Out-Of-Court Restructuring Guidelines for Mauritius

OUT-OF-COURT RESTRUCTURING GUIDELINES FOR MAURITIUS

1. INTRODUCTION

It is a generally accepted global principle that restructurings achieved outside formal insolvency proceedings yield higher stakeholder returns for those involved, as these are more flexible and efficient than court proceedings.

Consequently, before an insolvency case is brought to court one option available to the debtor and creditors involved is an informal workout, or out-of-court restructuring, where both the debtor and the creditor(s) attempt to come to a private arrangement for the adjustment of the terms of the debt and to allow the debtor to continue normal business operations.

It is generally accepted that out-of-court workouts:

• Allow viable businesses to continue to operate and to emerge successfully from financial distress;
• Allow creditors generally, but specifically lenders, to reduce losses;
• To a large extent avoid the social and economic impact of major business failures’
• Reduce pressure on the courts;
• Better serve other key stakeholders, such as customers, employees, suppliers and investors, since businesses subject to out-of-court restructuring proceedings continue to trade;
• Are more efficient and effective than court procedures due to the shorter time frames and higher recovery rates;
• Assist the commercial community in developing confidence in the fairness, transparency and accountability of insolvency and restructuring proceedings;
• Can apply to any form of business enterprise.

The approach taken in these guidelines is that of INSOL International’s “Statement of Principles for a Global Approach to Multi-Creditor Workouts”. The INSOL principles are highly regarded around the world, and have formed the basis for out-of-court restructuring guidelines in various jurisdictions.

2. OBJECTIVES AND SCOPE OF THESE GUIDELINES

These guidelines are intended to provide business entities (debtors), creditors and government agencies with guidance for out-of-court restructurings.

The principles contained in these guidelines, and the guidance notes for the implementation of the principles, are aimed at providing debtors and their creditors with a framework based on international best practices in this field.

The principles contained in this guide may also be used, to the extent that they are compatible, in steering negotiations between the debtor and the creditors in formal restructuring mechanisms contained in the Insolvency Act 2009.

3. KEY CONCEPTS AND TYPES OF CREDITOR WORKOUTS

3.1 Expected Outcomes

The expected outcome is a negotiated restructuring plan between the debtor and the relevant creditors, allowing the debtor’s business to continue and to ensure the total or partial coverage of its debt (“relevant creditors” are usually creditors having the largest claims, or those crucial to the continuation of the business of the entity; these creditors will usually be the debtor’s bankers, but it may also include other major creditors such as financing creditors, landlords and major suppliers). Should a negotiated restructuring plan not materialize, the possible alternatives are the commencement of pre-insolvency court proceedings (such as a scheme of arrangement), or formal insolvency proceedings. Whatever the outcome, the use of the information collected during the out-of-court workout process may lead to expedited formal proceedings.

3.2 Types of Creditor Workouts

Workout negotiations may be:

• Bilateral negotiations between the debtor and a creditor, leading to the rescheduling of payments and/or debt forgiveness;
• Multilateral negotiations between the debtor and its major creditors, leading to debt rescheduling, debt forgiveness or the granting of other incentives, as agreed by the parties.

3.3 Difference Between Out-of-Court Workouts and Formal Restructuring Proceedings

The most important differences between out-of-court workouts and formal insolvency proceedings are:

• Out-of-court workouts do not seek to vary existing entitlements or bind nonconsenting creditors;
• Out-of-court workouts are consensual and do not threaten or compromise the existing legal rights of the debtor and creditors;
• Both the process adopted as well as the arrangements between the debtor and its creditors in an out-of-court workout are flexible, may be achieved in a shorter period of time and with a lower risk relating to the debtor’s business reputation when compared to formal insolvency proceedings;
• Out-of-court proceedings allow a more favourable context for obtaining additional finance.

4. PRINCIPLES FOR OUT-OF-COURT RESTRUCTURING GUIDELINES IN MAURITIUS

FIRST PRINCIPLE

Where a debtor finds itself in financial distress, all relevant creditors should be prepared to co-operate with each other, and the debtor, to provide sufficient (though limited) time – the “Standstill Period” - for information about the debtor to be obtained and evaluated, and for proposals for resolving the debtor’s financial difficulties to be formulated and assessed, unless in a particular case such a course is inappropriate.

Guidance Notes:

No debtor has a right to a Standstill Period in order to conduct an out-of-court workout: this is a concession by creditors, and not a right of the debtor. The debtor, of its own accord or through its advisers, needs to assess whether there is a realistic possibility that its financial difficulties can be resolved with a view to its long-term viability. If restoring the long-term viability of the debtor is not possible, alternative remedies, such as the liquidation of the debtor by way of formal insolvency proceedings, should be considered.

The purpose of the Standstill Period is to provide the debtor with sufficient time to prepare a restructuring plan that will resolve the debtor’s financial difficulties. The restructuring plan must demonstrate that the distressed business is capable of operating profitably, as well as the extent to which it will be able to repay its debts. There is no prescribed minimum information that the restructuring plan should contain, but it is imperative that the plan should demonstrate that there is a reasonable prospect of the business becoming viable in the foreseeable future. Matters normally dealt with in a restructuring plan would include the following:

• Projected trading profit and loss for the foreseeable future;
• Cash flow forecasts;
• Sources of additional capital;
• Any proposed modification of creditors’ rights (for example by deferral, variation or debt forgiveness);
• Significant changes in management or ownership.

The reference to all “relevant creditors” refers to those creditors whose rights will be affected by the proposed restructuring contained in the plan.

The unanimous support of all relevant creditors is essential. The number of participating creditors should therefore be kept to a minimum in order to reduce the complexity of the negotiations. If support for the plan by creditors is inadequate, the restructuring will be unable to go ahead.

The manner in which this principle is expressed makes it clear that what is hoped will develop over time is a willingness by creditors to participate in an out-of-court restructuring as a matter of course, unless such a course of action is clearly inappropriate in the circumstances.

The Standstill Period should be limited to the time that is required to produce a viable restructuring plan, or to determine that such a plan cannot be produced within an acceptable time limit. The Standstill Period will vary from case to case, although usually it should not be longer than a few weeks.

