Standard Chartered consolidated its two Jersey banking entities (Standard Chartered (Jersey) Limited and Standard Chartered Bank, Jersey branch) into a single operating platform for its Jersey business in September 2013.
The transaction was ground-breaking in its use of the Banking Business (Jersey) Law 1991 (Banking Law) which allows Jersey banking business (technically deposit-taking business), to be transferred from one bank to another by means of a court-sanctioned scheme.
The Royal Court of Jersey confirmed in Re Standard Chartered (Jersey) Limited  JRC172 its jurisdiction to transfer investment business alongside banking business under the scheme in appropriate cases, despite the lack of clear permissive wording in the Banking Law. Transfers under the Banking Law are meant to be relatively quick and cost-effective – perhaps involving about half the time and cost of a private law which used to be the preferred method of effecting banking transfers in Jersey. However, the Banking Law had been used only once before the Standard Chartered case to transfer the accounts of the Jersey branch of Bank of Scotland to Lloyds TSB in 2011.
Key Procedural Steps
Transfers under the Banking Law are subject to various procedural requirements, including:
- two court hearings, one being a directions hearing initially for derogations from customer notices and subsequently followed by a second hearing, to consider sanctioning the scheme;
- publication of notices in local newspapers at least 21 days before the Court hearing at which the application to sanction the scheme is to be heard;
- notifications to customers and members of the transferor and transferee (unless derogations have been obtained). These include a summary of the scheme;
- obtaining an auditors report on the terms and likely effects of the scheme on the customers of both banks involved (a summary of which must be made available for inspection for not less than 21 days prior to the sanctions hearing and, unless the Court otherwise directs, sent to every customer and shareholder);
- service of the Court application on the regulator at least 21 days in advance of the sanctions hearing;
- an opportunity for any interested parties including the regulator and any other person (including employees) at the sanctions hearing to be heard and to object on the basis that they would be prejudiced by the carrying out of the scheme;
- depositing copies of the Court order with the regulator within ten days of the Court order being made.
Provided that the scheme involves no compromise or arrangement, the more complex provisions applicable to schemes of arrangement under Jersey company law will not apply.
The key legal documents required include the scheme document itself; the independent auditors report; a summary of the scheme; legal notices for the Jersey Gazette; customer, member and creditor notifications (subject to court derogations); the court application and various affidavits.
Principles to be Applied in Sanctioning
In the Standard Chartered case, the Court sanctioned the transfer of both Standard Chartered's banking business and vestment business from its existing subsidiary to the Jersey branch of Standard Chartered Bank. The Court's judgment ( JRC210) contains helpful guidance on the principles to be applied by the Court when considering an application to sanction a scheme given the lack of statutory guidance in Jersey and in the equivalent English laws.
In the absence of Jersey authorities, the Court considered Re AXA Equity and Law Life Assurance Society and AXA Sun Life Plc  1 All ER (Comm) 1010, noting that it had been transposed by the Court into the Jersey context for long term insurance business transfers.
In summary following that case the principles to be applied include:
- the absolute discretion of the Court must be exercised by giving due recognition to the commercial judgment entrusted by the companies' constitution to its directors;
- the Court is concerned whether an interested party or group (including customers, employees and creditors) will be adversely affected by the scheme;
- the Court will pay close attention to the views of the regulator;
- the scheme, whilst being fair, does not have to be the best possible scheme in the Court's view as that is a matter for the directors; and
- the details of the scheme are not a matter for the Court provided the scheme as a whole is fair.
Fairness of Scheme
After satisfying itself that the required formalities under the Banking Law had been complied with (including the provision of an independent auditor's report and customer notifications), the Court in the Standard Chartered case took into consideration a number of features in assessing the fairness of the scheme including the financial standing of the transferee and the operational impact of the scheme on customers.
The Court also noted that there were no objections to the scheme by customers or creditors. Taking all matters into account the Court was satisfied that the scheme was fair overall and sanctioned the scheme.
As banking groups consider strategic reorganisations involving offshore subsidiaries and branches, the ability to employ flexible court-sanctioned schemes to transfer banking, investment and other regulated business should be welcomed. The Isle of Man has recently introduced a similar court-sanctioned scheme and other offshore jurisdictions are likely to follow its and Jersey's lead.
This article originally appeared in the December issue of Inside Banking.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.