As we head into the last quarter of 2020 we take a look at some of the latest developments in the Guernsey Investment Fund Market including how the coronavirus (COVID-19) continues to restrict travel, new legislation relating to self-managed funds and migrations of limited partnerships, and Guernsey's commitment to green funds.
The global pandemic continues to dominate political and business news. At the time of writing, Guernsey has had no active cases for more than 4 months. As a result, persons arriving in the Island from locations with active cases must quarantine. The length of quarantine depends upon the perceived risk in that location. At the time of writing arrivals from the UK may elect to self-isolate for 7 days and then be tested. This is likely to reduce to 2 days in the near future. In addition, Guernsey has introduced business tunnels through which business travellers from the UK can spend a day in the Island without any quarantine but subject to social distancing and other restrictions.
These new guidelines make travel to Guernsey possible but company policies or restrictions imposed by other countries means that for some, travel to Guernsey for meetings may not yet be practicable. Accordingly the guidance issued by the Guernsey International Business Association in March on substance remains extant. That guidance states that in the present exceptional circumstances a pragmatic approach to compliance with substance requirements will be adopted and this approach was endorsed by Guernsey's Chief Minister. Companies are advised to maintain relevant records to demonstrate why compliance has proved impossible and utilise virtual conference facilities if possible.
The European Union (EU) has not issued any COVID-19 guidance. However, HMRC in the UK has noted that existing legislation and guidance already provides flexibility to deal with changes in business activities necessitated by the response to the COVID-19 pandemic. HMRC helpfully notes that they do not consider that a company will necessarily become resident in the UK because a few board meetings are held there or because some decisions are taken in the UK over a short period of time.
However, it has now been more than 6 months since the initial outbreak and consequential lockdown, and there remains uncertainty as to when more normal travel arrangements will resume. Therefore, consistent with the GIBA guidance businesses should consider appointing alternate directors to achieve substance compliance and where necessary consider adjusting board composition. More information can be found on our dedicated COVID-19 site.
Draft Guernsey legislation responding to the proposal to include self-managed funds within the scope of the substance regime has been circulated to industry groups for consideration. The legislation will not have effect from 1 January 2020 as originally proposed but is expected to take effect later this year. In summary, it is anticipated that any Guernsey fund which does not appoint an external manager will become subject to the substance requirements.
Migration of Limited Partnerships
In July Guernsey introduced rules permitting the migration of overseas Limited Partnerships to Guernsey and Guernsey Limited Partnerships to overseas. A detailed description of how the legislation works is given in our briefing note: ' Guernsey introduces statutory migration regime for limited partnerships'. Notably, the new rules for the first time permit investment funds structured as limited partnerships in other parts of the world to migrate to Guernsey instead and vice versa. The legislation provides that no new Limited Partnership is created by the migration; rather the Partnership continues in that other jurisdiction with all of its assets and liabilities intact and does not affect any partnership interests, any act done before the migration or the rights and powers of the limited partnership or any partner or any other person before the migration.
Guernsey was one of the first jurisdictions to introduce a Green Fund product in July 2018. Since then seven Green Funds have been launched in Guernsey with a total net asset value of £2.7 billion. Further strengthening its commitment to the Green movement, Guernsey released the Green Private Equity Principles on 1 June 2020 , a voluntary guide to best practice for General Partners. The aim of the principles is to guide General Partners towards the goal of sustainability and fighting climate change, with a focus on both the investment process and the portfolio itself. It remains to be seen whether the pandemic has positively assisted with the shift towards sustainable investing becoming the new normal, but with everything pointed in that direction before 2020 it seems inevitable that the global crisis will push business and individuals to rethink their priorities.
Coronavirus (COVID-19) resources
We have produced guides and briefings to assist you in assessing and mitigating the extensive challenges presented by the coronavirus.
This content is housed in a dedicated coronavirus (COVID-19) resources hub and includes guidance in relation to workplace disruption and employment law best practice, immigration, restructuring and insolvency, economic substance requirements and considerations for directors and lenders.
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.