09/05/22

JERSEY: Extra protections proposed for members of limited partnerships.

As published on step.org/industry-news, Monday 9 May, 2022.

The Limited Partnerships (Amendment No.2) (Jersey) Law 202- has been approved by the States Assembly of Jersey and will come into force in the third quarter of 2022, subject to approval by the Privy Council of the United Kingdom. It will amend the Limited Partnerships (Jersey) Law 1994.

According to law firm Ogier, this is the most significant overhaul of Jersey's limited partnership (LP) law to date. A large proportion of Jersey investment funds, particularly private equity and real estate funds, as well as asset-holding structures, joint ventures and employee incentive arrangements are governed by LP law, it says.

Under the amendment, new reporting obligations will be placed on LPs, with powers for the registrar to de-register an LP whose general partner is in continued default of its legal obligations. An annual confirmation report must be delivered to the registrar by the end of February annually by the general partner or their nominee.

Previously, if an LP became insolvent, a limited partner who had received a share of its profits would be liable to repay them in order to discharge the LP's debts, for a period of six months after receiving the payment. The new law will makes this statutory six-month maximum-clawback period subject to the LP agreement's provisions. The test for recovery will be whether the payment to the limited partner was made at a time when, and immediately following which, the partnership was insolvent.

The limitation of a partner's liability for the LP's debts to the amount of the partner's stated contribution will, in future, be subordinated to the terms of the LP agreement. A general partner will be explicitly liable for the LP's debts if its assets are insufficient to discharge those debts.

The list of ‘safe harbour’ activities that will not constitute participating in the LP’s management will also be expanded in various ways.

Further, the LP agreement may provide that a partner has no rights to a return of contributions or to receive profits, or both. Moreover, the LP agreement can restrict a limited partner's right to inspect and take copies of partnership records and to be given a formal account of partnership affairs, in order to enable general partners to limit access to sensitive commercial information.

The law also overhauls the previous provisions relating to the winding up and dissolution of LPs, so that winding up begins as soon as the LP is terminated in accordance with the LP agreement instead of going into dissolution first.

Under the amendments, the Royal Court of Jersey can order an LP to be wound up in the event of wrongdoing or if the registrar shows that its activities are damaging Jersey's reputation.

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