During the Standstill Period, it is vital that the relevant creditors receive adequate reliable information to enable them to assess the debtor’s financial position, to understand what has caused the underlying financial problems, and to evaluate any proposed solutions that are put forward. It must be borne in mind that at the conclusion of the negotiating process, the relevant creditors will be requested to approve the proposed solution. If the relevant creditors do not have absolute confidence that they have received adequate and accurate information, as well as sufficient time to review it, they will not be in a position to approve the proposed course of action.

One of the greatest challenges facing an out-of-court restructuring plan is the tendency of individual creditors to try and pressure the debtor for payment. The greater the likelihood of such payments being made, the smaller chance there will be of the restructuring plan succeeding.

SECOND PRINCIPLE

During the Standstill Period, all relevant creditors should agree not to take any steps to enforce their claims against, or to reduce their exposure to, the debtor (this would exclude the disposal of their debt to a third party). However, creditors are simultaneously entitled to expect that their position relative to other creditors will not be prejudiced during the Standstill Period.

Guidance Notes:

The aim of this principle is to achieve stability among creditors during the Standstill Period, and to maintain the status quo regarding their claims as they existed immediately prior to the Standstill Period. However this may achieved, all relevant creditors must be comfortable and confident that in deciding not to pursue their individual enforcement remedies, they will not be prejudiced in relation to other creditors should a consensual way forward for the debtor not be found. Each creditor’s ranking relative to the other creditors must be neither worsened nor improved during the workout process. 

The appeal of the out-of-court restructuring process can be greatly enhanced by the involvement of qualified professional advisers (where these are available), or government agencies that have moral authority and who can earn the respect of the creditors. In the context of Mauritius there is an important role for the Bank of Mauritius, the Mauritius Bankers Association and the Insolvency Service in not only sponsoring and promoting the out-of-court restructuring guidelines, but also by publicly or formally endorsing them.

Although a written agreement for a Standstill Period is not necessary in cases where an effective informal understanding amongst the relevant creditors exists, in those cases where the Standstill Agreement has been reduced to writing it is necessary for the creditors signing up to the agreement to agree that, during the Standstill Period, they will:

• Not to try to improve their positions relative to other creditors;
• Not insist on payment of amounts owing to them;
• Not initiate collection, security enforcement or liquidation proceedings; and
• Allow existing credit lines and facilities to be used.

THIRD PRINCIPLE

During the Standstill Period, the debtor should not take any action that would adversely affect the prospective returns to the relevant creditors on a collective or individual basis, as compared to their position at the commencement of the Standstill Period.

Guidance Notes:

If the creditors agree individually or collectively that they will not take any steps intended to gain an advantage over other creditors, it follows that the debtor must also agree not to do anything that would be detrimental to the interests of any creditor or class of creditors, or alter their respective priority positions from the commencement of the Standstill Period.

One important exception to this principle is the ability of the debtor to continue to make payments in what is commonly referred to as “the ordinary course of business”. If this exception were not allowed, the debtor would not be able to continue to trade while attempts are made to agree the terms of a workout. The types of issues that should be avoided here are for example transactions that are not for full value, the making of preferential payments, the granting of security for previously unsecured debts, or incurring new loans without prior creditor consent.

FOURTH PRINCIPLE

In an out-of-court restructuring, the interests of the relevant creditors are best served by coordinating their response to a debtor experiencing financial difficulties. In complex cases coordination of this nature may be facilitated by the formation of one or more representative coordination committees, by the appointment of professional advisers to advise and assist such committees and, where appropriate, the relevant creditors themselves participating in the process as a whole.

Guidance Notes:

All negotiations between the debtor and the relevant creditors must be conducted in the utmost good faith, in an atmosphere of honesty and frankness, and with the objective of finding a constructive solution to the debtor’s financial problems. If any of the parties lose confidence in the fact that their counterparts are negotiating in good faith, the negotiations to find a constructive solution are likely to fail which will in turn lead to the relevant creditors falling back on their legal remedies of enforcement and / or the commencement of insolvency proceedings.

Due the number of different creditors that could be involved in an out-of-court restructuring agreement, and their different priority positions in the event of a liquidation, it is often advisable for committees to be formed and for professional advisers to play their part in achieving consensus on the terms of the restructuring agreement. It may be appropriate for the costs of outside advisers, perhaps within specified limits, to be paid by the debtor.

Relevant creditors, or a representative co-ordination committee, may wish to consider appointing one person to lead negotiations with the debtor on their behalf (this could for example be the creditor with the greatest exposure, one with experience in managing restructuring negotiations, or an independent person).

In cases where the relevant creditors are experiencing difficulties in reaching consensus, it may be appropriate to consider whether or not some form of alternative dispute resolution, such as mediation, could be used to reach agreement. Any agreement reached on this basis can be made conditional on an overall restructuring plan being agreed which includes them.

FIFTH PRINCIPLE

During the Standstill Period, the debtor should provide all relevant information regarding its assets, liabilities, business and future prospects. All relevant creditors and/or their professional advisers should be given reasonable and timely access to this information in order to enable a proper evaluation to be made of its financial position, and for the formulation of any proposals that are to be made to the relevant creditors.

Guidance Notes:

The integrity of the restructuring process will largely depend on the quality of the information in the possession of the creditors being asked to compromise their debts. Although time will be of the essence in most restructuring cases, the Standstill Period must be sufficiently long in order for the necessary information regarding the debtor to be gathered, distributed and understood by all the parties concerned. The relevant creditors must also be provided with sufficient time to consider the details of the restructuring proposal.

In order for the process to have integrity, the debtor must be subject to strict obligations regarding disclosure. At the very least, the information provided must include full particulars of the debtor’s assets and liabilities, as well as the future business prospects of the debtor. In order to produce information relating to the future business prospects of the debtor, forecasts and projections that are more detailed than those it would normally prepare, will likely have to be prepared.

SIXTH PRINCIPLE

Proposals contained in a restructuring plan for resolving the financial difficulties of the debtor, and, in so far as this is practicable, arrangements between the relevant creditors relating to any Standstill Period, must comply with both the applicable law as well as reflect the relative positions of the relevant creditors at the commencement of the Standstill Period.

Guidance Notes:

In the absence of special circumstances, the relevant creditors will expect to be treated in the same way as creditors in a similar position to themselves, both during the negotiation process and in any proposed restructuring plan.

The provisions of the domestic or local law, including the insolvency law, should serve as a guide to the relative priority position of creditors. In more complex cases, relevant creditors will appreciate that it may be necessary for minor trade creditors to be paid in full in order to achieve greater consensus, and also to allow the debtor’s business to continue.

