International Deal Making: Assisting Acquirers

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QUESTION ONE – In your experience, what are the key considerations that international clients should have the front of mind when assessing a target company for acquisition in your jurisdiction?

The primary consideration is whether the target company is carrying on a regulated activity in Jersey. This includes regulation under the Financial Services (Jersey) Law 1998 as amended, the Insurance Business (Jersey) Law 1991, as amended, or the Control of Borrowing Order if the vehicle is established as a Jersey Private Fund (JPF).

Investors should also be aware that there may be restrictions on minimum shareholdings due to regulation. If, for example, the target is established as a professional investor regulated scheme or a JPF, the minimum holding will be £250,000.

If the entity is regulated, it may not add a significant amount of work to the acquisition, however, there may be consents to be gained. It is certainly worth a discussion with your Jersey counsel as to any additional obligations which may be placed on shareholders and directors. This will then feed into the due diligence process because you do not wish for your incoming directors to be subject to any regulatory issue as a result of the actions of the previous board.

Publicly available information is limited in Jersey. All companies file their memorandum and articles of association upon incorporation, and during their lifetime must file any special resolutions. They are also required to file an annual return by the end of February each year showing their shareholders as at 31st December. Public companies are required to file details of their directors and file accounts within seven months of their year-end.

Both English and Jersey law are used for sale and purchase agreements. Jersey contract law is similar to English law, but it is not the same, and therefore it is sometimes preferable to use English law if it is an appropriate forum. If English law is used, there are certain changes we recommend to the agreement such as removal of the power of attorney. It also often assists the Jersey lawyers to have a quick review and amend before it is circulated. In addition, the vendor will prepare the Share Purchase Agreement (SPA) under Jersey law, not the purchaser.

QUESTION TWO – How would you, as a professional advisor, approach the due diligence process to ensure all bases are covered prior to a sale price being agreed?

It must be clear whether we are being asked to carry out exceptions due diligence report, or a full due diligence report. For sale pricing purposes an exceptions report is usually sufficient, as it highlights areas that need to be fixed. A full report is later required once the sale price is agreed in principle.

We usually ask that all information is available in a data room. If not we request access to the corporate books at the registered office (we would usually ask for 2- 3 days access). The information available is compared to that which is publicly available, to ensure that all resolutions are filed. Once we have carried out a review of statutory documents, we review the minute book to ensure that they contain the correct declarations of interests, the parties have then voted or abstained in accordance with the articles of association and that the resolutions correctly authorise the business of the meeting and that signatories are authorised correctly to execute any documents. Particular attention is paid to distributions, redemptions, share buybacks and share transfers, to ensure that they are carried out in accordance with the law. We then produce the due diligence report, listing the issues and the process(es) available to rectify the issues.

QUESTION THREE – Once an acquisition is agreed, what are the key clauses or warranties and indemnities you would recommend for inclusion in the sales contract?

Clauses, warranties and indemnities in Jersey broadly follow those in England and Wales. However, specific to Jersey, we include provisions to transfer registered office (if required) and bank accounts.

It is worth noting that there is a notification of the change in beneficial ownership which will need to be carried out within 21 days (if the company has its registered office at a regulated service provider), responsibility for this would usually be included as a term of the SPA.

Banking arrangements in Jersey are often related to the administrator, not the company, so there may be an undertaking to close accounts. Provisions to require the release of any Jersey security over either the shares or the assets of the target will also need to be contained in the SPA (possibly appending an agreed form of release). Jersey does not need to follow UK GAAP, so the accountancy warranties are often a little different. Finally, if the entity is regulated, we include confirmations regarding the regulation and, if not, we would include a representation that it is not regulated.

Tips for completing a successful cross-border acquisition

Introduce your advisors to each other early in the process. We sometimes see offshore advisors being brought in either after DD is complete or near completion. We understand that a client may wish to limit fees, but that initial conversation between the parties can serve to point out matters to watch out for and agree to roles and involvement.

Consider who is to house the registered office and, if required, carry out the administration of the company. Even if the company remains where it is, the laws in Jersey are strict on client due diligence. It may seem like a minor consideration, but we have seen it delay transactions when a service provider has not completed its onboarding process.

Keep all counsel apprised of the commercial terms of the deal and allow offshore counsel direct access to the client (the main counsel may be tied up on major matters and an unaddressed offshore point may prevent progress).

This excerpt was taken from the IR Global Guide: International Deal Making: Assisting Acquirers. To view the full publication, please click here.