When corporate governance structures falter, standard administrative solutions may not be enough. Joint ventures, shareholder agreements and Jersey Financial Services Commission (JFSC) requirements can all create compliance gaps, and with them the risk of director liability.
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Corporate Governance Work
Governance Structures
Governance work covers the drafting and alignment of Articles of Association, joint ventures and shareholder structures. Getting these right helps reduce the risk of regulatory problems and internal board deadlocks.
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The two duties every Jersey director owes
Article 74 of the Companies (Jersey) Law 1991 sets out the two core duties of a director. When exercising their powers, a director must:
- act honestly and in good faith with a view to the best interests of the company; and
- exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.
The same Article allows members to authorise or ratify an act or omission. If all members agree, it will not be treated as a breach, provided the company can still pay its debts as they fall due afterwards. Ratification by less than all members is possible under Article 74(3), subject to the conditions in Article 74(4) and (5), which include limits on voting by the director concerned and members connected with them.
Conflicts of interest under Article 75
A director with an interest in a transaction that materially conflicts, or may conflict, with the company's interests must disclose the nature and extent of that interest. Article 75 of the Companies Law requires the disclosure either at the first board meeting where the transaction is considered, or by written notice to the company secretary as soon as reasonably practicable.
No declaration is needed where a transaction cannot reasonably be regarded as likely to give rise to a conflict. A company's articles or a shareholder agreement may add further rules, so read both alongside the Law.
Records the Law requires a company to keep
The Companies Law requires:
- Minutes of general meetings and directors' meetings, naming the directors present. Failure is an offence by the company and every officer in default (Article 98).
- A register of directors and secretary kept at the registered office (Article 83).
- Accounting records sufficient to show and explain the company's transactions and its financial position with reasonable accuracy (Article 103). They must be kept for at least 10 years (Article 104).
Under Article 109, failing to keep accounting records is an offence by the company and, for a public company, by each officer in default.
When governance breaks down: the remedies
Unfair prejudice
A member can apply to the Royal Court under Article 141 where the company's affairs are being, or have been, run in a way that is unfairly prejudicial to some or all members. Under Article 143 the court can make any order it thinks fit. That includes regulating the company's future conduct, authorising proceedings in the company's name, or ordering a buy-out of a member's shares.
Disqualification
The Minister, the Jersey Financial Services Commission or the Attorney General can apply to the court to disqualify a person from management of a company. Article 78 allows an order where the person's conduct makes them unfit, for up to 15 years. Acting in breach of an order is an offence.
Wrongful trading
In a creditors' winding up, Article 177 lets the court make a director personally responsible for company debts. This applies where the director knew there was no reasonable prospect of avoiding insolvency, or was reckless about it. It does not apply if the director took reasonable steps to minimise creditors' losses.
Relief for honest directors
Article 212 lets the court relieve an officer, wholly or partly, from liability for negligence or breach of duty where they acted honestly and ought fairly to be excused.
Economic substance for tax-resident companies
Governance also has a tax side. A Jersey tax-resident company carrying on certain "relevant activities" must meet the test in Article 5 of the Taxation (Companies – Economic Substance) (Jersey) Law 2019. It must be directed and managed in Jersey, have adequate people, premises and spending in Jersey, and carry out its core income-generating activities in Jersey. The Comptroller of Revenue administers the test.
solicitors.je is an independent directory. We can point you towards Jersey firms that work in this area.
Corporate Governance Asked Questions
What specific corporate governance failures trigger liabilities in the Royal Court of Jersey?
Article 74 of the Companies (Jersey) Law 1991 requires directors to act honestly and in good faith in the company's best interests and with the care, diligence and skill of a reasonably prudent person. Failing to keep proper accounting records is an offence by the company and, for a public company, by each officer in default (Article 109). Jersey tax-resident companies carrying on certain activities must also meet the economic substance test in the Taxation (Companies – Economic Substance) (Jersey) Law 2019, administered by the Comptroller of Revenue. The Minister, the JFSC or the Attorney General can apply to the Royal Court to disqualify a person whose conduct makes them unfit to manage a company, for up to 15 years (Article 78).
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