SEVENTH PRINCIPLE

Any information obtained for the purposes of the restructuring process dealing with the assets, liabilities and business of the debtor, as well as any proposals for resolving its financial difficulties, should be made available to all the relevant creditors and should, unless already in the public domain, be treated as confidential.

Guidance Notes:

Ideally, all relevant creditors should be provided with exactly the same information. This information should be as detailed as the circumstances of each case requires, but it must in any event be sufficiently detailed to permit creditors to form their own view of the merits of the restructuring proposal being put forward by the debtor.

If in any given case information is price-sensitive, or in some way the subject of legitimate confidentiality concerns, then confidentiality agreements are commonly required before the information is made available.

In complex cases the issue of debt trading may arise. This raises complex issues and special conditions may be needed where creditors intend to trade their debt.

EIGHTH PRINCIPLE

If additional funding is provided to the debtor during the Standstill Period, or as part of any restructuring proposal, the repayment of such additional funding should, in so far as this practical, be accorded priority status as compared to other indebtedness or claims of the relevant creditors that existed at the time of the commencement of the Standstill Period.

Guidance Notes:

The ability of the debtor to continue in business during any period of negotiation is central to the success of an out-of-court restructuring. While some debtors may not need to depend on third party financing to continue operating, there are many that do. In such an event, or where additional funding is required for other justifiable reasons during the restructuring process, the sources are typically the proceeds of the sale of non-core assets, new investment from shareholders, or additional lending from existing creditors (including banks).

Unless a certain degree of priority is accorded to any additional lending, it is highly unlikely that financing will be made available, and the workout may fail to survive long enough to permit a restructuring plan to be fully developed and considered by the relevant creditors.

The priority treatment accorded to additional financing made available in this way is often referred to as a “super priority” since the provider of such finance is entitled to be paid in priority to the claims of pre-existing creditors, even if the workout eventually fails and formal insolvency follows. It is usually only because of the existence of this priority that existing creditors are willing to provide this form of finance. It is seen as a relatively low risk manner of increasing the chances that their existing obligations will be satisfied, if only in part, in the long term.

There are many ways of achieving the desired priority for new lenders, including the provision of fresh security of some kind (for example a first ranking mortgage security over physical assets or receivables), and various forms of statutory priority. Care must be taken to ensure that any security will be valid in the event of the insolvency of the debtor.

21 January 2013                                                       Companies Division

                                                                               Port Louis

Jersey Finance announce plans for 2013

Jersey Finance has ambitious plans to develop new business for the Island’s finance industry which it will outline at a presentation this week to politicians and finance industry members.

Building on the platform in place through the opening of offices and representation in Abu Dhabi in the Gulf, Mumbai and Delhi in India and Hong Kong in the Far East and supported by the formation of new community groups for these regions and for Russia, Jersey Finance intends to further develop its activities in 2013. The agenda for the year ahead includes:

• Looking at ways in which Jersey can accelerate its ability to innovate with the possibility of creating a ‘J-Lab’ structure under the auspices of Jersey Finance to fast track ideas.
• Encouraging further business in complementary sectors including capital markets, insurance and international pensions.
• Considering and implementing recommendations of a report by a leading international consultancy which is pinpointing new initiatives for the industry.
• Highlighting the conclusions of the study commissioned into the impact of Jersey’s Finance Industry on the UK economy which it is believed will demonstrate the value of the Industry’s relationship to Britain.
• Extending Jersey’s global reach through first time visits to Saudi Arabia and further visits to other Gulf States, Hong Kong, China, India and Russia.

Alongside international visits, London will not be neglected as it remains a core location for Jersey’s finance industry. Two conferences, one on funds and one covering private wealth, are planned within the first half of the year, sponsorship of key City of London events are included in the programme and London activity will be reinforced by the work of Jersey Finance’s representative in London and the recently appointed global head of business development.

Jersey Finance has published a Review of its activity in 2012 to coincide with the presentation on Wednesday (January 23) which will be held at the Radisson Blu Hotel. The Review details the Industry’s performance during 2012 and the work of Jersey Finance.

Among the key developments were the arrival of five new businesses in the funds sector with a further four hedge fund firms in the pipeline; a record level of bank deposits from the Gulf and the granting of two new banking licences to State Street and Abu Dhabi Commercial Bank; the continuing progress in setting up a steady stream of new foundations and the arrival on the statute of enhancements to the highly regarded Jersey Trust Law and the increasing capital markets business which includes close to 100 registered companies listed on global stock exchanges, part of Jersey’s role in providing global companies with a gateway to London’s capital markets.

There is also confidence that Jersey will be able to satisfy the criteria necessary to comply with the EU’s Alternative Investment Fund Managers Directive (AIFMD) while ensuring that it will be business as usual in the meantime; overseas there have been hundreds of meetings with intermediaries, trade associations and regulators in Hong Kong and China, India and the Gulf as part of Jersey’s growing presence in these key markets and the opportunity to build on the double taxation agreements signed with Hong Kong and Qatar.

Locally, Jersey Finance set up a philanthropic foundation and paid out more than £50,000 to local charities as part of the celebrations of 50 years of the finance industry and developed its ongoing partnerships with Careers Jersey, Highlands College and Government departments to support young people considering a career in the finance industry.

Geoff Cook, chief executive officer, Jersey Finance, commented:

‘After four years in which the impact of the global financial crisis has inevitably taken its toll on Jersey’s finance industry, there were signs in 2012 of a corner being turned. Inward investment by a swathe of new arrivals on the Island was matched by encouraging figures of the amount of business done by the firms in our market leading sectors.’

‘The growth of the world’s emerging markets will outpace that of the developed countries for years to come. There is more to be done in winning a slice of that growth for Jersey, a challenge we continue to focus on, but I am particularly proud of what has been achieved in 2012 in expanding the reach of Jersey Finance’s activities through our representation in key markets such as China, India and the Gulf.’

Jersey Finance chairman, Jonathan White, highlighted the value of the co-operation with the authorities in Jersey. He added:

‘We benefit enormously from the constructive partnership that we have built with both the Government of Jersey and the Island’s financial regulator. These partnerships have unquestionably supported the growth in scope and reputation of the finance industry and I am most grateful for the contribution made by both.’

