Changes to the BVI Business Companies Act, 2004 Come into Effect
The BVI Business Companies (Amendment) Act, 2012 (the "Amendment Act") and the Business Companies Regulations, 2012 (the "Companies Regulations") come into legal effect today, 15 October 2012.
The Amendment Act and Companies Regulations contain a number of minor modifications to existing concepts in the BVI Business Companies Act, 2004 ("BCA"), but in this update we have chosen to highlight several key amendments. The items we highlight are by no means exhaustive and, for further information on all amendments, please refer to your usual Maples and Calder contact or one of the contacts provided below.
Foreign Character Name
The Companies Regulations contain detailed provisions for the registration of foreign character names for British Virgin Islands ("BVI") companies as well as their amendment and de-registration. A BVI company is 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 major financial centres. Indeed, many Hong Kong listed companies have dual English and Chinese names which do not translate to each other. This new feature creates a greater degree of flexibility in relation to company names.
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 will 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 introduces several key changes in respect of solvent voluntary liquidations of BVI companies.
Who Can Act as Liquidator
The Companies Regulations 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.
Commencement of a Liquidation
Whereas the BCA previously provided that a voluntary liquidation commenced on the date of the appointment of the liquidator (and that the documentation regarding the appointment of the liquidator be filed with the Registry within 14 days of that date) under the Amendment Act a liquidation will now commence on the date of the filing of the notice of the appointment of the liquidator with the Registry of Corporate Affairs ("Registry").
Previously under the BCA there was 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 was 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 may not be 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 mechanics of conversion to be specified in the memorandum and articles of the company. This amendment gives 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
Prior to amendment, the BCA provided that where the governing law of a mortgage over shares in a BVI company was 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) could not be exercised until an event of default had occurred and was continuing for a period of not less than 30 days (or such shorter period as may be specified in the mortgage) and remained unrectified for a period of 14 days (or such shorter period as may be specified in the mortgage). The secured party therefore had to ensure that shorter time periods were specified in the security documentation.
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 amendments to the BCA introduced by the Amendment Act allow for a secured party's remedies to be exercisable immediately upon default by the chargor.
There is currently no process under the BCA for a company to apply to the Registry 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. Under the Amendment Act, after a period of 7 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.
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, although no such application may be made more than 10 years after the date of the dissolution. Prior to today's changes, such an application could only be made by a creditor of the company, a former member or liquidator.
The Amendment Act widens the group of potential applicants to include a former director and any person who can establish "an interest in having the company restored" to the Register of Companies. 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."
If you would like any further information please speak with your usual Maples and Calder contact or one of the contacts listed above.