April 2008 Briefing Listing Offshore Companies on the London Stock Exchange s Alternative Investment Market ( AIM ) PREFACE This briefing is intended to provide a summary of some of the legal requirements and considerations applicable to the use of an offshore company for listing on AIM. It is not, however, intended to be comprehensive in its scope. It is recommended that a client seeks legal advice on any proposed transaction prior to taking steps to implement it. Briefings on other subjects have been produced by Ogier and are available on request. This briefing has been prepared on the basis of law and practice as at 1 April 2008. WHY INCORPORATE OFFSHORE? Offshore jurisdictions have become increasingly attractive as the place to incorporate an issuer seeking to raise funds on AIM. This is particularly the case for businesses which have their primary operations outside the United Kingdom. Jersey, Guernsey, Cayman and the British Virgin Islands, in particular, have become more and more popular as jurisdictions in which to incorporate a listing vehicle. Reasons for this include the fact that they: are recognised as stable, international finance centres with top-tier reputations have well-developed corporate laws which use concepts familiar in English law and which are both robust and flexible OFFSHORE BENEFITS Tax Many AIM businesses do not operate in, or bring income into, the United Kingdom and so do not automatically fall within the United Kingdom tax net. These businesses often seek to incorporate, manage and control their listing vehicle in a tax neutral jurisdiction. In the British Virgin Islands and the Cayman Islands there is no income tax, no corporation tax and no capital gains tax. In Jersey and Guernsey, there is similarly no corporation tax and no capital gains tax. From an income tax perspective, until recently, companies incorporated in the Channel Islands typically relied on their exempt company status to ensure they paid no local income tax on nonlocal source income. However, in January 2008, Guernsey introduced a new 0% rate of income tax which applies to virtually all companies. Jersey will follow suit in January 2009. JsyCorp& Comm/13768264 are amongst the largest offshore jurisdictions and have numerous lawyers and accountants with experience of listed entities (from both an onshore and offshore perspective) offer an extremely favourable tax environment In addition, no stamp duty is payable on share transfers in Jersey, Guernsey or the British Virgin Islands and, in Jersey and Guernsey, the presence of Channel Island subsidiaries of UKbased registrars means that AIM companies share registers can be maintained offshore. In Cayman, stamp duty is payable if an instrument is executed in, or brought into, Cayman following
execution but, generally speaking, rates of stamp duty are fixed and nominal. Corporate Laws The corporate laws in Jersey, Guernsey, Cayman and the British Virgin Islands are to a large extent modelled on, and use many of the same concepts as, English law. This is important for investors since an offshore listing vehicle will generally look and feel very much like its English-incorporated counterparts with which investors are familiar. However, just as importantly, the corporate laws in these offshore jurisdictions, whilst robust, frequently offer a degree of flexibility not afforded by English law. Some examples of this flexibility are considered below. Repurchase and Redemption of Shares The shares of a company incorporated in the British Virgin Islands can be repurchased or redeemed from a wide range of sources, subject to the company being able to meet a balance sheet and cash-flow solvency test immediately after the redemption/repurchase. In Cayman, the premium, if any, payable on a redemption or repurchase must normally be provided for out of the profits of the company or out of the proceeds of a fresh issue of shares made for the purpose. However, payment may be made out of capital, if, immediately following the date on which the payment is to be made, the company can pay its debts as they fall due in the ordinary course of business. Distributions For a British Virgin Islands company, there are no restrictions on the making of distributions, provided that the directors are satisfied on reasonable grounds that the company will, immediately after the distribution, satisfy balance sheet and cash-flow solvency tests. In Cayman, distributions can be made out of distributable profits (as determined by English common law principles) or - subject to the company being able to pay its debts as they fall due in the ordinary course of business immediately following the date of the distribution - out of share premium. New legislation passed in Jersey and Guernsey, expected to come into force during 2008, will replace the current requirement in these jurisdictions for a distribution to be made from realised or unrealised distributable profits. Instead, a Jersey or Guernsey company will be able to make a distribution out of any source (other than from the nominal capital account or the capital redemption reserve) provided that the company is able to carry on its business and discharge its liabilities as they fall due for 12 months after the distribution. Financial Assistance There is no concept of unlawful financial assistance in Cayman or the British Virgin Islands. Indeed, a company incorporated in the BVI is expressly permitted under the BVI s Business Companies Act 2004 to give financial assistance to any person in connection with the acquisition of its own shares. From a Channel Islands perspective, Jersey and Guernsey currently also offer considerable flexibility for no par value companies whose shares may be redeemed or repurchased from the companies capital accounts without recourse to its distributable reserves. However, new legislation passed in both Islands (expected to come into force in the middle of 2008) will allow the repurchase or redemption of shares by all Jersey and Guernsey companies (including par value companies) from any source provided that a cash-flow solvency test is met. Similarly, in Guernsey, financial assistance is not unlawful if permitted by the company s memorandum or articles of association and if balance sheet and cash-flow solvency tests are met. In Jersey, new companies legislation introduced on 22 January 2008 has rendered financial assistance lawful for both private and, most importantly from an AIM listing perspective, public companies.