Speech of Ms Clairette Ah-Hen, FSC Chief Executive and guest speaker to the launch of “Sharia Share Dealing Service”

Speech of Ms Clairette Ah-Hen, FSC Chief Executive and guest speaker to the launch of “Sharia Share Dealing Service”

by UMEX Capital Markets Group and LCF

at ‘La Canelle- Domaine Les Pailles”on Tuesday 22nd January 2013

Members of UMEX and LCF,

Distinguished guests,

Ladies and Gentlemen,

Good morning,

I am honoured to be addressing you today in my capacity as Chief Executive of the Financial Services Commission.

The launch of the “Sharia Share Dealing Service” by LCF and UMEX Capital Market Group comes as an opportune moment for Mauritius. Many of you would know and agree that we are increasingly progressing in various areas as an International Financial Centre. Last month itself, I gave a speech during the “International Arbitration Workshop for Financial Professionals” at FSC House where I shared a message not too dissimilar to this one today.

Our democratic set up where stability and the rule of law prevail and our strategic geographical location, combined with the fact that we are bilingual, if not trilingual, make Mauritius a centre of reference relating to business and investment activitiesfor Africa, Asia (India and China) and Europe.

As you are already aware Mauritius has embarked on the “African Adventure”. Since last year, the authorities and operators have been working towards making Mauritius one of the major investment platforms / gateways into Africa.Our high ranking in terms of competitiveness, investment climate and governance makes us a trustworthy jurisdiction which inspires investors‟ confidence.

From Ghana in the west, to Ethiopia in the east and to Mozambique in the south, Africa‟s economies are growing at an even faster pace than those in almost any other region of the world. Although severe income disparities persist on the continent, a middle class in Africa is fast emerging and African countries are shifting away from being aid-dependant to increasing trade and investment ties with the world. The Economist reports that trade between Africa and the world has increased by 200 per cent. China's trade with Africa reached $166 billion in 2011, according to Chinese statistics. Over the last decade, economic linkages with the Middle East, in particular, has grown significantly.

With Africa‟s population set to double to 2 billion in 40 years, huge opportunities exist in Africa. A substantial number of the continent‟s citizens are Muslims and this large population needs to be served. So far for only the Northern part of the continent, which is the natural franchise of the Middle Eastern Islamic finance industry, has seen the enabling regulatory environment being created. Islamic finance industry is still in its infancy across Sub Saharan Africa.

Strong economic growth in the continent, coupled with human resource development and the promotion of private sector, is expected to boost economic activity in the region which, in turn, will increase demand for more inclusive financial services. The presence of a large unbanked Muslim population, as well as Muslims who would prefer a choice aligned to their faith, offers a tremendous potential for the growth of the Islamic banking and finance industry in the African markets.

As Africa becomes an increasingly attractive destination for investments that are Sharia compliant, the onus is on you, the Islamic finance industry leaders and financial institutions to tap into this tremendous potential. The road won‟t be an easy one and the industry must overcome certain challenges which include lack of Sharia compliant investment vehicles, fragile legal and regulatory frameworks and most importantly the lack of awareness by the majority of consumers.

Mauritius may well be the answer to providing Islamic Finance into Africa. The flexibility of our Legal and Regulatory framework allows for the development and expansion of Islamic financial services as well as being compatible with the key financial laws prevailing in the major developed countries (Europe, America...).

On our side, the FSC has been active in the licensing of new and key service providers which are adequately equipped to service a range of local and overseas clients. The FSC is in the process of signing a MOU with the European Securities Market Authority (ESMA) in connection with the AIFM Directive which will bring Mauritius at par in terms of recognition, with other signatory countries and will represent convenient access of our alternative investment funds and funds providers in the Euro zone area.

Yesterday, IOSCO published its final Report on Suitability Requirements for Distribution of Complex Financial Products which covers principles focusing on customer protections – namely, adoption and application of appropriate policies and procedures when distributing these products, requirements to act honestly, fairly and professionally, taking reasonable steps to manage or mitigate conflicts of interest and clearly disclosing the risks involved. This report also deals with information which is to be communicated in a fair, comprehensible and balanced manner as well as suitability protections for advisory services which is to be consistent with such customer's experience, knowledge, investment objectives, risk appetite and capacity for loss. The FSC will expect these same principles enunciated by IOSCO to be applicable to Islamic products and other investment products. The Compliance function and internal suitability policies and procedures by LCF and UMEX as well as supervision and enforcement by FSC in order to protect customers and enhance market integrity will remain of primary importance.

Furthermore, your choice to operate with UMEX and its strategic partner, LCF Securities Ltd for the African Region to provide global financial investment services that are sharia and ethical compliant, can only be an advantageous move.

Of course, this is not only because LCF Securities Ltd is licensed as an Investment Dealer (Full Service Dealer excluding Underwriting), pursuant to Section 29 of the Securities Act 2005 by the FSC since 23 April 2012, but also because of its main authorised activities, which are:

a. To act as an intermediary in the execution of securities transactions on behalf of other persons;

b. To give investment advice which is ancillary to the normal course of its business activities; and

c. To manage portfolio of clients.

You, through trading on the UMEX platform, will be able to have access to sharia compliant companies listed on the global exchange. This, in turn, may give you an exposure to trading in over 30 countries and in over 10,000 sharia compliant equities. UMEX, through this Mauritian alliance, may well fulfil its aim to bring top class service to Africa.

On another note, the platform offered by UMEX is an indication of the market development which evidences the increasing client needs for new financial products and investment avenues. The success of UMEX and LCF in this area will indeed increase the attractiveness of the Mauritiusus Securities Market and its position as an International Financial Centre in the Africa region by providing a „one-stop shop‟ for local and foreign investors wishing to invest in sharia compliant products.

I am encouraged to see that in terms of Islamic Finance (the products and electronic trading platforms UMEX and LCF are offering to this niche market) are on the same page as the FSC and share our vision for Africa.

To UMEX and LCF, I wish you a good launch and a successful trading life. To you, participants at this workshop today, I wish you enlightening and fruitful deliberation.

Thank you for your attention.

Clairette Ah-Hen

22 January 2013.

Former Mauritian Minister of Arts and Culture Tsang Man Kin Wins “Chinese Luminary” Award for his Contribution in the Promotion of Chinese Culture

On the 17th January 2013, during a ceremony organised by the Chinese Ministry of Culture, Information Department of the State Council of China, Office of Overseas Chinese, State Administration of Radio, Film and Television (SARTF) of China and the China Central Television (CCTV) which was broadcasted on Chinese national television and globally via satellite, Mr. Joseph Tsang Man Kin received the prestigious “Chinese Luminary” award.

