Plans of Arrangement Under the BVI Business Companies Act, 2004
Rio Verde Minerals Corporation, EM Subco (BVI) Inc., Talon Metals Corp (BVI High Court (Commercial) Claim 30 of 2011)
British Virgin Islands ("BVI") legislation contains three types of statutory 'arrangements' into which a BVI company can enter. These enable a BVI company to enter into arrangements, restructurings and transactions which, with BVI Court approval under the relevant process, will be binding on members and creditors of the company. These routes consist of 'schemes of arrangement' and 'plans of arrangement' under the BVI Business Companies Act, 2004 (the "BC Act"), and 'creditors’ arrangements' under the Insolvency Act, 2003.
Schemes of arrangement and creditors’ arrangements are derived largely from English law, and benefit from a substantial body of well developed case law from throughout the Commonwealth.
In contrast, 'plans of arrangement' were inspired by Canadian law and, although they have been available in a previous form in the old International Business Companies (IBC) Act since 1984, and in the BC Act since 2005, BVI companies had been slow to take up the availability of the plan of arrangement until its provisions had been tested in the BVI Court.
The BVI Commercial Court has recently approved what is thought to be the first plan of arrangement to be used in the BVI, in the matter of Rio Verde Minerals Corporation, EM Subco (BVI) Inc., Talon Metals Corp (BVI High Court (Commercial) Claim 30 of 2011). This article summarises the Court’s approach in that matter, which fully supported the commercial potential for the plan of arrangement in corporate transactions.
As can be seen from the following list, almost any type of reorganisation or reconstruction of a company, including a demerger, could be effected under the plan of arrangement process. The 'arrangements' which may be the subject of a plan of arrangement are:
(a) an amendment to the memorandum or articles of association of a BVI company;
(b) a reorganisation or reconstruction of a BVI company;
(c) a merger or consolidation of one or more companies that are companies registered under the BC Act, with one or more other companies, if the surviving company or the consolidated company is a company incorporated under the BC Act;
(d) a separation of two or more businesses carried on by a company;
(e) any sale, transfer, exchange or other disposition of any part of the assets or business of a company to any person in exchange for shares, debt obligations or other securities of that other person, or money or other assets, or a combination thereof;
(f) any sale, transfer, exchange or other disposition of shares, debt obligations or other securities in a company held by the holders thereof for shares, debt obligations or other securities in the company or money or other property, or a combination thereof;
(g) a dissolution of a company; and
(h) any combination of any of the things specified in the aforementioned items (a) to (g).
It can be seen that there is great potential for a wide variety of transactions to be effected by way of plan of arrangement. For example, "reorganisation" and "reconstruction" are not defined and should be given a wide interpretation.
Plans of Arrangement – the statutory provisions
If the directors of a company determine that it is in the best interests of the company or the creditors or members of the company, the directors may approve a plan of arrangement that contains details of the proposed arrangement, even though the proposed arrangement may be authorised or permitted by any other provision of the BC Act or otherwise permitted.
Upon approval of the plan of arrangement by the directors, the company must make application to the BVI Commerical Court for approval of the proposed arrangement. The Court may:
(a) determine what notice, if any, of the proposed arrangement is to be given to any person;
(b) determine whether approval of the proposed arrangement by any person should be obtained and the manner of obtaining the approval;
(c) determine whether any holder of shares, debt obligations or other securities in the company may dissent from the proposed arrangement and receive payment of the fair value of his shares, debt obligations or other securities under the dissent and appraisal provisions of the BC Act;
(d) conduct a hearing and permit any interested person to appear; and
(e) approve or reject the plan of arrangement as proposed or with such amendments, as it may direct.
It is an important feature of the plan of arrangement that, unlike under a scheme of arrangement, the BC Act does not prescribe the majority in number or value of members or creditors who must approve the arrangement. The plan of arrangement route enables the directors to submit to the Court a threshold for approval which they consider appropriate (whilst acting in the best interests of the company). The Court is not restricted to the approval of a majority in number representing 75 percent in value as required for a scheme of arrangement, and this flexibility makes the plan of arrangement an attractive alternative. It is also important to note that there are no dissenters rights other than as ordered by the Court (if the Court considers a right to dissent is appropriate).
