Jersey Unreported Judgments

[2008]JRC091

royal court

(Samedi Division)

5^th June 2008 

IN THE MATTER OF ELLASTONE LIMITED

AND IN THE MATTER OF THE REPRESENTATION OF HALIFAX EES TRUSTEES INTERNATIONAL LIMITED (THE "REPRESENTORS")

Advocate M. J. Thompson for the Representors.

judgment

THE Commissioner:

1.        This is an application by Halifax EES Trustees International Limited (formerly Mourant ECS Trustees (Jersey) Limited), as Trustee of PA Holdings Limited 1999 Employee Trust (the "Trust"). The Representors are applying to the Court to reinstate Ellastone Limited (the "Company") pursuant to the provisions of Article 213 of the Companies (Jersey) Law 1991 ("CJL") as amended; to rectify the register of members of the Company with retrospective effect pursuant to Article 47 of the CJL; and, pursuant to the inherent jurisdiction of the Court, for a declaratory judgment that payments made by the Company were dividends under Jersey law when paid.

2.        PA Holdings Limited ("PAHL") is currently involved in an appeal in England against the determination of Her Majesty's Revenue and Customs ("HMRC") under Regulation 80 of the Income Tax (Pay As You Earn) Regulations 2003 and decisions under Section 8 of the Social Security Contributions (Transfer of Functions etc.) Act 1999 in respect of the cash payments made to employees of PAHL in the form of dividends for 2000/2001 and the next two years.  HMRC is claiming that the cash payments received by UK employees of PAHL were emoluments (subject to PAYE) and not dividends (not subject to PAYE).

Factual background

3.        The Company was incorporated under the CJL on 21 January 2000 and was an exempt company for Jersey tax purposes. Until the Company was dissolved on 24 September 2004 it was used as a special purpose vehicle for facilitating and rewarding the employees of PAHL, a company incorporated under the laws of England and Wales, by the Trustee. The directors and secretary of the Company were officers of PAHL, although the Trustee retained the statutory books and dealt with all administrative matters in Jersey, as agents of PAHL. At all relevant times the only registered shareholders of the Company were the Trustee, through nominee companies owned by the Trustee, namely Juris Limited ("Juris") and Lively Limited ("Lively"), which held the shares as nominees for the Trustee and participants in the Share Plan (see below).

4.        In detail the Share Plan operated in this way. PAHL made a capital contribution to the Trust on terms that such payment has to be used to benefit Beneficiaries.  Upon receipt of the contribution to the Trust, the Trustee resolved to make a capital contribution to the Company as a non-returnable gift, to be used in any way that the directors of the Company saw fit.  The Trustee then subscribed for a number of 1p fully paid redeemable preference shares ("RPS") in the Company and the directors of the Company notified the Trustee by letter that the subscription had been accepted in January or February of each year.  The Trustee made payments for the RPS into the Company's bank account and share certificates were issued to Juris, as nominee for the Trustee.

5.        The Trustee, using its absolute discretion, then resolved to award a certain number of RPS to UK resident employees of PAHL (the "Beneficiaries") in March of each year.  The Company issued replacement share certificates to Juris and Juris made new declarations of beneficial ownership i.e. to hold a specified number of the RPS as nominee for the Beneficiaries in accordance with the awards made by the Trustee and for the remaining unencumbered shares to be held as nominee for the Trustee.

6.        New share certificates and declarations of beneficial ownership were also produced whenever employees forfeited their entitlement to the RPS by, for example, terminating their employment with PAHL.

7.        The directors of the Company then resolved to declare that a dividend on RPS should be paid.  The Company would pay out such dividend to Juris, as a registered shareholder and Juris accounted for the dividend payments received less 25% (representing each employee's tax liability on the dividend) to each beneficial shareholder in respect of the RPS award in April of each year.  The directors resolved to redeem the RPS issued in each year in the November of the following year.  At the same time, the Trustee instructed Juris to waive its right to a dividend in respect of the unencumbered remaining RPS.