The “Chinese Luminary” award rewards a person who has made a significant contribution in the promotion of Chinese culture.  He joins the likes of Nobel laureate for literature Mo Yan, world-famous star pianist Lang Lang and Chen style Taiji master Chen Xiaowang as ambassadors of Chinese culture.  Mr. Tsang Man Kin was recommended by his former colleague and long-time friend, Mr. Marcel Noe.

Video clip: http://news.cntv.cn/2013/01/17/VIDE1358427786669747.shtml

Legalweek: Tipped for the top – how to stand out as 'partnership potential'

Law firms single out individuals as 'partner potential' early in their careers, but how can you become one of these select few? Career coaches Heather Townsend and Jo Larbie explore what firms look for when identifying future partnership talent

Treasury and IRS Issue Final Regulations to Combat Offshore Tax Evasion

Treasury Advances Efforts to Secure International Participation, Streamline Compliance, and Prepare for Implementation of the Foreign Account Tax Compliance Act

  

The U.S. Department of the Treasury and the Internal Revenue Service (IRS) today issued comprehensive final regulations implementing the information reporting and withholding tax provisions commonly known as the Foreign Account Tax Compliance Act (FATCA). Enacted by Congress in 2010, these provisions target non-compliance by U.S. taxpayers using foreign accounts. The issuance of the final regulations marks a key step in establishing a common intergovernmental approach to combating tax evasion.

These regulations provide additional certainty for financial institutions and government counterparts by finalizing the step-by-step process for U.S. account identification, information reporting, and withholding requirements for foreign financial institutions (FFIs), other foreign entities, and U.S. withholding agents.

  

"These regulations give the Administration a powerful set of tools to combat offshore tax evasion effectively and efficiently," said Deputy Secretary Neal Wolin. "The final rules mark a critical milestone in international cooperation on these issues, and they provide important clarity for foreign and U.S. financial institutions." 

The final regulations issued today: 

• Build on intergovernmental agreements that foster international cooperation. The Treasury Department has collaborated with foreign governments to develop and sign intergovernmental agreements that facilitate the effective and efficient implementation of FATCA by eliminating legal barriers to participation, reducing administrative burdens, and ensuring the participation of all non-exempt financial institutions in a partner jurisdiction. In order to reduce administrative burdens for financial institutions with operations in multiple jurisdictions, the final regulations coordinate the obligations for financial institutions under the regulations and the intergovernmental agreements.
• Phase in the timelines for due diligence, reporting and withholding and align them with the intergovernmental agreements. The final regulations phase in over an extended transition period to provide sufficient time for financial institutions to develop necessary systems. In addition, to avoid confusion and unnecessary duplicative procedures, the final regulations align the regulatory timelines with the timelines prescribed in the intergovernmental agreements.
• Expand and clarify the scope of payments not subject to withholding. To limit market disruption, reduce administrative burdens, and establish certainty, the final regulations provide relief from withholding with respect to certain grandfathered obligations and certain payments made by non-financial entities.
• Refine and clarify the treatment of investment entities. To better align the obligations under FATCA with the risks posed by certain entities, the final regulations: (1) expand and clarify the treatment of certain categories of low-risk institutions, such as governmental entities and retirement funds; (2) provide that certain investment entities may be subject to being reported on by the FFIs with which they hold accounts rather than being required to register as FFIs and report to the IRS; and (3) clarify the types of passive investment entities that must be identified and reported by financial institutions.
• Clarify the compliance and verification obligations of FFIs. The final regulations provide more streamlined registration and compliance procedures for groups of financial institutions, including commonly managed investment funds, and provide additional detail regarding FFIs’ obligations to verify their compliance under FATCA. 

Progress on International Coordination, Including Model Intergovernmental Agreements

Since the proposed regulations were published on February 15, 2012, Treasury has collaborated with foreign governments to develop two alternative model intergovernmental agreements that facilitate the effective and efficient implementation of FATCA.

These models serve as the basis for concluding bilateral agreements with interested jurisdictions and help implement the law in a manner that removes domestic legal impediments to compliance, secures wide-spread participation by every non-exempt financial institution in the partner jurisdiction, fulfills FATCA’s policy objectives, and further reduces burdens on FFIs located in partner jurisdictions. Seven countries have already signed or initialed these agreements.

Today, Treasury announced for the first time that Norway has joined the United Kingdom, Mexico, Denmark, Ireland, Switzerland, and Spain as countries that have signed or initialed model agreements. Treasury is engaged with more than 50 countries and jurisdictions to curtail offshore tax evasion, and more signed agreements are expected to follow in the near future.

Additional Background on the Model Agreements

On July 26, 2012, Treasury published its first model intergovernmental agreement (Model 1 IGA). Instead of reporting to the IRS directly, FFIs in jurisdictions that have signed Model 1 IGAs report the information about U.S. accounts required by FACTA to their respective governments who then exchange this information with the IRS.

Treasury also developed a second model intergovernmental agreement (Model 2 IGA) published on November 14, 2012. A partner jurisdiction signing an agreement based on the Model 2 IGA agrees to direct its FFIs to register with the IRS and report the information about U.S. accounts required by FATCA directly to the IRS.

These agreements do not offer an exemption from FATCA for any jurisdiction but instead offer a framework for information sharing pursuant to existing bilateral income tax treaties. Under both models, all financial institutions in a partner jurisdiction that are not otherwise excepted or exempt must report the information about U.S. accounts required by FATCA. Therefore, the IRS receives the same quality and quantity of information about U.S. accounts from FFIs in jurisdictions with IGAs as it receives from FFIs applying the final regulations elsewhere, but these agreements help streamline reporting and remove legal impediments to compliance.

Background on FATCA

FATCA was enacted in 2010 by Congress as part of the Hiring Incentives to Restore Employment (HIRE) Act. FATCA requires FFIs to report to the IRS information about financial accounts held by U.S. taxpayers, or by foreign entities in which U.S. taxpayers hold a substantial ownership interest. In order to avoid withholding under FATCA, a participating FFI will have to enter into an agreement with the IRS to:

• Identify U.S. accounts,
• Report certain information to the IRS regarding U.S. accounts, and
• Withhold a 30 percent tax on certain U.S.-connected payments to non-participating FFIs and account holders who are unwilling to provide the required information. 

