Business owners in Jersey: have you declared a dividend or distribution to your shareholders?
If so, did you have a solvency statement, signed by the directors, beforehand?
Andrew Pinel, Partner
If the answer to the second question is no, then you may have a serious problem. Pursuant to the Companies (Jersey) Law 1991, a distribution of cash to shareholders may only be made where the directors make a statement that they have formed the opinion –
(a) that, immediately following the date on which the distribution is proposed to be made, the company will be able to discharge its liabilities as they fall due; and
(b) that, having regard to –
(i) the prospects of the company and to the intentions of the directors with respect to the management of the company’s business, and
(ii) the amount and character of the financial resources that will in their view be available to the company,
the company will be able to –
(A) continue to carry on business, and
(B) discharge its liabilities as they fall due,
until the expiry of the period of 12 months immediately following the date on which the distribution is proposed to be made or until the company is dissolved under Article 150, whichever first occurs.
What could happen?
The company could demand that the relevant shareholders repay the sums to the company. There is express provision for this in the Companies (Jersey) Law 1991. The distribution could be re-declared, but the shareholder is very likely to suffer a worse tax treatment on receipt of the distribution.
This is likely to be a big issue on a sale, requiring an application to court or expensive insurance. So, it’s better to deal with it sooner rather than later.
Can it be fixed?
Pinel Advocates can assist in rectifying the situation, wherever possible. The process will depend upon the timing of the distributions, the value and the likely risks. To request assistance or for more infomatrion, please contact Andrew Pinel or Oliver Hughes.