In corporate financing transactions, security is key. Banks invariably choose to protect themselves by taking security over the borrowing company/companies’ assets. Where the borrower is a Gibraltar company, or a Gibraltar company is part of the group structure offering security for a transaction, certain key issues need to be taken into account which might not necessarily be relevant in a modern-day UK context, even though Gibraltar law is, in the main, based on the laws of England & Wales. This is due, in large part, to the fact that Gibraltar’s company law is based on the old UK Companies Act 1929, and that it is therefore not entirely up to date in spite of wholesale amendment and review over the years. These ‘Gibraltar issues’ need to be borne in mind where a Gibraltar company is entering into finance documentation, regardless of whether or not the facility is backed by security:
Under Gibraltar law, there are currently restrictions on so-called ‘financial assistance’, the classic situation arising when an acquiror purchases a target company using bank financing that is secured and guaranteed by the target company itself. However, since Gibraltar’s financial assistance provisions are still in their original state and have not once been amended since their inception, it would seem that, under carefully considered circumstances, Gibraltar companies may be able to provide financial assistance without contravening current legislation.
Section 28 of the Companies Act lists the types of security which are required to be registered in Gibraltar, particulars of which have to be registered at Companies House within 21 days of the date of creation of the security. Effective registration subsequent to the payment of the statutory fee will render the charge effective against any liquidator or administrator of the company and the security holder will rank as a secured creditor.
In addition to full registration and as a result of the ‘Slavenburg’ ruling, security created by an overseas company charging property in Gibraltar (e.g. shares in a Gibraltar company) should be delivered to Companies House for the particulars of the charge to be noted on the ‘Slavenburg’ register. Even though the security cannot strictly be registered in Gibraltar as the overseas company does not have a place of business in Gibraltar to which the Act would apply, Companies House would provide written confirmation that the documents have been presented to the Registrar for registration.
It is a requirement under Gibraltar law that the directors of a company exercise their powers properly for the benefit and in the best interests of the company. Transactions which are not ostensibly beneficial to the company could potentially be set aside as void. This could be viewed as problematic for a company wishing to cross-guarantee and cross-collateralise obligations owed by its subsidiaries and parent companies. In addition, solvency is of paramount importance where the issue of lending is involved and the lender would want to be satisfied that the company is not and will not become, as a consequence of entering into any facility documentation, unable to pay its debts. Equally important is that no insolvency procedures have been commenced by or against The usual practice in Gibraltar is for the firm to carry out a review of the public records of the company on file and available for inspection at Companies House to ascertain that no order or resolution has been filed for the winding up of the company as well as making enquiries at the Supreme Court Registry of Gibraltar, to ascertain whether there is any petition on file for the winding up or liquidation of the company. It goes without saying that any decision has to be properly authorised by the company. Board meetings have to be convened in accordance with the articles of association of the Company and remain quorate throughout so that the items can be validly debated. Producing appropriately drafted minutes of a meeting would usually be viewed as satisfying these requirements. In certain instances and for added comfort, it is sometimes advisable that the shareholders also approve any transaction, and in this way confirm, that the Directors are acting within their powers.
The way in which companies in Gibraltar have been taxed has undergone significant change in the last few years. Following the phasing out of tax exempt companies, the new tax rate is soon to be confirmed after a long awaited judgment by the European Court of Justice.
For the time being, many companies are currently not subject to tax because their income does not “accrue in, derive from or is not received in” Gibraltar. The basis for this is written guidance issued by the Commissioner of Income Tax issued at the request of the Chairman of the Finance Centre Council which defines what constitutes income “accruing in” Gibraltar. The effect of the guidance is to essentially limit tax liability to locally-generated income. In addition, for added comfort, many companies are putting their own circumstances to the Commissioner of Income Tax and receiving individual tax rulings, which on the whole have been favourable.