17 minute read
trade agreements
Jersey does its BIT
Jersey is striving to seal a Bilateral Investment Treaty (BIT) with the United Arab Emirates, which could boost investment on the island and stimulate greater access to Jersey’s expertise among businesses and investors in the region
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Words:
David Craik
AMID THE FALLOUT from Brexit, the UK government is busy attempting to deliver on its promises to UK Leave voters by trawling the global stage for new free trade agreements – Japan and Australia are the latest to hit the headlines.
But it’s not just the UK that’s working hard to achieve international trade agreements. One outcome of the split from the EU is that places such as the Channel Islands are free to pursue their own agreements, rather than to just have UK agreements extended to them.
As a result, Jersey is also ‘thinking global’ – and is on the road to signing its first Bilateral Investment Treaty (BIT) with the United Arab Emirates.
So what exactly is a BIT? Carey Olsen defines it as “an international agreement where the governments of two territories mutually agree to guarantee minimum standards of protection to treat individuals and legal persons … from one country who invest in the other’s territory fairly”.
Prior to 2018, Jersey had been required to request that existing UK BITs be
extended to the island. However, only a third ever were, meaning certain UK BITs with big-hitting economies such as China or emerging financial centres such as the UAE did not apply to Jersey.
That changed three years ago, when Jersey was given an entrustment by the UK to negotiate deals on its own behalf.
The first to be explored under that new freedom is with the UAE. So what will it mean?
KICK-STARTING THE PROCESS
“We have a long-established Jersey Finance office in Dubai and an existing strong relationship,” says Joe Pennell, Policy Adviser (UK and Global Affairs) in the Government of Jersey’s London office.
“The BIT is still under active negotiation, but it is our ambition to sign this. If and when we sign, it will reinforce that relationship. The negotiation is in a reasonably good place and with more face-to-face meetings now possible, we hope to kick-start the final pieces of it.
“However, it is hard to give a timescale, especially with uncertainty about the ratification process in the States of Jersey and the fact that this is our first one.”
Christopher Tan, Associate in Carey Olsen’s dispute resolution and litigation practice in Jersey, believes the focus on the UAE makes sense.
“The nation is a very important trade partner. It is a growing market and ripe for a deepening of the relationship with Jersey,” he says.
“It is, in particular, a global centre for Shariah-compliant Islamic financing. Although that may seem specific, that would be an area where Jersey Finance would be poised to co-operate with the UAE and be an interface in facilitating Emirati companies accessing and dealing with Western capital.
“This is a good opportunity for Jersey to cement its international identity and make an arrangement that works for it specifically,” he adds.
Pennell hints that the BIT could follow an “established structure”. It will likely give protection to investors from both territories through arbitration procedures and investor state dispute settlements – a procedural mechanism allowing an investor from one country to bring arbitral proceedings directly against the country in which it has invested.
“It would provide comfort and protection for investors of both jurisdictions, which we hope would support further commercial and business flows,” Pennell says.
Tan continues: “While the full details are not yet available, it would likely be the case that, if a Jersey company were to invest in the UAE, it would be entitled to expect certain minimum standards of fair treatment from the Emirati government (and perhaps assurances that it will be treated no worse than any other foreign investor). Likewise, any UAE investor coming to Jersey.
“A BIT is a very important step in cementing an economic relationship between two jurisdictions and promoting a stable and well-governed environment to investors.”
Tan also believes that a UAE BIT might contain additional terms relating to the financial services sector, a key pillar of the Jersey economy.
DAY-TO-DAY IMPACT
For Jersey lawyers, fund managers and administrators, there may not be major day-to-day changes under a BIT structure, but Tan says it does bring the guarantee of being looked after if they feel they have been treated unfairly in the UAE.
“When you make the business decision to invest, the dispute resolution mechanism isn’t always at the forefront of your mind – but having the guarantee that you are working in a trustworthy and reliable territory is important,” Tan states.
“It can be powerful. If you feel you’ve been treated unfairly, you have the right to bring that particular government before ▼
an international tribunal and potentially receive very significant compensation awarded by independent arbitrators.
“Under most international treaties, you have to be a state to sue another state, but that’s not the case under a BIT,” continues Tan. “So, you have protection in the local court system and in international law.”
Alex Fawke, Managing Associate at Linklaters, gives an example of “a government promising not to nationalise your property or oil field overnight without compensating you or discriminating you in local law compared with domestic firms”.