INVESTOR PROTECTION AND CORPORATE GOVERNANCE As mentioned above, it is typically beneficial from an investor perception point of view for elements of an offshore AIM listed issuer to resemble its English counterparts. This is particularly the case in terms of investor protection and corporate governance. Pre-emption rights There are no statutory pre-emption rights under Jersey, Guernsey, Cayman or (unless statutory provisions are specifically included in the constitution of the company) BVI law. Directors of companies incorporated in these jurisdictions will generally have the power, subject to there being sufficient authorised but unissued share capital, to issue new shares on a non pre-emptive basis. In order to meet general investor expectations, therefore, the articles of association of an offshore company seeking to list on AIM are often amended so as to require the directors to offer new shares on a pre-emptive basis to the existing shareholders. In addition, in the British Virgin Islands, where amending the company s memorandum is within the remit of the directors rather than the shareholders, the articles of association are generally amended so as to require a prior shareholders resolution to approve any intended increase in the company s authorised share capital. Shareholder disclosure Non-UK issuers on AIM are not required to comply with DTR5 (Vote Holder and Issuer Notification Rules) of the Disclosure and Transparency Rules (found in the UK s Financial Services Authority Handbook). This means that shareholders of AIM companies incorporated in Jersey, Guernsey, Cayman or the British Virgin Islands are not ordinarily subject to any requirement to disclose their interests in voting rights in those companies. However, as a matter of best practice, it is now commonplace for the provisions of DTR5 and section 793 of the UK s Companies Act 2006 (enabling a company to serve a notice requiring the disclosure of interests in its shares) to be incorporated by reference into an offshore AIM company s articles of association. This can be supported by additional provisions in the articles allowing the company to withhold dividends, suspend voting rights and prohibit transfers of shares held by a person who has not complied with these disclosure obligations. Uncertificated Shares It is, of course, almost a prerequisite for the shares in a company applying to list on a stock market to be capable of being traded in uncertificated form. In both Jersey and Guernsey, there are specific laws allowing securities to be uncertificated and corresponding provisions are usually included in the company s articles of association allowing the directors to resolve that the shares be uncertificated. In contrast, Cayman and BVI laws are silent as regards the ability for a Cayman or BVI company to have uncertificated securities and therefore, where a company is to be used for a listing, it is usual to provide for uncertificated securities in the articles of association. As regards trading, AIM listed shares in Jersey and Guernsey companies are capable of being held in dematerialised form through CREST, whilst shares in BVI and Cayman companies are typically traded in depositary receipts. City Code on Takeovers and Mergers The UK s City Code on Takeovers and Mergers will usually apply to Jersey and Guernsey companies if the company is considered by the UK s Takeover Panel to have its place of central management and control in its jurisdiction of incorporation. For Jersey and Guernsey companies not meeting the relevant criteria in this regard, and for BVI and Cayman companies, it is usual (and arguably best practice) to include provisions in their articles of association prohibiting or restricting the acquisition of shares in the circumstances envisaged by the City Code on Takeovers and Mergers (i.e. Rule 9) and giving the directors wide powers (commensurate to the extent possible with those vested in the Takeover Panel) to deal with a breach of any such prohibition or restriction.
About Ogier Ogier is one of the world's leading providers of offshore legal and fiduciary services employing over 800 professional and support staff. The group has a presence in 11 jurisdictions around the world, namely Bahrain, the British Virgin Islands, the Cayman Islands, Guernsey, Hong Kong, Ireland, Jersey, London, Montevideo, New Zealand and Tokyo. Ogier provides advice on all aspects of BVI, Cayman, Guernsey and Jersey law and associated fiduciary services through a global network of offices that cover all time zones and key financial markets including the rapidly growing Asian and Chinese markets. Ogier continues to be recognised as a leading law firm by the leading legal directories, including Legal 500 and Chambers.
Contact details NORTH & SOUTH AMERICA British Virgin Islands Simon Schilder +1 284 494 0525 simon.schilder@ogier.com Cayman Islands James Bagnall +1 345 949 9876 james.bagnall@ogier.com Peter Cockhill +1 345 914 1654 Peter.cockhill@ogier.com EUROPE, MIDDLE EAST & AFRICA Guernsey Roger Le Tissier +44 (0) 1481 737150 roger.letissier@ogier.com William Simpson +44 (0) 1481 727163 william.simpson@ogier.com Caroline Chan +44 (0) 1481 752215 caroline.chan@ogier.com Jersey Marc Yates +44 (0) 1534 504220 marc.yates@ogier.com ASIA & AUSTRALASIA Hong Kong Duncan Smith +852 3656 6010 duncan.smith@ogier.com Sara Johns +44 (0) 1534 504205 sara.johns@ogier.com Nathan Powell +44 (0) 1534 504009 nathan.powell@ogier.com Daniel Richards +44 (0) 1534 504141 daniel.richards@ogier.com London Simon Dinning (BVI) +44 (0) 20 7160 5070 simon.dinning@ogier.com This client briefing has been prepared for clients and professional associates of the firm. The information and expressions of opinion which it contains are not intended to be a comprehensive study or to provide legal advice and should not be treated as a substitute for specific advice concerning individual situations. Ogier includes separate partnerships which advise on BVI, Cayman, Guernsey and Jersey law. For a full list of partners please visit our website. www.ogier.com Please check with the relevant contact listed above for specific details regarding the legal services we offer from each office as we do not always practice the law of the jurisdiction where our offices are located. Please note that the named contact may not be qualified to advise on all the laws practiced from that office.