficient? We suggest 17 days so that someone on two weeks’ leave may have an alternate. Additionally, the burden of having to file details of alternates in any event is likely to render this proposal unattractive.

 

 

Section 157

Liability for the acts of alternate directors

 

 

 

We think that this is likely to make the proposed S 145 amendment unpopular or unused. We appreciate that it is trying to stop unfit persons but an unfit person is unlikely to be eligible in any case.

 

 

 

Section 181

Circulation of written resolutions

 

 

 

We are in agreement with this provided that it is optional.

 

 

Section 224

Appointment of proxies

 

 

 

As many members’ meetings currently only require 10 days notice, it would be necessary to extend such notice periods if the time limit for delivery of proxy forms were extended, otherwise a member may have an impossibly short time to submit a proxy form.

 

 

Section 234

Duty to submit annual validation

 

 

 

We think that if a company is scheduled to be struck off by the Registrar on the grounds of default in January then it should not have to file an AV. Also, if a voluntary strike off application is submitted to the Registrar before the end of the year then it should not have to file the AV in the following year.

 

Furthermore, companies in liquidation either should not have to submit an AV or should be exempt from an AV fee. We also query the content of an AV for such a company – eg is the economic activity relevant?

 

Additionally, a company should be regarded as being in good standing for the whole of January even if it has not filed its AV for that year (assuming that AVs have been filed the previous years). It is perverse that a company is not required to submit its AV before the end of January but in the meantime, per the practice of the Registrar, is regarded as not in good standing.

 

 

Section 256 (2)

Exemption from audit

 

 

 

We agree that there should be a one off waiver. Additionally, we think that this should be be retrospective (including for accounting periods prior to this change coming into force) and also be permitted to be decided when a company is being incorporated.

 

At present, an audit waiver resolution has to be passed before the start of the relevant accounting period, other than the first. Inevitably, this will be overlooked and we suspect that many CSPs have been left with the dilemma or either paying for an audit (as their client will blame them for missing the resolution deadline) or ignoring the Law.

 

We also question what public benefit is served by having audit exempt status in the Registry records. Having to file exemption resolutions adds to the burden of administering a company. Therefore, we recommend that the AV fees for companies at the £250 level be increased for all companies by £10 and remove the need to file any notice or fact of audit exemption.

 

It would be useful to see the detailed proposals.

 

 

Section s295 and 296

Consideration for issue of shares to be decided by board

 

 

 

We agree with the proposed amendment but would suggest that the members in general meeting or by written resolution be able to authorise any share issue as being in the best interests of a company.

 

The problem with the section is the requirement for the directors to determine that a share issue is in the best interests of a company. In many cases, matters are not in a company’s best interests but are in the interests of its members, for example certain transactions for tax purposes. It is unreasonable to place the onus on directors to show that a proposal is in a company’s best interests when everyone agrees that that is what the company should do.

 

The existing provisions are unwieldy and over-complicated for most companies.

 

 

Section 309

Recovery of distributions

 

 

 

At present, a director who fails to take reasonable steps to ensure that the procedure for the solvency test was followed or who voted to approve a solvency certificate that (we assume) proves to be invalid or defective, is liable to make good to the company any distribution not recovered from the recipient members. We think that this is far too harsh. Whilst the Court may grant relief, this is a costly and uncertain exercise.

 

We think that a time limit for recovery against members or directors should be introduced of 24 months from the date of a distribution, unless the member or director acted in bad faith.

 

We agree that whitewash provisions should be permitted but they should be such that a company either would have passed the solvency test at the time of the distribution or at the time that recovery is sought, not both as is being suggested.

 

We suspect that the requirements of the law to apply the solvency test are being breached often. This is not only for straightforward dividends but also in respect of any transactions with or in connection with a company’s members, for example sales at an undervalue or rent free occupation of company property. It is not acceptable that a director should be penalised simply for failing to apply a solvency test correctly or beforehand, even though it is not material. Accordingly, whitewash provisions are essential.