Where the Court makes an order approving a plan of arrangement, the directors of the company, if they are still desirous of executing the plan, shall confirm the plan of arrangement as approved by the Court (whether or not the Court has directed any amendments to be made thereto). Having confirmed the order as approved by the Court, the order and certain statutory requirements must then be followed and the arrangement will be effective on the date that articles of arrangement are registered by the Registrar of Corporate Affairs or on such date subsequent thereto, not exceeding 30 days, as is stated in the articles of arrangement.
Plans of Arrangement – the Court’s approach
In the Rio Verde Minerals Corporation matter, the parties had entered into an arrangement agreement (the "Arrangement Agreement"), subject to approval by way of a plan of arrangement. Among other things, the BVI Court ordered that:
1. general meetings of the members of the relevant claimants be convened in accordance with their memorandum and articles of association, for the purpose of considering and, if thought fit, approving a plan of arrangement as set out in a schedule to the Arrangement Agreement;
2. notices of the meetings be accompanied by a copy of the proposed plan of arrangement, and an explanatory note to the members setting out "in straightforward language":
(a) the steps to be taken, if it is to be affected;
(b) the effect of each step;
(c) the commercial effect of the completion of the proposed arrangements;
(d) the nature of any advantage which it is anticipated would accrue to any member of either party to the Arrangement Agreement, which in the opinion of the directors ought to be brought to the attention of members; and
(e) the nature of any detriment, whether fiscal or otherwise, which it is contemplated would be suffered as a consequence of the proposed arrangement, which in the opinion of the directors ought to be brought to the attention of members;
3. the explanatory statement referred to in the aforementioned point 2 must have at its head a rubric in common form advising recipients to take appropriate advice before voting on the proposed arrangement;
4. the Chairs of the general meetings be directed to report the results of their respective meeting to the Court by affidavit, which shall detail the resolutions put to the members as well as the number of members voting in person or by proxy, the number of members voting in favour of the resolutions and the number voting against, together with the number of members abstaining;
5. the members listed in the respective registers of members of the relevant claimants immediately before the dispatch of the notices referred to in the aforementioned point 2, shall be determinative of the identity of the members and the amount of shares held by them for the purpose of considering and approving the proposed arrangements;
6. notice of the Court proceedings and an address from which a copy of the Arrangement Agreement may be obtained by any interested parties and/or creditors of the claimant companies shall be: (i) advertised twice in two consecutive weeks in newspapers in the BVI and Canada; (ii) included in the management information circular to be sent to their respective members with the notice of the meetings; and (iii) send to the member of the claimant not holding a general meeting; and
7. following conclusion to the meetings and the lodging of the reports to the Court by the Chairs of the meetings, the matter be returned for further consideration.
One of the claimants was publicly listed on the Toronto Stock Exchange and it transpired that the provisions as to the record date set out in the aforementioned point 5 did not comply with the applicable reporting issuer requirements of the Securities Act (Ontario). The claimants subsequently applied to the Court for an order varying the record date set in the first order, and the Court varied its first order accordingly.
The claimants also applied for a further direction to satisfy the fairness hearing requirements of section 3(a)(10) of the US Securities Act 1933. The Court ordered that all persons to whom securities were to be issued in the proposed arrangement are entitled to attend and be heard at a further hearing of the Court for the purpose of granting a final order approving, if thought fit, the proposed arrangements.
The Court ultimately ordered that the Amendment Agreement is approved.
It can be seen from the above arrangement and the Court’s orders that the BVI Court can be expected to take a commercial view of proposed arrangements which follow due process, and it seems likely the plan of arrangement will now come of age as a further tool available to BVI companies looking to structure transactions to meet particular onshore considerations.