8.        Following a recommendation from the directors of the Company on 7 July 2004, the shareholders  formally resolved to dissolve the Company on 20^th July 2004 by a written resolution to the effect that the "Company be wound up summarily pursuant to Chapter 2 of Part XXI of the Companies (Jersey) Law 1991".  The document was signed by the chairmen of Juris and of Lively.  The Company had written to the Registrar of Companies on 7^th July 2004 to say that the Company would discharge its liabilities in full within six months, which it did.  The Company was formally dissolved on 24^th September 2004.

Reasons for this application

9.        Despite extensive searches of minute books, correspondence files, safe custody cabinets, archives and electronic storage systems, by both the current and former Trustees, certain key documents relating to the issue of RPS in 2001 and 2002 appear to be missing and there is evidence that this results from a failure to maintain properly the Company's statutory records.

10.      In particular there is insufficient evidence of an entry in the Company's register of members to reflect the holding of 25,500,000 RPS validly allotted to Juris on 17 January 2001. We have read a very detailed affidavit of Heidi Wilson, an English solicitor and a director of the Representors. Mr Thompson has taken us through the matter in some detail providing evidence of the sequence of events and the intentions of Trustee and the board of directors of the Company.

11.      Similarly there is  insufficient evidence in the Company's register of members to reflect the holding of 17,600,000 RPS issued to the Trustee on 18 January 2002 nor that 17,555,553 RPS were transferred to Juris on 18 April 2002. Once again we have read the comprehensive affidavit of Heidi Wilson and Mr Thompson took us through both matters in some detail, providing as much direct evidence as is available to show the intentions of the parties involved.

12.      On 20 April 2001 a payment of £23,900,000 was made by the company to Juris and on 22 April 2002 £18,631,000 was also paid to Juris. Both amounts purported to be dividend payments made to Juris as a member of the Company in respect of its holding of RPS. The lack of evidence to support the contention that Juris was a member of the Company in respect of the relevant RPS gives concern to the Representor that there may not have been valid declarations of dividends in accordance with Article 125 of the Articles of Association of the Company.

Rectification of the register of members of the Company

13.      Under Article 25 (2) of CJL, a person only becomes a member when their name is entered on the register of members. However, Article 47 of CJL allows the Court to rectify the register if, amongst other reasons, "the name of the person ....... is omitted from the company's register of members."  The Court may (under Article 47(3) decide any question necessary or expedient to be decided with respect to the rectification of the register.

14.      Of Article 47, the learned Deputy Bailiff In the matter of Registration of Thayer Group Limited [2006] JRC 125B said:-

"Apparently Article 47 has not fallen for consideration in any previous Jersey case, but the Article is clearly based upon similar provisions in the various English Companies Acts and accordingly English judicial decisions are of assistance.  We have been referred to a number of cases and we would extract the following principles for the purpose of this case:

1)        The jurisdiction to rectify the register of a company is to be widely construed (see Re Imperial Chemical Industries (1936) 2 All ER 463).

2)        The Court has a discretion as to whether or not to grant rectification even where satisfied that there are grounds for making such an order (See Re Diamond Rock Boring Co Limited ex parte Shaw (1877) 1 QBD 463).

3)        Rectification may be retrospective i.e. to take effect as from the date upon which the correct entry should have been made, but the Court may refuse to do this where it would prejudice the rights of third parties (see Re Sussex Brick Company (1904) 1 Ch 598 and Smith v Charles Building Services Limited (2006) EWCA Civ 14 at para 22).

15.      It seems clear to us that the omissions from the register of members of the Company, referred to in paragraphs 10 and 11 above, fall within the scope of Article 47 CJL and that the register of members should be rectified retrospectively i.e. to take effect from the date upon which the correct entries should have been made. In relation to the Company we consider that there are no third parties who would be prejudiced by this rectification.

Reinstatement of the Company

16.      The Company was dissolved on 24 September 2004 and the Representor is applying to reinstate the Company so that the register of members may be rectified. Article 213 of CJL states in part:-

"Where a company has been dissolved under this Law..... the Court may at any time within 10 years of the date of the dissolution, on an application made for the purpose by ......b) any other person appearing to the Court to be interested, make an order, on such terms as the Court thinks fit, declaring the dissolution to have been void and the Court may by the order give such directions and make such provisions as seem just for placing the company and all other persons in the same position as nearly as may be as if the company had not been dissolved".

