1. Gsy00009SturFin/9549429
April 2006
Briefing
Securitisation - Establishing a Special
Purpose Vehicle in Guernsey
Client briefing
Preface harmonisation, financial services and company
law do not have effect in Guernsey. The Island
This memorandum has been prepared for the has as a result of its constitutional position
assistance of clients considering incorporating a developed into a leading international finance
company under the laws of Guernsey. It is centre.
intended to provide only a summary of the main
legal requirements and general principles Introduction
applicable to the establishment of a company in
Guernsey and it is not intended to be This memorandum is intended to provide those
comprehensive in its scope. It is recommended involved in the establishment of a vehicle or
that a client seeks legal advice on any proposed programme for the issue by an off-balance sheet
transaction prior to taking steps to implement it. Guernsey special purpose corporate vehicle
(‘SPV’) of securities (a ‘Securities Programme’)
A series of briefings on other aspects of with an outline of the structural and regulatory
Guernsey law have been produced by Ogier and issues which will need to be addressed, together
are available on request. with an indication of some of the basic costs.
This memorandum has been prepared on the The memorandum is prepared on the
basis of the law and practice as at 1 March 2006. assumption that the securities (whether they be
notes, bonds or other instruments) will be issued
Constitutional position of Guernsey by the SPV in one or more tranches to a number
of prospective investors by means of a
Guernsey is a self-governing dependency of the prospectus or other offering document and the
British Crown and does not form part of the proceeds of issue will be invested in the
United Kingdom. By constitutional convention purchase of assets which will be capable of
established over some 900 years the Island has meeting the coupon and repayment obligations
complete autonomy in all matters of internal on the securities. Although reference is made in
government, including taxation. The legal system this memorandum to a “Securities Programme” it
is derived in part from the customary laws of is equally applicable to structures which involve a
Normandy but has been strongly influenced by single issue of securities. We have not
English law in company and commercial matters addressed such issues as security over the
and the Judicial Committee of the Privy Council assets and protection from creditors.
remains the Island’s ultimate court of appeal. The
Island’s special constitutional position has been Structure
recognised by the European Union in a protocol
(No.3) attached to the United Kingdom’s Act of In order for the SPV to be off-balance sheet, the
Accession to the EU. The protocol provides that shares in the SPV will normally be held by a
the Treaty of Rome shall apply to Guernsey only charitable trust (the ‘Trust’) established for the
to the extent necessary in relation to the purpose. The trust deed will, inter alia, set out the
arrangements for the free movement of goods. purposes of the Trust and include obligations on
Accordingly, European Union directives on fiscal the trustees to establish and maintain the SPV,

2. Briefing
Securitisation - Establishing a Special Purpose Vehicle in
Guernsey
and to procure that the SPV acts in accordance protected cell company are not subject to the
with the Securities Programme documentation. claims of creditors of any other cell of the
protected cell company. Therefore, in the
The Trust will require funding in order to be able securitisation context a protected cell company
to subscribe for shares in the SPV and to pay the provides a statutory means of ring-fencing
legal costs of establishing the Trust. It may also separate series or classes of assets and
be necessary to fund the incorporation costs of liabilities within a single legal entity thereby
the SPV through the Trust although it is possible offering the possibility of simplifying the structure
Client briefing
for these costs to be funded by the SPV itself on of many conduit programmes and reducing the
establishment of the Securities Programme. risk of “contagion” or “cross class leakage”. We
have a separate memorandum which focuses
This funding will normally be provided to the specifically on the formation, operation and legal
Trust by the promoter of the Securities issues relevant to protected cell companies
Programme, or if there is a sensitivity regarding
this, it may be possible to arrange for funding to Operation of the SPV
be provided via an existing Ogier & Le Masurier
controlled charitable trust which will act as the The SPV will normally require a minimum of two
settlor of the Trust. directors and, for tax purposes, it will usually be
necessary for a majority of the directors to be
Shares in the SPV may be denominated in any resident in Guernsey. Corporate directors may
unit of currency and a minimum of two shares be used in a Guernsey SPV. If there is particular
must be issued. We would normally recommend sensitivity regarding the SPV being treated as
that the Securities Programme provides for the UK tax resident, its Articles of Association can
generation and retention of sufficient funds in the include provisions designed to reduce to a
SPV to enable an annual dividend to be paid to minimum the possibility of the SPV being treated
the Trust for distribution to charity. The purpose as resident in the UK.
of this is to support the charitable nature of the
Trust and to help defeat any suggestion by the The SPV will also require administration services
revenue authorities of any jurisdiction that the to be provided to it to enable it to fulfil its
Trust is not independent of the promoter of the obligations and exercise its rights under the
Securities Programme or is otherwise in any way Securities Programme documentation and
a sham. We would normally suggest that an monitor the performance of the Securities
annual dividend of £500 should be made, Programme on its behalf. There are a number of
although this can vary on a case by case basis. firms in Guernsey which are experienced in
The Trust will also require sufficient funding to providing such services and we are able to
pay annual trustee fees and this can either be arrange appropriate introductions. The
paid out of dividend income from the SPV or administrator would generally be responsible for
initial settled funds. If this method of funding the providing secretarial services to the SPV,
Trust is not acceptable, it may be possible to including filing statutory returns, the holding of
deal with this in other ways. annual general meetings and preparing
appropriate board minutes.
With effect from 6 February 2001, it has been
possible under Guernsey law for an SPV to be a If a SPV fulfils certain criteria, the Guernsey
‘protected cell company’. In essence, a protected Financial Services Commission (the
cell company is a single legal entity which ‘Commission’) may agree to it having un-audited
consists of a “core” and one or more separate status.
“cells”. The assets attributable to a particular cell
benefit from statutory segregation and protection Tax Status of the SPV
from not only the general liabilities of the
protected cell company (i.e. the liabilities of the A SPV will usually apply for ‘Exempt Company’
core), but also from the liabilities attributable to status upon incorporation. An Exempt Company
any other cell. A protected cell company which is is treated as being non-resident in Guernsey for
used as an SPV will be subject to all the taxation purposes. It is not subject to income tax
provisions of the protected cell company (except on profits of any trade carried on in
legislation and, importantly, will provide all of the Guernsey) and is liable only to pay an annual
same benefits of protected cell company status. Exempt Company fee of £600 (or in the first year
Accordingly, assets in one particular cell of a
GUERNSEY-9549429-1

