In the first part of this mini-series, we take a look at how you can continue to hold board meetings, even if they are not ‘face-to-face’ traditional meetings.
Our thanks to Joel Hernandez, Neil McCarroll and Paul Martin from Mourant for their support and work on this series.
The impact of Coronavirus (Covid-19) has sparked uncertainty with completing complex cross-border transactions. With containment measures, including quarantine and travel restrictions prevalent, Jersey and Guernsey companies have been taking some practical measures to overcome barriers during these disrupted times.
How can I hold board meetings if we cannot meet face-to-face?
Under Jersey and Guernsey law, subject to a company’s memorandum and articles of association/incorporation (the Constitutional Documents), there are no restrictions on where a meeting of the board can be held.
With current travel restrictions and imposed remote working becoming more prevalent, having face-to-face meetings may not always be possible and a great benefit of Jersey and Guernsey law is that both can permit meetings of directors to be held by telephone or by other electronic means – so long as all persons attending can hear each other communicate (for example, conference calls, Skype, Teams, WebEx or Zoom calls).
Whilst telephone or video meetings might be helpful, it is still important for you to check your Constitutional Documents to see what other restrictions exist. For example, your Constitutional Documents may require that the majority of directors must attend a board meeting physically in Jersey or Guernsey (as the case may be) to form the necessary quorum. This can be for a number of reasons, for example, to maintain the company’s local tax residency or to meet Jersey or Guernsey’s economic ‘substance’ requirements.
It follows that if your non-resident directors are unable to fly to Jersey or Guernsey (and your board cannot form a quorum), then you may need to consider appointing more directors locally; or arrangements to appoint local directors as alternates, to form the appropriate quorum. These new arrangements will likely take time to consider and implement.
In such cases, it is best to seek legal advice to find a solution. It is also worth bearing in mind that if your company is regulated locally, the appointment of a new director or alternate director may require advance consent and vetting by the local regulator. This should be considered early as part of your transaction timetable.
In some cases, clients found that their Constitutional Documents were outdated and unduly restrictive about where directors should be located during board meetings. There are of course many circumstances where geographic restrictions are necessary; but where this is not the case, it is best to update your Constitutional Documents so that they reflect a flexible regime for meetings which is suitable for your company.
Subject to a company’s Constitutional Documents, written resolutions of the directors may also be passed. In such case, the written resolutions can be executed in counterpart, and may be executed by electronic signature (see part three of this series for more discussion on electronic signing).
Helpfully, Jersey’s Comptroller of Revenue has recognised the disruption that Covid-19 has caused to Jersey companies and has offered some re-assurance to those companies having to make adjustments to compensate for the Cocid-19 outbreak.
On 11 March 2020, Jersey’s Comptroller of Revenue confirmed that where a Jersey company’s operating practices have to be adjusted to compensate for the Covid-19 outbreak, the Comptroller will not determine under Article 6 of the Taxation ( Companies- Economic Substance ) (Jersey) Law 2019, that a company has failed the economic substance test. This treatment will only apply to adjustments to a company’s normal operating practices and to the extent required to mitigate the threats from the outbreak. The illustration given by Jersey’s Comptroller of Revenue is as follows:
‘… where a company would normally hold directors’ meetings in Jersey but, to avoid travel or because individuals are self-isolating, these meetings are temporarily held virtually to allow those individuals – or alternatives – to attend. The Comptroller would not regard this as failing to meet the economic substance test.’
It is worth noting that in early January 2021, Jersey’s Comptroller of Revenue published a draft statement which has been the subject of industry consultation. The statement is expected to be issued formally in due course and provides further clarification on its approach going forward. In summary:
- the concession will be relevant to the ‘directed and managed’ test and will not apply to other elements of the economic substance tests, such as the conduct of core income-generating activities in Jersey;
- it is expected that the company should continue to have the adequate employees, expenditure and physical assets in Jersey as required by Article 5(2)(b) Taxation (Companies- Economic Substance ) (Jersey) Law 2019.
- any company seeking to rely on the concession should ensure that it is keeping sufficient records which evidence the changes that have been made to its normal operating practices and evidence the underlying reasons for these changes; and
- companies relying on the concession will be required to disclose this fact in their 2020 tax return.
While this concession offers practical solutions that will help many Jersey companies, it may not solve all of the issues facing those Jersey companies that have specific director quorum and/or attendance restrictions ‘hard-wired’ into their Constitutional Documents. Any requirements contained in the company’s Constitutional Documents must still be complied with. Again, in such cases it would be best to seek legal advice to find a solution.
Out of adversity comes opportunity
Covid-19 has created an unprecedented set of challenges globally, but by taking some simple practical measures, businesses with Jersey and Guernsey companies can mitigate the impact on their transactions.
This crisis presents opportunities for legislators and businesses to embrace technology to improve business continuity – perhaps by better enabling remote working and creating further efficiencies in transactions (eg even greater use of electronic data rooms and efficient e-signing platforms).
Indeed, some of the measures increasingly being adopted by the business community may catalyse the evolution of best working practices for the future.
Join us for the second part in this series, when we focus on shareholder meetings.
Our thanks to Joel Hernandez, Partner, Neil McCarroll, Partner (Finance and Corporation, Jersey) and Paul Martin, Partner (Finance and Corporation, Jersey) from Mourant for their support and work on this series.