Registration will take place through an online system. FFIs that do not register and enter into an agreement with the IRS will be subject to withholding on certain types of payments relating to U.S. investments.

Treasury and IRS will continue to work closely with businesses and foreign governments to implement FATCA effectively.

Mauritius: Disclosure of nominee shareholding in share register

The Companies Act 2001 has been amended to introduce the requirement for information to be maintained in the share register to indicate the person on whose behalf any legal owner holds his interest or shares in any company or body corporate.

The share register must henceforth state, where the shares are held by a nominee, the names in alphabetical order and the last known addresses of the persons giving to the shareholder instructions to exercise a right in relation to a share either directly or through the agency of one or more persons.

Mauritius: Obligations related to Reporting Issuers

The Financial Services Commission (FSC) hereby informs the public of the recent amendment made to Rule 3 of Part II of the Securities (Disclosure Obligations of Reporting Issuers) Rules 2007 (the “Disclosure Rules”) which pertains to Compulsory Registration of Reporting Issuers.

The amendment relates to the addition of paragraph 3 after the existing paragraphs 1 and 2 of Rule 3 of the Disclosure Rules. Under paragraphs 1 and 2 of Rule 3 of the Disclosure Rules, reporting issuers have an obligation to register with the FSC by submitting the registration statement provided in the Schedule of the Disclosure Rules together with copies of certificate of incorporation, last financial statements and auditors’ reports.

Following the addition of paragraph 3 to Rule 3 of the Disclosure Rules (already effective as of date), reporting issuers shall now have an obligation to inform the FSC of any change in the information contained in the previous registration statement submitted by them and file an updated registration statement with the FSC within two weeks of the date of the change.

“Reporting issuer” is defined in section 86(1) of the Securities Act 2005 as an issuer:

(a) who by way of a prospectus, has made an offer of securities either before or after the commencement of this Act;

(b) who has made a takeover offer by way of an exchange of securities or similar procedure;

(c) whose securities are listed on a securities exchange in Mauritius; or

(d) who has not less than 100 shareholders.

The FSC also wishes to remind reporting issuers of all their disclosure obligations as provided in Part VI of the Securities Act 2005 and Parts II and III of the Securities (Disclosure Obligations of Reporting Issuers) Rules 2007. This includes the obligation for reporting issuers to submit their annual reports to the FSC and to make them publicly available within 90 days of the balance sheet date along with the obligation for quarterly financial statements/reports to be filed and made public within 45 days after the end of each quarter.

Updated copies of the Securities Act 2005 and the Disclosure Rules can be consulted on FSC’s website.

India: Final Report of the Expert Committee on General Anti Avoidance Rules (GAAR) in Income-tax Act, 1961

Final Report of the Expert Committee on General Anti Avoidance Rules (GAAR) in Income-tax Act, 1961

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India: Major recommendations of expert committee on GAAR accepted

The Central Government has carefully considered the report of the Expert Committee on General Anti Avoidance Rules (GAAR) and accepted the major recommendations of the Expert Committee with some modifications. This was announced by the Union Finance Minister Shri P.Chidambaram here today in a press conference. The Finance Minister said that the following decisions have been taken by Government in this regard: 

(i) An arrangement, the main purpose of which is to obtain a tax benefit, would be considered as an impermissible avoidance arrangement. The current provision prescribing that it should be “the main purpose or one of the main purposes” will be amended accordingly. 

(ii) The assessing officer will be required to issue a show cause notice,containing reasons, to the assessee before invoking the provisions of Chapter X-A. 

(iii) The assessee shall have an opportunity to prove that the arrangement is not an impermissible avoidance arrangement. 

(iv) The two separate definitions in the current provisions, namely, „associated person‟ and „connected person‟ will be combined and there will be only one inclusive provision defining a ‘connected person’. 

(v) The Approving Panel shall consist of a Chairperson who is or has been a Judge of a High Court; one Member of the Indian Revenue Service not below the rank of Chief Commissioner of Income-tax; and one Member who shall be an academic or scholar having special knowledge of matters such as direct taxes, business accounts and international trade practices. The current provision that the Approving Panel shall consist of not less than three members being Income-tax authorities or officers of the Indian Legal Service will be substituted. 

(vi) The Approving Panel may have regard to the period or time for which the arrangement had existed; the fact of payment of taxes by the assessee; and the fact that an exit route was provided by the arrangement. Such factors may be relevant but not sufficient to determine whether the arrangement is an impermissible avoidance arrangement.

(vii) The directions issued by the Approving Panel shall be binding on the assessee as well as the Income-tax authorities. The current provision that it shall be binding only on the Income-tax authorities will be modified accordingly. 

(viii) While determining whether an arrangement is an impermissible avoidance arrangement, it will be ensured that the same income is not taxed twice in the hands of the same tax payer in the same year or in different assessment years. 

(ix) Investments made before August 30, 2010, the date of introduction of the Direct Taxes Code, Bill, 2010, will be grandfathered. 

(x) GAAR will not apply to such FIIs that choose not to take any benefit under an agreement under section 90 or section 90A of the Income-tax Act, 1961. GAAR will also not apply to non-resident investors in FIIs

(xi) A monetary threshold of Rs. 3 crore of tax benefit in the arrangement will be provided in order to attract the provisions of GAAR. 

(xii) Where a part of the arrangement is an impermissible avoidance arrangement, GAAR will be restricted to the tax consequence of that part which is impermissible and not to the whole arrangement. 

(xiii) Where GAAR and SAAR are both in force, only one of them will apply to a given case, and guidelines will be made regarding the applicability of one or the other. 

(xiv) Statutory forms will be prescribed for the different authorities to exercise their powers under section 144BA. (xv) Time limits will be provided for action by the various authorities under GAAR. 

(xvi) Section 245N(a)(iv) that provides for an advance ruling by the Authority for Advance Rulings (AAR) whether an arrangement is an impermissible avoidance arrangement will be retained and the administration of the AAR will be strengthened. 

(xvii) The tax auditor will be required to report any tax avoidance arrangement. 

Further, having considered all the circumstances and relevant factors, the Government has also decided that the provisions of Chapter X-A will come into force with effect from April 1, 2016 (as against the current provision of April 1, 2014).

