It is no surprise, as a result of the wider economic unpredictability arising from COVID-19, that listed companies requiring urgent access to capital are turning their attention back to Jersey cash box structures. With a long history of their use in the capital markets, Jersey cash box structures proved popular during the years following the global financial crash as utilising such structures enabled listed companies to access funds on an expedited basis when alternative methods of capital-raising were expensive and time consuming.
What are the advantages of a Jersey cash box structure?
In an environment where there may be an urgent need for capital, cash box structures are appealing to public listed companies in the United Kingdom (UK PLC) as they permit UK PLCs to issue shares for non-cash consideration. This creates timing benefits as the pre-emption rights in the Companies Act 2006 do not apply, dispensing with the delays involved in the need to seek shareholder approval to dis-apply pre-emption rights, subject to compliance with any guidance from institutional investor groups. It should be noted that on 1 April 2020 the Pre-Emption Group issued revised guidance to institutional investors in relation to requests for approval of waiver of pre-emption rights. The guidance will stand until 30 September 2020.
Depending on how the ‘cash box’ is structured UK PLC will:
- not be required to prepare a prospectus prior to implementing the cash box structure, which again is relevant from a timing perspective and helping to offset any market risk and expense.
- be able to create distributable reserves availing of the merger relief provisions of the Companies Act 2006.
How does a cash box structure typically work?
Traditionally there have been two permutations of the cash box structure using a Jersey company (JerseyCo):
- JerseyCo issues redeemable preference shares to an investment bank or financial sponsor (the Bank) appointed by UK PLC (the JerseyCo Share Issue Structure); and
- JerseyCo issues bonds to investors identified by the Bank which are convertible into redeemable preference shares (the JerseyCo Bond Issue Structure).
In each case, upon issue the redeemable preference shares of the JerseyCo are exchanged for shares in the UK plc issued to the investors identified by the Bank.
A JerseyCo Share Issue Structure usually has the following characteristics:
- JerseyCo will be incorporated as a wholly owned subsidiary of UK PLC
- JerseyCo will issue redeemable preference shares to the Bank
- If UK PLC seeks to avail of merger relief, a certain number of ordinary shares of JerseyCo will also be issued to the Bank.
- The Bank will transfer the redeemable preference shares in JerseyCo to UK PLC in exchange for newly placed UK PLC shares which are issued to investors in a placing
- UK PLC is then free to redeem the redeemable preference shares in JerseyCo and therefore can access the subscription proceeds paid by the Bank when it subscribed for the redeemable preference shares. Alternatively JerseyCo may lend the subscription proceeds to UK PLC with the interest on such loan being sufficient to allow JerseyCo to discharge its dividend obligations on the redeemable preference shares.
A JerseyCo Bond Issue Structure usually has the following characteristics:
- JerseyCo will be incorporated as a public company.
- JerseyCo will issue convertible bonds to the Bank (on behalf of investors)
- The bonds are convertible by the investors for redeemable preference shares in JerseyCo which, upon issue, are immediately exchanged for ordinary shares in UK PLC.
- UK PLC gets access to the proceeds of the convertible bond issue through a loan from JerseyCo which will attract interest that is sufficient for JerseyCo to service its interest obligations under the convertible bonds.
In both a JerseyCo Share Issue Structure and JerseyCo Bond Issue Structure, JerseyCo will usually be managed and controlled in the United Kingdom and therefore tax resident in the United Kingdom. There is no stamp duty nor tax payable in Jersey on the issue of the redeemable preference shares or any related bonds or on the transfer of those redeemable preference shares.
Why use Jersey for cash box structures?
Jersey as a jurisdiction has a proven track record when it comes to fundraising for public companies and has a well-established set of company law statutes which, whilst very similar to English law, they also include mechanisms which facilitate the fluid flow of capital.
The company incorporation process in Jersey is extremely streamlined and subject to satisfying certain AML CDD requirements, a company can be incorporated on the same day (and this remains the case despite the wider COVID-19 disruption). The consents required for the securities issues in Jersey in a JerseyCo Bond Issue Structure are standard and can be obtained on parallel timelines to the offer and listing process for the bonds.
The team at Appleby are extremely well placed to advise clients in all legal aspects of a cash box structure having assisted a number of clients in the implementation of such structures both recently and historically. To further expedite matters we can coordinate with our colleagues in Appleby Global Services who are able to assist with every stage of the incorporation of a new Jersey company and any other related services which may be required.