“It can also be more nuanced things,” he adds, “such as suddenly losing an import licence or a right to operate licence. If that was done unlawfully or to favour a local company, that could amount to a breach.
“Recently, Spain has had a lot of cases against it because it had a very generous renewable energy subsidy regime that attracted foreign investors and then it changed the framework, leaving some projects unviable.”
FUTURE BITS
Fawke believes Jersey will look to sign more BITs in the future, and that Africa could be the next target. “Countries there are looking for investment,” he says.
Tan also foresees future BITs being signed with many of Jersey’s major trading partners – perhaps with those jurisdictions that already have double taxation agreements with Jersey, such as Hong Kong. “As Jersey grows in prominence on the world stage, having more directly negotiated BITs will be helpful,” Tan says. “The needs of the Jersey business environment and Jersey businesses overseas do not always exactly align with the UK, so the option of autonomous deals can only be a good thing for the island.”
Of course, the Channel Islands’ strength comes from Guernsey as well as Jersey, and Guernsey is focused on furthering trade agreements too. The States of Guernsey issued a consultation in respect of its position on BITs, which closed on 30 September.
“The consultation sets out the background, and Guernsey’s existing network of BITs, along with those signed by the UK as a comparator,” a spokesperson says.
“Now that the consultation is closed, the States intends to develop policy proposals in respect of which jurisdictions to focus attention on.”
Areas of discussion include the extent to which existing BITs benefit Guernsey, the merits and potential economic benefits of having additional BITs extended to Guernsey, and whether the absence of BITs is impeding the activities of Guernsey’s finance sector. Tan thinks Jersey and Guernsey could work on BITs together. “They may in future be in a position to negotiate them jointly,” he says. “Belgium and Luxembourg very often negotiate together with foreign countries at present when it comes to BITs.”
Whatever decisions the islands take on BITs, Fawke believes this is a prime opportunity for Jersey – and by extension Guernsey – to develop a more independent sense of themselves.
“I don’t see the islands venturing into a huge number of other fields of international law,” he says. “But it is a gradual step towards what looks like something more sovereign.” n
What is a BIT?
A Bilateral Investment Treaty (BIT) is an international agreement where the governments of two territories mutually agree to guarantee minimum standards of protection, to treat fairly individuals and legal persons such as companies from one country who invest in the other’s territory.
It is a series of legal protections that encourages and gives comfort to businesses and investors when considering entering a new territory and provides extra succour for entities already there.
“It is an umbrella of legal protection if something goes wrong,” explains Alex Fawke, Managing Associate at Linklaters. “BITs are designed to promote investment. This is what will excite Jersey businesses and investors when we see the full details emerge.”
Are SPACs the new model for private equity?
Simon Dinning and Angus Davison, Partners at Ogier, discuss the broadening appeal of SPACs
THE RE-EMERGENCE OF special-purpose
acquisition companies (SPACs) in the past couple of years shows no sign of slowing as the demand for SPAC formations continues into the second half of 2021.
Already by May this year, there were more than 300 listed SPACs generating gross proceeds of more than $100bn. To put this into perspective, that figure has already surpassed the total proceeds from SPACs in 2020 (in excess of 200 listed, generating gross proceeds of about $80bn).
Increasingly diverse clients are now looking to be involved in SPACs. General investors have, for some time, recognised the advantages that SPACs offer, including access to investments and transactions that might otherwise be restricted to private equity (PE) or (VC) firms.
Now, a growing number of VC and PE firms have shown increasing interest in incorporating SPACs into their investment and structuring toolkits.
In many respects, the aims of SPACs and customary VC/PE strategies are similar, but firms are seeing that SPACs themselves might offer multiple advantages over the traditional acquisition and investment holding structures utilised by PE.
This year there have been a number of PE-backed SPAC launches, as well as announcements of proposed PE SPACs, which in total could amount to several billion dollars in initial public offering (IPO) proceeds.
If these SPACs prove successful, the SPAC could become a major part of how PE does business over the next decade.
While the majority of US-listed SPACs are incorporated using Delaware corporations, a SPAC incorporated in either the Cayman Islands or the BVI is often seen as an attractive alternative.
It may offer a more efficient postacquisition structure and remove any additional US tax, legal or regulatory implications that may arise simply as a consequence of using a US vehicle.
The US Securities and Exchange Commission and NASDAQ allow for rule concessions for non-US issuers that qualify as ‘foreign private issuers’ and for foreign entities to follow more flexible ‘home country rules’. Additionally, the Cayman Islands and the BVI are popular SPAC jurisdictions for other reasons.