A number of countries have provided for General Anti Avoidance Rules (GAAR) in matters relating to taxation. While tax mitigationis recognized, tax avoidance is frowned upon. International literature describes tax avoidance as the legal exploitation of tax laws to one‟s own advantage and an arrangement entered into solely or primarily for the purpose of obtaining a tax advantage. 

The principle of GAAR was incorporated in the Direct Taxes Code which was introduced as a Bill in Parliament on August 30, 2010. 

Pending consideration of the Bill, the Income-tax Act, 1961 was amended by Finance Bill, 2012 to add Chapter X-A titled „General Anti- Avoidance Rule‟. It became part of the law when the Finance Bill was passed by Parliament. Draft GAAR guidelines were also published. Under the current provisions, Chapter X-A would come into force with effect from April 1, 2014. 

A number of representations were received against the provisions contained in Chapter X-A. Hence, on July 13, 2012, the Prime Minister approved the constitution of an Expert Committee on GAAR to undertake stakeholder consultations and finalize the guidelines for GAAR. Accordingly, an Expert Committee consisting of Dr. Parthasarathi Shome and three others was constituted on July 17, 2012 with broad terms of reference including consultation with stakeholders and finalizing the GAAR guidelines and a roadmap for implementation. 

The Expert Committee submitted its draft report on August 31, 2012 which was placed in the public domain on September 1, 2012. After examining the responses to the draft, the Expert Committee submitted its final report on September 30, 2012. The final report of the Expert Committee has been now put on the website of the Ministry of Finance.

India: Statement of the Union Finance Minister Shri P .Chidambaram on General Anti Avoidance Rules (GAAR)

A number of countries have provided for General Anti Avoidance Rules (GAAR) in matters relating to taxation. While tax mitigation is recognized, tax avoidance is frowned upon. International literature describes tax avoidance as the legal exploitation of tax laws to one‟s own advantage and an arrangement entered into solely or primarily for the purpose of obtaining a tax advantage.

2. The principle of GAAR was incorporated in the Direct Taxes Code which was introduced as a Bill in Parliament on August 30, 2010.

3. Pending consideration of the Bill, the Income-tax Act, 1961 was amended by Finance Bill, 2012 to add Chapter X-A titled „General Anti- Avoidance Rule‟. It became part of the law when the Finance Bill was passed by Parliament. Draft GAAR guidelines were also published. Under the current provisions, Chapter X-A would come into force with effect from April 1, 2014.

4. A number of representations were received against the provisions contained in Chapter X-A. Hence, on July 13, 2012, the Prime Minister approved the constitution of an Expert Committee on GAAR to undertake stakeholder consultations and finalize the guidelines for GAAR. Accordingly, an Expert Committee consisting of Dr. Parthasarathi Shome and three others was constituted on July 17, 2012 with broad terms of reference including consultation with stakeholders and finalizing the GAAR guidelines and a roadmap for implementation.

5. The Expert Committee submitted its draft report on August 31, 2012 which was placed in the public domain on September 1, 2012. After examining the responses to the draft, the Expert Committee submitted its final report on September 30, 2012.

6. The Government has carefully considered the report of the Expert Committee.

7. The major recommendations of the Expert Committee have been accepted, with some modifications, and the following decisions have been taken by Government:

(i) An arrangement, the main purpose of which is to obtain a tax benefit, would be considered as an impermissible avoidance arrangement. The current provision prescribing that it should be “the main purpose or one of the main purposes” will be amended accordingly.

(ii) The assessing officer will be required to issue a show cause notice, containing reasons, to the assessee before invoking the provisions of Chapter X-A.

(iii) The assessee shall have an opportunity to prove that the arrangement is not an impermissible avoidance arrangement.

(iv) The two separate definitions in the current provisions, namely, „associated person‟ and „connected person‟ will be combined and there will be only one inclusive provision defining a ‘connected person’.

(v) The Approving Panel shall consist of a Chairperson who is or has been a Judge of a High Court; one Member of the Indian Revenue Service not below the rank of Chief Commissioner of Income-tax; and one Member who shall be an academic or scholar having special knowledge of matters such as direct taxes, business accounts and international trade practices. The current provision that the Approving Panel shall consist of not less than three members being Income-tax authorities or officers of the Indian Legal Service will be substituted.

(vi) The Approving Panel may have regard to the period or time for which the arrangement had existed; the fact of payment of taxes by the assessee; and the fact that an exit route was provided by the arrangement. Such factors may be relevant but not sufficient to determine whether the arrangement is an impermissible avoidance arrangement.

(vii) The directions issued by the Approving Panel shall be binding on the assessee as well as the Income-tax

authorities. The current provision that it shall be binding only on the Income-tax authorities will be modified accordingly.

(viii) While determining whether an arrangement is an impermissible avoidance arrangement, it will be ensured that the same income is not taxed twice in the hands of the same tax payer in the same year or in different assessment years.

(ix) Investments made before August 30, 2010, the date of introduction of the Direct Taxes Code, Bill, 2010, will be grandfathered.

(x) GAAR will not apply to such FIIs that choose not to take any benefit under an agreement under section 90 or section 90A of the Income-tax Act, 1961. GAAR will also not apply to non-resident investors in FIIs.

(xi) A monetary threshold of Rs. 3 crore of tax benefit in the arrangement will be provided in order to attract the provisions of GAAR.

(xii) Where a part of the arrangement is an impermissible avoidance arrangement, GAAR will be restricted to the tax consequence of that part which is impermissible and not to the whole arrangement.

(xiii) Where GAAR and SAAR are both in force, only one of them will apply to a given case, and guidelines will be made regarding the applicability of one or the other.

(xiv) Statutory forms will be prescribed for the different authorities to exercise their powers under section 144BA.

(xv) Time limits will be provided for action by the various authorities under GAAR.

(xvi) Section 245N(a)(iv) that provides for an advance ruling by the Authority for Advance Rulings (AAR) whether an arrangement is an impermissible avoidance arrangement will be retained and the administration of the AAR will be strengthened.

(xvii) The tax auditor will be required to report any tax avoidance arrangement.

8. Further, having considered all the circumstances and relevant factors, Government has also decided that the provisions of Chapter X-A will come into force with effect from April 1, 2016 (as against the current provision of April 1, 2014).

9. The final report of the Expert Committee has been put on the website of the Ministry of Finance today.

Mauritius: Penalty Points System: Related Documents to Be Distributed to Motorists

The Penalty Points System (PPS), introduced with the enactment of the Road Traffic (Amendment) Bill last year, will very soon be implemented by the authorities. In the meantime, the Traffic Branch of the Police and the Ministry of Public Infrastructure, National Development Unit, Land Transport and Shipping, are intensifying their efforts to get everything ready so that road users can abide by the new law.