3. Briefing
Securitisation - Establishing a Special Purpose Vehicle in
Guernsey
a monthly fraction of £600 from the date of Protection of Investors (Bailiwick of Guernsey)
incorporation). It is not possible to prepay the Law, 1987 (‘POI Law’). A “licensee” for these
Exempt Company fee for future years and so the purposes will include an administrator, manager,
SPV will need to be able to fund this annual fee. custodian, trustee and registrar. Once licensed to
carry out a particular activity, that person may
Exempt Company status is applied for in provide such services to any SPV without further
Guernsey on a year by year basis. reference to the Commission. Licensees are
subject to certain rules that are available on
Client briefing
Interest and dividends are paid gross by the SPV request.
without need for deduction of tax. There is no
capital gains or analogous tax in Guernsey. Costs
Structural Issues It is difficult to generalise on the costs of
establishing a Securities Programme as to a
Limited Recourse: In order to avoid the large extent this will depend upon the complexity
occurrence of a technical insolvency the liabilities of the Securities Programme, the volume of
of the SPV will generally be expressed to be documentation and the nature of the assets to be
limited in recourse to designated assets. acquired/securitised. However, we have set out
Non-consolidation: Accounting advice will below the statutory costs together with an
generally be required to confirm that the SPV will indication of the other costs (other than for
not be consolidated onto the balance sheet of the administration) which are likely to be involved.
arranger or originator. We can arrange for quotations for administration
costs to be obtained from prospective
Regulatory Regime administrators in relation to the establishment
and administration of a Securities Programme.
(a) COBO
The issue of securities by the SPV will require Statutory and Establishment Costs
the prior consent of the Commission under the
Control of Borrowing (Bailiwick of Guernsey) Constituting the Trust £1,000
Ordinances, 1959 to 1989 (‘COBO’). Similarly,
the circulation of a prospectus or other offering Formation of Guernsey company £1,150
document in relation to those securities will to act as SPV. Includes checking
require prior consent of the Commission. on availability of names and
reservation; preparing standard
COBO provides for the regulation in Guernsey of Memorandum and Articles of
the raising of money, the issue of securities and Association; preparing application
the circulation of offers for the subscription, sale for incorporation as a limited
or exchange of securities. liability company; filing documents
with the Registrar of Companies
The consent, if granted, pursuant to COBO, will (and payment of minimum
specify the maximum number and value of statutory fees); obtaining
shares or securities which may be issued, Certificate of Incorporation and
although generally it is only a formality to Control of Borrowing Consent;
increase such limits subsequently. The consent supply of corporate seal and
will also be conditional on no changes being company books.
made to the documents or principal parties
without further approval. Annual accounts will Take-on fee payable to TBA
usually be required to be filed with the administrator
Commission. There are few other reporting
requirements.
Annual Administration Costs
(b) POI Law
Annual trustee fees for TBA
A ‘licensee’ providing services to the SPV from administration of the Trust
within Guernsey will require a permit under the
GUERNSEY-9549429-1