 

Any changes should be without prejudice to the power of the Court to grant relief at its discretion.

 

 

S371(10)

Restoration to the Register

 

 

 

It is not clear why an amendment is needed where S371(10)(b) already gives the Registrar some discretion.

 

 

Section 524(1)

Definition of solvency test

 

 

 

We agree that the balance sheet part of the solvency test should be removed.

 

 

S519

Striking off for persistent or gross contravention

 

 

 

We understand that this provision would only be used in rare cases and in any event would be subject to appeal provisions.

 

 

 

OTHER MATTERS NOT IN THE CONSULTATION DOCUMENT

 

 

S160

Ratification of directors’ acts

 

 

 

This is a very useful section. However, where each member has an interest in a transaction (perhaps he/she/it is also a director) then they cannot take part in a ratification resolution unless it is a unanimous resolution. Such a conflict is common, for example nominee shareholders of a CSP where the CSP provides all of the directors of a company and usually means that a unanimous resolution is necessary as otherwise a ratification resolution cannot be passed owing to all or most members being conflicted.

 

In principle, we agree with the requirement for unanimous consent in cases of conflict. However, S180(4) requires that all unanimous resolutions should be filed publicly with the Registrar. Although extracts of resolutions may be filed, it is not clear what this covers. Often, the content of resolutions will be commercially sensitive or private. Whilst there may be a case for certain unanimous resolutions to be filed publicly (eg under S38), we fail to see how an essentially private matter should be made public. After all, if the directors have acted in contravention of a company’s articles for example, third parties are afforded protection under S115 and it is not their business to know that the directors have acted mistakenly.

 

The requirement to file a unanimous resolution in these circumstances will put CSPs into a dilemma. If they pass the resolution in order to provide protection for themselves as directors (assuming that they are acting in good faith and being transparent with the beneficial owners), potentially confidential information will be made public for no apparent good reason.

 

We suggest that S180(4) be amended so that any unanimous resolution passed pursuant to S160 is not required to be filed.

 

 

S181

AGM waiver

 

 

 

What public benefit is served by filing notice of an AGM waiver? Essentially it is a matter between a company and its shareholders and creates unnecessary cost to clients.

 

 

S247

Accounts of dormant or inactive companies

 

 

 

We understand that exemptions will be introduced such that dormant or low activity companies will not have to prepare accounts. However, we question why it is necessary to introduce an offence at all, provided that all of the members agree that they do not want accounts. What is more important is that proper books of account are kept such as to allow the preparation of accounts if and when it becomes appropriate to prepare them.

 

 

 

Registry fees

 

 

 

Although not part of the consultation process, we believe that these should be monitored so as to ensure that they remain competitive. For example, the restoration fee has risen to £1,500 which we believe to be excessive.

 

 

 

Protected cell companies (PCCs)

 

 

 

The States have pursued a policy of expanding the range of permitted activities for PCCs. We support this policy. However, we believe that some aspects of the law require amendment as they are inconsistent with some uses to which a PCC may be put.

 

 

 

At present, a PCC is required to produce accounts for the whole PCC, that is for both core and cells. This is on the grounds that the law treats a PCC as one company. Whilst there may be cases where “consolidated” accounts are desirable, we question what benefit there is for most cases where the interests in one cell are dissimilar to those of another. S254 of the Law provides that a cell member need not be provided with accounts of the core or of other cells so it seems unnecessary to be required to prepare consolidated accounts.

 

 

 

Additionally, the current audit exemption provisions provide for an “all or nothing” exemption. Certain cells may not be audit exempt if viewed in isolation and it seems unfair to burden all cells with an audit requirement. Therefore, we recommend that audit exemption be available on a cell by cell basis as well as for the core. The filing requirements for audit exemption would also need to be modified in order to avoid the administrative burden of many cells having to file individual exemption notices.

 

21 May 2010

 

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