In this regard, the distribution of the “licence paper counterpart”, an important document to be annexed to the licence of the driver, will start on 21 January, at over 20 points around the country and in Rodrigues. Moreover, the Traffic Branch has, in the wake of the coming into operation of the PPS, set up a new computerised system that will contain and update all relevant details pertaining to drivers’ licence and the eventual sanctions they will receive from courts.

The operation of a PPS is meant to deter the commission of road traffic offences by assigning penalty points on conviction for certain road traffic offences. With the introduction of the PPS, drivers failing to observe the road codes will be severely reprimanded.

Thus, penalty points will be assigned to certain road traffic offences, including the following: (a) failing to wear securely a prescribed protective helmet while riding a motorcycle or an autocycle; (b) neglecting or refusing to comply with traffic directions given by a police officer; (c) using a hand held or hand-free microphone or telephone handset whilst driving a motor vehicle; (d) using a vehicle on a road without prescribed lights during hours of darkness; and (e) exceeding speed limit.

Penalty points attributed to an offence will remain effective for a period of three years. The PPS may cause a driver to have his driving licence suspended for at least six months if he has exceeded the threshold limit of 15 penalty points. On a second disqualification, the driving licence will be cancelled. Under the proposed Mauritian system, the counter will start at zero, and points will be totaled cumulatively for each and every offence. Penalty points will be imposed by the Court, in addition to other sanctions such as monetary fines, and used especially to tackle the most dangerous safety related road traffic offences committed by drivers.

The system is expected to instill a greater sense of responsibility in motorists and make our road safer. There are now better provisions for the Photographic Enforcement Device Notice scheme to be aligned with the PPS by determining a proper mechanism for allocation and recording of penalty points.

The PPS is in line with government’s strategy to increase road safety and to comply with international norms and subsequently reduce casualties on roads. The authorities are of the view that the penalty point system will trigger the right mindset among drivers so that they become more cautious and diligent. Government is determined to take bold and severe actions against those defaulters who have no respect for human life.

The PPS is a system which has successfully been implemented in many countries across the world such as the United States of America, Australia, Malaysia, Singapore and several European countries. In most jurisdictions, the introduction of the PPS has led to a significant reduction in road accidents casualties and fatalities, when there is an effective traffic monitoring system.

In Italy, for instance, it was estimated that the introduction 10 years ago of a PPS for driving offences had led to a reduction of about 10% of road accidents and of about 25% of traffic fatalities. In Spain, an assessment of the effectiveness of the PPS introduced in 2006, in reducing traffic injuries, has shown that it was associated with reduced numbers of drivers involved in injury collisions and people injured by traffic collisions.

Guernsey's foundations legislation now in force

The Guernsey foundations law came into effect today.

The legislation, which was approved by the Privy Council in mid-December and registered in Guernsey's Royal Court yesterday, is now in force and the Guernsey Registry will be accepting applications from tomorrow [9 January].

Fiona Le Poidevin, Chief Executive of Guernsey Finance, said: "It's extremely pleasing to see that Guernsey's foundations legislation has been approved and the law has now come into force. Commencement of the law allows our fiduciary professionals to consider the use of a foundation as well as a trust when adopting wealth structures for their clients. Foundations may be particularly attractive to those based in civil law jurisdictions in Europe and further afield in the emerging markets of China, Russia and Latin America where the foundation concept is more familiar.

"We've been hearing from a number of industry practitioners over the past few months that there has been a great deal of interest in the Guernsey foundation. As well as clients looking to set up a foundation, much interest has come from clients who have foundations currently domiciled in other jurisdictions and are looking to migrate these to Guernsey.

"We believe Guernsey's expertise in servicing private clients means that we are especially well placed to administer complex structures due to the heritage we have in providing trust and corporate services as well as, of course, our reputation for being a well regulated and transparent international finance centre."

Guernsey Finance held a launch event for the new law at the British Museum in London back in September. The event was attended by 120 delegates, including some of the leading legal and tax advisers from the City's private client industry.

"The London event was very well attended and demonstrated the interest the wider industry has in Guernsey launching its own foundations legislation. They recognise that Guernsey was one of the first jurisdictions to introduce trust law and that we have now used that expertise and experience in private wealth to introduce our own foundations law,' said Miss Le Poidevin.

Seychelles: SIBA Press Release 08 Jan 2013

This press release is from the Seychelles International Business Authority (SIBA) and follows from the press release from SIBA on November 13, 2012.

In its previous press release, the SIBA expressed its concern in relation to the involvement of two international corporate service providers (“service providers”) within the Al Jazeera article and documentary, entitled “People & power: How to rob Africa”, published and aired on November 8, 2012 in view of the damage that matters of such nature may cause to the reputation of the Seychelles.

Following the SIBA initiating relevant actions under the law in conjunction with other relevant authorities, it was deemed to be necessary that the licences of the two service providers involved be suspended pending further enquiries and examinations.

From these enquiries and examinations conducted, the conclusions were such that the SIBA deemed it necessary, pursuant to provisions of the relevant laws to revoke the licences of Premier Offshore Limited and Zen Offshore Services Limited

The SIBA hereby reiterates that it will not hesitate to recourse to appropriate enforcement actions to deal with any parties under its regulatory and supervisory purview that are in non-compliance with the relevant legislations.

The SIBA is confident that the Seychelles has in place a robust legal, regulatory and supervisory framework which allows for the conduct of sound international financial services.

Netherlands - Alternative funds: First mover advantage? (Funds Europe)

Competition between fund domiciles is intensifying as the Alternative Investment Fund Managers Directive approaches and hedge fund administrators are upping their game. The Netherlands has emerged as a challenger for alternative investment business, writes Stefanie Eschenbacher.

The Netherlands was the first country to introduce draft legislation to implement the European Commission’s Alternative Investment Fund Managers Directive (AIFMD) into national law. This draft is expected to be adopted shortly and implemented by July 22, 2013. The directive deals with stricter regulation on alternative investment fund managers, such as hedge funds, private equity and real estate investment managers.

Locals say the first-mover advantage will help the Netherlands when it comes to attracting those that are already considering redomiciling, especially when it comes to hedge fund administration.

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