4. Briefing
Securitisation - Establishing a Special Purpose Vehicle in
Guernsey
Suggested minimum annual £500 4. Provide Securities L
distribution for charitable purposes Programme
documentation to Ogier
Annual administration fee and TBA
directors’ fees 5. Submit Securities O
Programme
documentation and
Annual Statutory Fees licence applications (if
Client briefing
any) to the Commission
Annual Return fee £100 to obtain Commission’s
views
Annual Tax Exempt Company fee £600
6. Agree tax status of SPV O/P/L
and name of SPV
It is essential that adequate provision is made in
the structure for the costs of the SPV and the 7. Agree form of trust deed O/L
Trust to be made during the lifetime of each. for the Trust
Provision should also be made for the costs of
winding up the SPV at the end of its life. 8. Agree form of O/L
Memorandum and
Legal Fees Articles of SPV and
provide information
The legal fees will depend on the complexity of necessary for
the Securities Programme and the extent of the incorporation of SPV
documentary review and drafting required. They
will also vary depending on the level of liaison 9. Agree form of O/A/L/P
and negotiation with the Commission that is administration
required. We would be pleased to provide agreement for
estimates of legal fees for a particular Securities administrator
Programme, on receipt of basic information.
10. Agree amount of initial P/O/T
Steps to be Taken settled funds for the
Trust and provide funds
Once the decision has been made to establish a to trustee
Guernsey vehicle, the following steps need to be
taken: 11. Hold board meeting of T
trustee and execute
trust deed
Action Responsibility
12. Incorporate SPV O
1. Select a trustee (and P/T
agree terms of 13. Draft board minutes of O/L
appointment) SPV approving
Securities Programme
2. Select an administrator P/A documentation
(and agree terms of
appointment) 14. Obtain consent and O
licences from the
3. Select directors and P/A/O Commission
auditors (if any) (and
agree terms of 15. Hold board meetings of O
appointment) SPV to establish the
SPV and approve
Securities Programme
documentation
GUERNSEY-9549429-1

5. Briefing
Securitisation - Establishing a Special Purpose Vehicle in
Guernsey
16. Execute Securities O/L/P securitisation/capital markets transactions having
Programme an aggregate principal amount exceeding US$50
documentation and billion.
issue securities
Ogier is able to deliver high quality and cost
17. File final documentation O effective legal advice in all aspects of structuring
with the Commission and documenting asset securitisation
transactions. If you would like further information
Client briefing
about our Structured Finance Group and the
Key O Ogier services we can provide.
P Promoter/Agent About Ogier
A Administrator Ogier is one of the world's leading providers of
offshore legal and fiduciary services employing
T Trustee over 700 professional and support staff. The
group has a presence in nine jurisdictions around
L Lawyers the world, namely the British Virgin Islands, the
Cayman Islands, Guernsey, Hong Kong, Ireland,
Jersey, London, Montevideo and New Zealand.
Timing
Ogier provides advice on all aspects of BVI,
It is possible to establish a Securities Programme Cayman, Guernsey and Jersey law and
within a very short time-scale. In particular, associated fiduciary services through a global
regulatory approvals from the Commission network of offices that cover all time zones and
should be obtainable within two weeks and, if key financial markets including the rapidly
required, it is possible to shorten that period. A growing Asian and Chinese markets.
particular matter which needs to be addressed
Ogier continues to be recognised as a leading
early on is the selection and appointment of an
law firm by the leading legal directories, including
administrator, particularly if the role of the
Legal 500 and Chambers.
administrator is more than simply the provision of
basic secretarial/administration services.
General
The above is intended to provide an outline of
the various issues to be addressed in relation to
the establishment of a Securities Programme
through a Guernsey SPV together with a
summary of the steps to be followed. However,
each Securities Programme will necessarily be
different from the next and it is therefore
essential to seek advice at an early stage as to
how the above issues will apply to the particular
programme.
Services Offered by Ogier
Ogier is the largest legal practice in the Channel
Islands with associated offices in both Jersey
and Guernsey. The firm has substantial
experience in advising on structured finance
transactions involving corporate and trust
structures and is organised to produce innovative
structures to meet business needs. During 2000
the firm acted and advised in relation to
GUERNSEY-9549429-1

6. Briefing
Securitisation - Establishing a Special Purpose Vehicle in
Guernsey
Contact details
Guernsey
Client briefing
Legal:
William Simpson
+44 (0) 1534 504264
william.simpson@ogier.com
Fiduciary:
Chris Le Tissier
+44 1481 737169
chris.letissier@ogier.com
Jersey
Legal:
Chris Byrne
+44 1534 504264
chris.byrne@ogier.com
Fiduciary:
Peter Gatehouse
+44 1534 504288
peter.gatehouse@ogier.com
This client briefing has been prepared
for clients and professional associates of
the firm. The information and
expressions of opinion which it contains
are not intended to be a comprehensive
study or to provide legal advice and
should not be treated as a substitute for
specific advice concerning individual
situations.
Ogier includes separate partnerships
which advise on BVI, Cayman,
Guernsey and Jersey law. For a full list
of partners please visit our website.
www.ogier.com