Proposed Amendments to BVI Business Companies Legislation
The BVI Business Companies Act 2004 ("BCA") is shortly due to be amended by the BVI Business Companies (Amendment) Act 2015 (the "Amendment Act"). As well as keeping the British Virgin Islands ("BVI") corporate regime at the forefront of compliance with international standards, the Amendment Act is intended to provide greater flexibility and certainty for those operating or doing business with BVI companies.
The key proposed changes include:
(a) The introduction of a requirement to file a register of directors with the Registrar of Corporate Affairs in the BVI (the "Registrar");
(b) The ability of a BVI company listed on a recognised stock exchange to dispense with the need to keep a register of members containing the information previously required by the BCA, instead, allowing the company itself to determine the contents of such register and provisions which allow shares of a BVI company listed on a recognised stock exchange to be transferred without the need for a written instrument of transfer;
(c) Clarification of the rules surrounding the issue of bonus shares, the issue of shares for non-cash consideration and the ability of shareholders to surrender shares; and
(d) A change to the requirements relating to the execution of deeds governed by BVI law to simplify and give certainty to the process.
These proposed changes, together with a number of other amendments to the BCA, are set out in more detail below.
Register of Directors to be Filed
All existing BVI companies will be required to file their register of directors with the Registrar by 31 December 2016 while new companies will need to file their register of directors within 14 days of the appointment of the first directors of the company. The filing of the company's register of members with the Registrar is not required and continues to be optional.
Updated registers will need to be filed with the Registrar within 21 days of a change being made.
It should be noted that filed registers will not be publicly available and may be obtained only by the relevant BVI company, its registered agent, any other person authorised in writing by the company to have access to it, by court order or on the request of a competent authority acting in the exercise of its powers or dealing with a matter for which is has authority under an enactment. This last reference is included in order to deal with obligations that may be imposed by automatic exchange of tax information arrangements such as US FATCA or the OECD Common Reporting Standard, other mutual legal assistance legislation or its powers as a financial services regulator, tax authority or law enforcement agency. The requirement to file the register of directors stems from the FATF 40 Recommendations which require director information on companies to be maintained on a central register and ensures that the BVI remains at the forefront of compliance with international initiatives in relation to the automatic exchange of information and the fight against money laundering and terrorist financing.
All BVI companies existing as at 31 December 2015 will be permitted to file their register of directors with the Registrar without incurring a government filing fee if they file the register before 31 December 2016. Newly incorporated BVI companies will be required to pay a government fee of US$50 to file their registers of directors. The government fee for registering any changes to a register of directors held by the Registrar will be US$50.
A BVI company which fails to file a register of directors within the requisite time frame will incur a penalty of US$100 and for every day after the deadline that the company fails to file its register an additional penalty of US$25 per day will be applied to the company.
Shares of Listed Companies
A BVI company listed on a recognised stock exchange will no longer have an obligation to keep a register of members containing the information required under section 41 of the BCA but instead, containing such information as may be provided by its memorandum and articles of association or by a resolution of members. The intention is to allow listed companies the flexibility to operate in accordance with the rules and practices of the relevant stock exchange. The list of recognised stock exchanges is also expanded under the Amendment Act.
The Amendment Act allows shares of a BVI company listed on a recognised stock exchange to be transferred without the need for a written instrument of transfer and such shares may instead be transferred in accordance with the relevant stock exchange rules and other applicable laws. In essence, this change will allow for the "paperless" transfer of listed shares in accordance with the procedures of the relevant stock exchange.
Shares Issued for Non-cash Consideration
Before being permitted to issue shares for consideration other than money, the directors of a BVI company are required to pass a resolution which was required to include, in relation to the non-cash consideration, a determination of the reasonable present cash value of the non-cash consideration. This has proved to be cumbersome and, in some cases, very difficult to comply with and was viewed as unnecessary to deal with the perceived concern of the legislators, who wished to ensure that shares were not issued at an undervalue.
The Amendment Act provides that information required to be contained in such a resolution now must simply state the amount to be credited for the issue of the shares and that, in the opinion of the directors, the present cash value of the non-money consideration and money consideration, if any, is not less than the amount to be credited for the issue of the shares. This language is intended to clarify that consideration for a particular share issuance can be a combination of cash and non-cash consideration and remove the need to make a determination as to the reasonable present cash value of the non-money consideration for the issue.
Bonus Issuance of Shares
The Amendment Act clarifies that bonus shares issued by a BVI company will be deemed upon issue to have been fully paid unless otherwise provided for in the company's articles of association.
Surrender of Shares
While practitioners had long regarded that companies were able to accept the surrender of fully paid shares for no consideration, the Amendment Act now provides explicitly that such a surrender of fully paid shares to a BVI company is permitted where the shareholder agrees in writing to the surrender.
The BCA has been amended to clarify that the surrender of shares of the BVI company in such a manner will not be considered to be a distribution for the purposes of the BCA.
Execution of Deeds
Following the decision in the UK in the case of R (on the application of Mercury Tax Group Ltd and another) v HMRC & Others  EWHC 2721 there has been some uncertainty as to execution formalities and the correct procedure to be followed where transaction documents are to be executed under BVI law at a virtual closing meeting where incomplete documents are executed while the details of the documents are finalised. The Amendment Act clarifies that it is possible for executed pages to be attached to a deed or instrument under seal governed by BVI law after execution has taken place and for such deed or instrument to be considered valid. This amendment is in line with commercial practice in this area and will be of assistance from a practical perspective.