17.      We have seen a letter dated 29 April 2008 from the Comptroller of Income Tax saying that he has no objection to the Company being reinstated.  The Jersey Financial Services Commission, through the Deputy Registrar of Companies, also confirmed on 1 May 2008 that the Commission has no objection to the representation proceeding. In the circumstances we believe it is appropriate for the Company to be reinstated to enable the register of members to be rectified.

18.      We understand that, on 1 May 2008, HMRC asked the English Solicitors acting in this matter for an adjournment while it considered leave to intervene.  We have considered the matter but have decided to continue to hear the representation on the basis of the comments at paragraphs 5-020 and sequence made in Dicey, Morris & Collins, The Conflict of Laws (14^th Edition).

Were the cash payments dividends according to Jersey law?

19.      We have also decided that, after careful consideration of the documentation, the payment of £23,776,326.09 made by the Company to Juris on 20th April 2001 and the payment of £18,486,388.94 made by the Company to Juris on 22nd April 2002 were payments of dividend by the Company which Juris held for the beneficial owners of the relevant shares.

20.      On 26^th March 2001 the Company held a meeting of the Directors to declare a dividend.  At this meeting, the Directors resolved that in respect of the Ellastone Limited 1p redeemable preference shares issued by the Company, a dividend of £0.99p per share was to be paid on 27^th April 2001 to Ellastone Limited 1p redeemable preference shareholders shown on the company's register on 21^st April 2001.

21.      A bank statement clearly shows that a payment was made by the Company in respect of these shares on 20^th April 2001 amounting to £23,900,000.  However, a declaration of trust was executed by Juris Ltd on 20^th April 2001 for 24,016,491 redeemable preference shares.  The difference here reflects individuals who left the company and therefore waived their rights to the shares or because the Trustee used its discretion not to make as many dividend payments as it initially intended.  As dividends were only payable for 24,106,491 redeemable preference shares at a rate of £0.99p per share equates to a dividend payment of £23,776,326.09.

22.      On 28^th February 2002 the Company held a meeting of the Directors to declare a dividend.  At this meeting, the Directors resolved that in respect of the Ellastone Limited 1p redeemable preference shares issued by the Company, a dividend of £1.06p per share was to be paid on 25^th April 2002 to Ellastone Limited 1p redeemable preference shareholders shown on the company's register on 22^nd April 2002.

23.      The amount paid on 22^nd April 2002 was £18,630,000.  However, on 18^th April 2002 the Trustee transferred fully paid redeemable preference shares of 1p each to Juris Limited.  The amount transferred amounted to 17,555,553 shares.  This transfer was made just before the dividend payment was made.  A resolution of the Trustees of PA Holdings Limited 1999 Employee Trust, dated 22^nd April 2002 notes that Juris Limited, as nominee for the Trustee, held 17,439,999 and 111,266,000 redeemable preference shares in Ellastone Limited.  The 17,439,999 shares held by the Trustee were shares held for employees.  Therefore the amount paid by way of dividend was £18,486,388.94 (17,439,999 multiplied by £1.06 (the price noted in the minutes of the meeting of Directors held on 28^th February 2002).

Summary

24.      We therefore order and declare that:-

(i)        the dissolution of the Company by the Registrar of Companies on 24 September 2004 be declared void pursuant to the provisions of Article 213 of the Companies (Jersey) Law 1991, and

(ii)       that the Company's register of members be rectified in respect of the missing entries for the years 2001 and 2002, as detailed in paragraph 11 above and the draft order provided by the Representors, pursuant to Article 47 of the Companies (Jersey) Law 1991, such rectification to be effective from each of the dates detailed in paragraph 11 above, and

(iii)      the cash payments made by the Company to Juris on (i) 20 April 2001 of an amount of £23,776,326.09 and on (ii) 22 April 2002 of an amount of £18,486.388.94 were payments of dividends by the Company at the time of such payment Juris held for the beneficial owners of the relevant shares.

Authorities

Companies (Jersey) Law 1991. 

Income Tax (Pay As You Earn) Regulations 2003. 

Social Security Contributions (Transfer of Functions etc.) Act 1999. 

In the matter of Registration of Thayer Group Limited [2006] JRC 125B.

Dicey, Morris & Collins, The Conflict of Laws (14^th Edition).