The BVI Business Companies (Amendment) Act, 2012
In line with the commitment of the British Virgin Islands (“BVI”) to maintain and develop a modern and flexible legislative framework, the jurisdiction has, over recent months, been engaged in a consultation process with respect to certain proposed amendments to the BVI Business Companies Act, 2004 (the “BCA”). At the time of publication of this article the BVI Business Companies (Amendment) Act, 2012 (the “Amendment Act”) remains in draft form and was published in the Official Gazette at the beginning of June. Whilst the Amendment Act has to pass through several more legislative processes before it comes into force, we would not expect there to be many substantive changes1. Alongside the Amendment Act the Business Companies Regulations, 2012 (the "Companies Regulations") were published in the Official Gazette on 10 May 2012 with the intention that they will come into force alongside the Amendment Act and serve to provide further guidance on the provisions of the BCA.
Whilst the Amendment Act and Companies Regulations contain a number of tidying up provisions to the BCA, for the purposes of this article we have chosen to highlight several key amendments that are being proposed by the Amendment Act and the potential benefit to users of the jurisdiction. The topics covered are by no means exhaustive and, for further information on the full amendments, we refer you to our client update entitled Proposed Improvements to the British Virgin Islands Business Companies Act, 2004. We will also issue further updates and guidance as and when the Amendment Act comes into force.
Foreign Character Name: The Companies Regulations contain detailed provisions for the registration of foreign character names for BVI companies as well as their amendment and de-registration. The introduction of these provisions highlights the BVI’s international recognition and use of the jurisdiction as well as its commitment to service clients worldwide. A BVI company will be permitted to register an "additional foreign character name" which does not necessarily need to be an equivalent translation or transliteration of the English name. This is a feature that is common in a number of offshore financial centres. Indeed, many Hong Kong listed companies have dual English and Chinese names which do not translate to each other. This new feature will create a greater degree of flexibility in relation to company names and we believe will be welcomed, particularly in Asia, the Middle East and Eastern European markets.
Re-use of Company Names: Given the number of companies that have been incorporated in the BVI, the constraints on the use of company names are increasing. The Companies Regulations provide for company names to be re-used where a company has changed its name, been struck-off the Register of Companies, dissolved or continued out of the jurisdiction. It is anticipated that such amendments may be useful in the case of mergers where the surviving company wishes to adopt the name of the merging company following completion of the merger. In addition, in other group re-organisation situations the group may, for goodwill or other business reasons, wish to retain the name of a particular company within the group in circumstances where the company itself is no longer required. In such instances the ‘valuable’ name can be reassigned to another BVI company within that same group.
The Amendment Act has introduced several key changes in respect of solvent voluntary liquidations of BVI companies.
Commencement of a liquidation: Whereas the BCA currently provides that a voluntary liquidation commences on the appointment of the liquidator (and that the documentation regarding the appointment of the liquidator must be filed with the Registry within 14 days) under the Amendment Act a liquidation will commence on the filing of the notice of the appointment of the liquidator with the Registry.
Who can act as liquidator: While the BCA does not impose any restrictions on who can or cannot act as a liquidator of a company, the Registry has taken the approach for some time that a director of the company could not act as liquidator. The Companies Regulations now specify that a person who is at the time of the liquidation, or has been in the two years prior to the liquidation, a director of the company cannot act as liquidator. The Companies Regulations also restrict anyone in a senior management position of the company or affiliated company which has responsibility for the financial management of the company (again at the time of the liquidation or two years prior) from acting.
As the BCA is currently drafted there is no express provision allowing for the direct conversion of a share from one class or series into another. A common way of achieving such an end result is currently to redeem the existing shares and issue replacement shares of the same value in the new class or series of shares in consideration for the redemption. However, in certain jurisdictions, this mechanic could trigger a taxable event for the shareholder which, in many cases, is not desirable.
The Amendment Act seeks to rectify this potential issue by introducing a new provision that explicitly provides for convertible shares to be issued and allows for the mechanism for the conversion to be specified in the memorandum and articles of the company. This proposed amendment will give an express statutory basis for undertaking a conversion of shares from one class or series to another and thus, potentially, removes the risk of a taxable event arising when a shareholder is not actually exiting an investment.
Charges or Mortgages of Shares
The BCA currently provides that where the governing law of a mortgage over shares in a BVI company is the law of the BVI, the remedies set out in section 66(5) of the BCA (essentially the power of sale and the power to appoint a receiver) may not be exercised until an event of default has occurred and is continuing for a period of not less than 30 days (or such shorter period as may be specified in the mortgage) and which remains unrectified for a period of 14 days (or such shorter period as may be specified in the mortgage). The secured party must therefore ensure that shorter periods are specified in the security documentation. In order to protect the secured party from a potential challenge that any such time periods were unreasonable, our current documents allow for an event of default continuing for one business day with such default being unrectified for one business day.
Clearly it is preferable for any secured party to have the relevant remedies available to it and exercisable immediately upon default especially in view of the fact that the jurisdiction strives to be creditor friendly. The Amendment Act makes the necessary amendment to the current legislation to allow for the remedies to be exercisable immediately upon default by the chargor.
There is currently no process under the BCA for a company to apply to be struck-off the Register of Companies in the BVI. In practice, companies often do not wish to bear the cost involved in a voluntary liquidation and opt to simply allow the company to be struck-off for non-payment of fees. A company will be struck-off the Register of Companies for non-payment of its annual licence fee, six months following the date on which the licence fee was due. After a period of 10 years the company will be automatically dissolved. At any time before its dissolution, the company may make an application to the Registrar to be restored to the Register of Companies, after payment of all outstanding registry fees and penalties. However, the striking-off of a company from the Register of Companies does not terminate a director's duties to the company. Section 116 of the BCA provides that a director who vacates the office of director will remain liable under any provisions of the BCA that impose liability on a director in respect of any acts or omissions or decisions made whilst he was a director.
The Amendment Act proposes to reduce the period between strike-off and dissolution from 10 years down to seven years. This will be advantageous to directors of companies that have opted to be struck-off for non-payment of fees, as it reduces the period for potential liability.
Persons who can have the Company restored
As set out above, during the period that a company is struck-off, and prior to it being dissolved, it may be restored to the Register of Companies by payment of all outstanding fees and penalties.
Following dissolution of a company (by any means including following a strike-off or by way of liquidation) restoration can only be achieved by an application to Court. Currently such an application can be made by a creditor of the company, a former member or liquidator. No such application may be made more than 10 years after the date of the dissolution.
The Amendment Act proposes to widen the group of potential applicants to also permit a former director or any person who can establish an interest in having the company restored to apply to the Court for the restoration of a company. It also sets out various powers that the Court may exercise in respect of such application, including restoration of the company or making such orders necessary “for the purpose of placing the company and any other persons as nearly as possible in the same position as if the company had not been dissolved."
The fact that the jurisdiction is proposing amendments to both its legislation and the content of the Amendment Act and Company Regulations are extremely positive developments for the BVI. Those in the industry have been consulted throughout the process and asked for their input resulting in some well thought out developments for the legal framework in the BVI. We welcome the evolution of the legislation and the ongoing commitment of the BVI to retain its status as a frontrunner in the offshore market.
1The amendments as set out in this article are based on the draft Amendment Act as published in the Official Gazette on 7 June 2012.