These include limited additional regulatory compliance requirements, the suitability of the Companies Act (Revised) of the Cayman Islands and the BVI Business Companies Act and tax neutrality. There’s also a close similarity between Cayman and BVI law compared with Delaware company law, which allows for an easy translation of existing standard legal forms and investor understandings from one jurisdiction to the other.
Ogier has extensive experience in advising on setting up Cayman and BVI SPACs, including acting for PE firms. Notable SPACs we’ve recently worked on include ITHAX Acquisition Corp on its $241.5m IPO on NASDAQ, and ARYA Sciences Acquisition Corp IV on its $130m IPO, also on NASDAQ.
NASDAQ and other leading US exchanges allow listings by SPAC entities formed in other leading offshore jurisdictions, too.
Jersey and Guernsey, for example, are no strangers to SPACs, which have historically used the Channels Islands as a jurisdiction to domicile while seeking a listing on a large market such as the London Stock Exchange or AIM.
Ogier in Guernsey recently advised dMY Technology Group Inc II (dMY II), a New York Stock Exchange (NYSE) listed SPAC on its successful $1.5bn business combination with UK-based Genius Sports Group Limited (GSG). The new Guernsey incorporated company, Genius Sports Limited, was listed on the NYSE.
However, for smaller SPACs – for which the cost of listing on a market such as the LSE may impede their ability to get off the ground – the ability to list SPACs on The International Stock Exchange (TISE) is a development that creates an interesting opportunity.
TISE initially introduced rules for listing SPACs in 2015 and it has recently revised them to align with developing market trends in both the US and Europe and, notably, where there may be an institutional investor base.
The LSE is looking to enhance the UK listing rules so that the UK can better compete with the US and European exchanges for the listing of SPACs, but until enhancements are in place – towards the end of 2022 – TISE represents a costeffective, quick and efficient route to the listing of SPACs in a UK time zone.
SPACs have been enjoying steady growth for some time and the conditions that have fuelled the current boom look likely to exist for the foreseeable future.
Given the advantages that SPACs can offer, private equity firms will likely continue to play a starring role in the SPAC market and help to sustain SPAC growth going forward. n
FIND OUT MORE
Simon Dinning is a Partner at Ogier and specialises in providing corporate and finance advice on transactions involving BVI or Jersey incorporated entities. He has particular expertise in equity capital market deals, cross-border mergers and acquisitions.
Also a Partner at Ogier, and based in Cayman, Angus Davison has a broad corporate finance practice advising investment funds and other clients on financing transactions, IPOs, mergers and acquisitions and regulatory obligations.
Independence in the face of consolidation
Paul Oliver, Group Director of Lancaster Guernsey, explores (some of) the ‘seven habits of highly effective trust companies’
FEW OBSERVERS OF the Guernsey
private wealth market can have failed to notice accelerating consolidation in the trust and fiduciary services market, following various mergers and acquisitions by bank-owned or private equity-backed trust companies over recent years.
This year, we have seen this trend continuing, as several local and international trust companies continue to proceed with acquisitions of independently owned fiduciaries in order to grow their client base and footprint. In light of such consolidation, what room is left for the independently owned trust company?
At Lancaster Guernsey, we adopt the view of Stephen Covey, author of The Seven Habits of Highly Effective People, in seeing this consolidation as an opportunity that reinforces our mindset and mantra – we act and are not acted upon. The future is in the hands of ourselves and our clients; and the future is bright.
WHO ARE LANCASTER GUERNSEY?
Lancaster Guernsey was formed in February 2007 by Simon Graham, with an ethos to provide an exceptional level of discreet service, personally tailored to each client’s needs.
Adopting Stephen Covey’s second habit – “Begin with the end in mind” – Simon believed that he couldn’t provide that service unless Lancaster was independent in ownership and independent in thought.
The initial clients wanted succession planning and asset protection. Since 2007, the client base has remained relatively small in number by design, but big in diversity – both in terms of nationality and needs. However, there are common themes – asset protection, succession planning, confidentiality, discretion and a continuity of high-quality personal service.
How do you achieve that? Because Lancaster is committed to independence, it can offer its staff certainty. Its staff can then ensure continuity of service for Lancaster clients.
It is a virtuous circle illustrated by the fact that each member of staff has an average of more than 20 years’ experience in the industry.
