JERSEY Law and Practice Contributed by: Paul Burton and David Allen, Maples Group
are commonly set to ensure that day-to-day decisions can be taken by management. In other words, man - agement will have operational control of the business, whereas private equity sponsors will have oversight and ultimate influence over management by being able to control the board of the holding company of the portfolio business. Management business operation and private equity sponsor control rights are regulated in a shareholders’ agreement that governs their relations as shareholders in the portfolio company. This will likely include the following provisions, among others: • covenants from management with regard to the conduct of the business of the portfolio company; • extensive veto rights for the private equity sponsor; • restrictions on the transfer of securities in the port - folio company; and • provisions regarding further issuances of share - holder equity/debt. In addition, the constitutional documents may include governance arrangements, particularly with regard to the transfer of shares. The extensive veto rights in favour of private equity sponsors will typically be split between director veto rights and shareholder veto rights. Such veto rights (or reserved matters) would include amendments to the capital structure or con - stitutional documents; entering into, amending or ter - minating material contracts; changing the nature of the business or entering into new business lines; and commencing or settling litigation. In a minority private equity investment, given that the private equity sponsor is unlikely to have board con - trol, it is usually much more focused on veto controls to the extent that, in certain cases, a minority invest - ment may result in more veto control than might be the case in a majority investment. Statutory (shareholder) information rights in relation to private companies in Jersey are limited. 9.2 Shareholder Liability Jersey company law contains the concepts of sepa - rate legal personality and limited liability. It recognises that the legal personality of a company is separate
to that of its shareholders and that, fundamentally, a shareholder’s liability is limited to the amount invested in a company. A corollary of this is that, in exceptional circum - stances, a Jersey court might be prepared to “lift the corporate veil”, which may result in a private equity sponsor being liable for the actions of its portfolio company. To pierce or lift the veil, there needs to be a deliberate evasion of an existing legal obligation or liability by the shareholder concerned. The remedy of piercing the corporate veil, so as to impute liability to a private equity sponsor (majority portfolio company shareholder), is unlikely to be capable of being suc - cessfully engaged as a matter of Jersey law based on customary private equity transaction structuring, as discussed in 5.1 Structure of the Acquisition . The same concept of limited liability applies to lim - ited partners of Jersey LPs, where limited partners will generally only be liable for debts of the partner - ship if they have participated in the management of the partnership (excluding a number of specific safe harbour activities), thereby jeopardising the limited liability inherent in such structures. Portfolio asset-holding periods stretch from five to eight years, depending on the nature of the asset and other prevailing market conditions. Also, the seller- friendly nature of the market in Jersey over the last five or so years has meant that competitive auction processes (including with pre-emptive offers) have become very common. As most private equity transactions in Jersey are of financial services sector/regulated businesses, auc - tion sales to strategic trade buyers and other private equity sponsors (in secondary or tertiary transactions) are all normal. Since 2021, given the COVID-19-in - duced volatility in capital markets and in relation to FX currency trading, an IPO has been the least attractive form of exit strategy. Reinvestment by private equity sponsors (save for an IPO exit scenario) is not typical. 10. Exits 10.1 Types of Exit
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