There had also been uncertainty over the form to be used by non-BVI companies executing BVI law deeds. Non-BVI entities executing deeds or instruments under seal governed by BVI law can now rely on the requirements for execution of documents in the jurisdiction in which the entity is incorporated, registered or organised and, provided that such requirements have been satisfied, the deed or instrument will be considered validly executed by that entity.
There have been a number of clarifications and changes to the manner in which registered agents interact with the companies to whom they provide services.
The Amendment Act has confirmed the requirement for registered agents to act on the instructions of the directors of a BVI company where these instructions are set out in resolutions of the board of directors of the company and such resolutions are provided to the registered agent. This amendment clarifies that registered agents are not required to seek instructions from their client of record before acting on such instructions. This is a welcome clarification and should streamline corporate transactions.
In addition, the BCA has been amended to confirm that a registered agent must recognise and accept the appointment or removal of a director or directors of a BVI company by the shareholders of that company.
The Amendment Act further clarifies that where a law firm assists with the necessary filings to be made with the Registrar in respect of a change of registered office or registered agent of a BVI company, it may now submit the fees payable to the Registrar. This provision will be useful in circumstances where an outgoing registered agent is refusing to cooperate with the proposed change.
Records and Underlying Documentation
BVI companies are required to keep the records and underlying documentation of the company at the office of the registered agent or at such other place inside or outside the BVI as determined by the directors of the company. The Amendment Act incorporates provisions from other legislation and has clarified the scope of the records and underlying documentation required to be maintained to include accounts and records such as invoices, contracts and similar documents in relation to all sums of money received and expended by the company and the matters in respect of which the receipt and expenditure takes place, all sales and purchases of goods by the company and the assets and liabilities of the company. Such documents must be retained for a period of at least five years from the date of either: (i) the completion of the transaction to which the documents relate; or (ii) the termination of the business relationship to which the documents relate.
Where this documentation is not kept by the registered agent, the company is required to provide the registered agent with a written record of the address where such documents are kept and the name of the person who maintains and controls these documents. Where the location of the records or the identity of the person maintaining and controlling the documents changes, the company must, within 14 days of the change, provide the registered agent with the updated information.
The penalty for contravening this section of the BCA has increased from a fine of US$10,000 to US$50,000.
The provisions relating to the continuation of a foreign company into the BVI under the BCA have been amended. The Registrar may rely on a certificate issued by a director of the foreign company attesting to the foreign company's compliance with the requirements under section 180 of the BCA provided the certificate is in the approved form, duly signed by the director and notarised and accompanied by an extract of the law under which the foreign company is permitted to continue to another jurisdiction.
Where a BVI company wishes to continue to another jurisdiction and there are charges registered over the property of the company, a written declaration must be provided to the Registrar that the company will either: (i) discharge the charge; (ii) obtain the consent of secured creditor; or (iii) certify to the Registrar that the chargee's interest will not be diminished or compromised by the continuation.
A BVI company seeking to continue to another jurisdiction must file a declaration confirming that the laws of the jurisdiction to which the company is to be continued permits continuation and that the company has complied with those laws.
In circumstances where the continuation under the laws of another jurisdiction requires the Registrar to provide a certificate of discontinuation, the Registrar may rely on a provisional certificate of continuation issued under the laws of that jurisdiction as the basis to issue a certificate of discontinuation.
Court-ordered Shareholder Meetings
The circumstances under which the High Court of the British Virgin Islands may order a meeting of shareholders of a BVI company to be called have been amended to include situations where shareholders of the company entitled to exercise at least 30% of the voting rights have requested that the directors of the company call a shareholder meeting and the directors fail to take steps to convene such a meeting.
The Amendment Act makes specific reference to BVI companies being permitted to include an arbitration clause in their articles of association. This is not a new position but rather a confirmation of the existing position under common law and the reason for its specific inclusion is the enactment of arbitration legislation earlier this year.
Resolutions of Directors
The provisions of the BCA relating to resolutions of directors have been amended to clarify that subject to any provision to the contrary in the memorandum and articles of association of a BVI company, each director of the company will have one vote at a meeting of directors of the company.
Register of Charges
A requirement has been introduced to oblige each BVI company, where its register of charges is kept by the registered agent, to transmit the details of the change to its register of charges to the registered agent within 14 days of a change occurring.
The Amendment Act gives the Financial Services Commission of the British Virgin Islands ("FSC") the power to revoke the approval of an authorised or recognised custodian where the FSC is satisfied that the custodian has acted contrary to its obligation or to a prohibition under the BCA or in relation to an agreement entered into with the FSC.
Specific penalties have been introduced in relation to bearer shares. Where a BVI company delivers bearer shares to any person other than the custodian who has agreed to hold such shares including bearer shares converted from registered shares, the company commits an offence for which a fine of US$50,000 is payable. In addition where a custodian or registered agent transfers bearer shares in contravention of section 73 of the BCA, an offence has been committed, the penalty for which is a fine of US$40,000.
Liquidation, Striking-off and Restoration
The Amendment Act provides that a BVI company may be liquidated where there is undischarged registered security over its assets and notes that the liquidator will be bound to give effect to the rights and priority of the claims of the company's secured creditors.
A new provision has been introduced by the Amendment Act which allows the Registrar to strike off a BVI company which is licensed under financial services legislation where its licence has been revoked by the FSC. Where a BVI company is struck-off and then restored, the Registrar will issue a certificate of restoration to the company. In addition, the BCA has been amended to shorten the amount of time within which an application can be made to restore a BVI company which has not been dissolved to the register of companies from 10 years to seven years, after the publication of the strike-off in the Gazette.