Disposals of Assets by BVI Companies
Section 175 of the BVI Business Companies Act 2004 provides that dispositions by a company of more than 50% in value of its assets (other than by way of, or by enforcement of, a mortgage, charge or other encumbrance) require shareholder approval unless made in the usual or regular course of the company's business.
Although companies are free to contract out of this provision in their memorandum or articles of association, few in fact do so.
How is the restriction intended to operate in practice, particularly in the case of single asset holding vehicles? There is now some guidance on this, following a decision of the BVI Commercial Court1.
The company in question was a property holding company, and its sole shareholder alleged, among other things, that the directors should not have disposed of the company's only asset, a property in Brazil, without his approval.
The judge held that the purpose of the provision was to ensure that directors do not use their powers in order to dispose of assets on ventures to which the company's shareholders "have not signed up". In the case of a property holding company, it could not be said that acquiring and disposing of property was outside its usual or regular course of business. There was no evidence before the court that this approach had indeed been the legislature's purpose, rather than – for example – simply ensuring that directors did not alienate a significant portion of the company's assets without the knowledge of the shareholders, unless such disposals were a regular occurrence.
Neither was the court persuaded by the argument that the disposal of one asset, in circumstances where the company had only ever held that one asset, could not be outside the restriction, there being no "course" of business in the case of a single disposal.
The result of this decision seems to be to limit the extent to which single asset vehicles benefit from the protection otherwise offered to BVI company shareholders by section 175. Views are divided on whether this is the right outcome.
The decision is being appealed.
For further information, please speak with your usual Maples and Calder contact or one of the individuals listed above.
1Ciban Management Corp v Citco (BVI) Ltd BVIHCV 2007/031 which considered the equivalent provision under the International Business Companies Act 1984