All staff members know all clients and their entities, meaning that if a client calls or emails, then anyone in the office is able to assist with their query.
WHY LANCASTER GUERNSEY
We may be small in the number of clients, but we are big in our ambition for Lancaster and our clients.
In 2013, Lancaster was licensed by the Guernsey Financial Services Commission to advise on and monitor investments, and administer investment-regulated funds, including private investment funds (PIFs).
We added to our fiduciary licence in 2018 to give us the ability to administer and act as trustee to individual and employee-related pension schemes.
So, with a fiduciary, pension and investment licence, Lancaster can do everything a client would expect from a corporate services provider.
Independent in both ownership and mindset, we strive to be the long-term trusted adviser to our clients – and we earn and retain that trust through delivery and excellence.
Clients are busy looking after and running their own businesses and may not appreciate the technical aspects of what we do. We are flexible and nimble. We don’t have unnecessary red tape or bureaucracy and therefore when a client asks for something to be done, we do it – smoothly and efficiently.
From a technical perspective, we know what we are doing and we do it well. We are well versed in the use of trusts, companies, foundations, partnerships and funds – or a combination of them all.
Whether it is banking or investment services, tax planning or legal advice, our international network of long-term relationships ensures that we get the best advice for the client.
Alternatively, given that we are independent and flexible, we are happy to work with the client’s appointed representatives where we can.
HABIT 3: PUT FIRST THINGS FIRST
In Seven Habits of Highly Effective People, Stephen Covey identifies that one of the main obstacles to getting things done is that we get too bogged down in the urgent tasks of life – some genuinely urgent and some that only seem urgent because we allow them to distract us from higherquality thinking time.
At Lancaster, we staff our business so we can spend time thinking about the important things – future planning, relationship building and new opportunities. The global pandemic seems to have encouraged our clients to do the same. Over the past 18 months, we have seen a wealth of new enquiries for structures that clients have plainly been mulling over for some time and now see the importance of getting done – perhaps they have been reading Covey’s book too?
Clients know how to run their own businesses very well, but, for structuring and administering a vehicle for future generations in a well-regulated and transparent jurisdiction such as Guernsey, they turn to us.
We work with the client and their appointed tax and legal advisers to determine their primary objectives for structuring their wealth in a bespoke manner that suits them. We don’t have a house view on what is best – we listen to the client and go from there.
A GUERNSEY FOUNDATION
That said, we are seeing clients and advisers structuring their wealth in several ways, including the use of Private Trust Companies (PTCs) and Protected Cell Companies (PCCs).
But one vehicle that has stood out recently, and has grown in popularity in recent years, is the Guernsey Foundation. Some of the reasons for this are: ● Cutting edge legislation – Guernsey’s foundations law is internationally recognised as modern and flexible, and able to support any number of bespoke structures – ideal for our intermediaries and clients. ● International appeal – A foundation has a separate legal personality from its founder and can hold assets in its own name. However, by appointing a guardian and beneficiaries, it can imitate the best features of a trust. As a result, clients from both common and civil law countries are comfortable with a foundation. ● Client control – A foundation allows
the founder to retain a certain level of management as well as control and influence over the day-to-day administration, either through the appointment of particular officers to the foundation, or by adapting the constitutional documents. ● Primary uses – Typically, we see a foundation being used to protect family wealth by holding its investment portfolio, interests in personal business assets or shares in a private foundation company. Lancaster Guernsey has extensive experience in how to get the best out of a foundation for a client’s individual interests. We can provide council member services through our in-house corporate entity or experienced individuals. And we have a highly skilled administration team who ensure that all activities are carried out in accordance with the appropriate tax and legal advice. n
FIND OUT MORE
To find out more about how Lancaster Guernsey can support your succession planning and asset protection structuring requirements, please contact Paul Oliver or Simon Graham. And don’t forget Habit 1: “Be proactive. Do it today!” Simon Graham, Group Managing Director Email: simon@lancaster.gg Paul Oliver, Group Director Email: paul@lancaster.gg Further details can be found on our website: www.Lancaster.gg
Lancaster Guernsey is the trading name of Lancaster Trustees Limited, registered in Guernsey number 46368, and Lancaster Investment Services Limited, registered in Guernsey number 56111. Both are licensed and regulated by the Guernsey Financial Services Commission and the Registered Office is 2nd Floor, West Wing, Dorey Court, Admiral Park, St Peter Port, Guernsey, GY1 2HT
