Welcome enhancements to Jersey's limited partnership legislation have been approved by the States Assembly. These changes will add flexibility and clarity to elements of the Limited Partnerships (Jersey) Law 1994, further developing Jersey's regime as 'best in class'.
Among the key changes being made:
- Investors will welcome additional certainty concerning the 'safe harbour' provisions. These are a (non-exhaustive) list of activities which limited partners may expressly undertake, without risking their limited liability status by being deemed to participate in the 'management of the partnership'.
The expanded safe harbour list includes activities such as calling or participating in meetings of partners, entering into or performing contracts with other partners in the partnership, and extending loans to the partnership. It will include voting on a wider range of specified matters, including on acquisition or disposal of an investment by the partnership or on the participation by a limited partner in a particular investment.
Holding an office or other interest in a general partner (or acting as a partner in a 'GP LP', a partnership which itself acts as general partner) are also among the extended safe harbours. The list includes a number of other activities, and more additions may be made swiftly if further clarity is desired in future.
- Those investors (or their representatives) who sit on LP committees will benefit from an express statement that they owe no duty to the partnership, partners, other committee members or third parties.
- The terms of a limited partnership agreement may now limit or restrict limited partners' statutory right to inspect or take copies of the partnership's records. Such information – in particular in carry partnerships – is often commercially sensitive, so the ability to include bespoke information rights will be beneficial in many cases.
- The amendments will specifically provide for the enforcement of terms of the partnership by third parties who are not party to the partnership agreement itself.
For instance, many partnership agreements contain indemnities in favour of third parties, such as investment advisers or individual directors or employees involved in the business of the partnership.
This addition will add clarity for beneficiaries on how these rights may be invoked, without more complex drafting in the partnership agreement, given that Jersey law does not provide for the enforcement in general terms of third party rights.
- The statutory six-month 'clawback' period (for repayment of amounts received by a limited partner at a time when the partnership proved to be insolvent) will be capable of being modified in the partnership agreement. The test will also be simpler to apply (simply requiring that the partnership was insolvent on and following the payment to the limited partner).
- Partnership agreements will be able to provide for circumstances in which a limited partner may be liable for the debts or liabilities of the partnership, as well as the specific circumstances under the law itself.
In addition, the statutory process for dissolving a limited partnership will be overhauled, resulting in a clearer process at the end of the partnership's term. The limited partnership will only be cancelled (and therefore formally dissolved) once the winding up of its affairs is complete. This will allow the more orderly winding up of partnerships in line with the specific provisions of the partnership agreement, as well as more clearly preserving the limited liability status of limited partners during this process.
A number of more administrative or modernising changes are also included. For more detail on the full changes, please see Ogier's briefing: Amendments to the Limited Partnerships (Jersey) Law 1994.
In a number of respects these changes will instantly enhance the operation of existing partnerships once they come into force (expected in Q3 2022, following Privy Council approval). In some cases, changes to partnership agreements may be worthwhile to take advantage of the greater flexibility.
The changes also add further reason for non-Jersey limited partnerships to consider migrating to the island, building upon its statutory regime for eligible foreign limited partnerships to move seamlessly into Jersey, introduced in 2020.
Get in touch
Ogier's specialist investment funds team will be pleased to discuss any enquiries relating to the impact of the amendments or updates to the terms of existing partnerships. Please contact me for further information:
T: +44 1534 514 434
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