In Good Standing, Inactive or Struck Off?
This article also appeared in the August 2013 edition of the BVI International Finance Centre's newsletter. A copy can be found here.
The annual fees payable by a standard British Virgin Islands ("BVI") company to the BVI Registry of Corporate Affairs (the "Registry") are based upon the number of shares which the company is authorised to issue. The annual fees are currently US$350 for a company authorised to issue up to 50,000 shares and US$1,100 for those companies authorised to issue more than 50,000 shares.
There are two separate payment deadlines for annual license fees. The date on which a company's fees are due will depend on the date upon which it was incorporated. If a company was incorporated between 1 January and 30 June (known as a first half company), the annual license fee is due no later than 31 May of each year. If a company was incorporated between 1 July and 31 December (a second half company), the annual license is due no later than 30 November.
Failure to pay the annual fees by the relevant due date will render the company liable to a penalty fee in addition to the amount of the outstanding fees. Where the fees are paid before the expiry of a two-month period from the date they were due, the penalty will be 10% of the annual fees. Where the fees are paid within two months after the expiry of the initial two-month period, the penalty will be 50% of the annual fees. If the license fee remains unpaid at the expiry of the 50% penalty period, the company will be struck off the Register of Companies (the "Register").
The company will be in 'good standing' with the Registry and will remain on the Register, as long as it continues to pay its annual fees. During the time that the company is incurring any penalty for non-payment of fees, it will be referred to as being 'inactive' and if the fees remain unpaid then, as above, the company will be 'struck off'.
What is the effect of a company being inactive or struck off?
The term 'inactive' simply means that the company is no longer in good standing, although it has not yet been struck off. While the directors of the company are not restricted from carrying on the business of the company during this time, they will be unable to warrant that the company is in good standing and, should it be required, will not be able to obtain a favourable opinion on the company to support a proposed transaction. In addition, no filings can be made with the Registry, while the company is inactive.
Once the company has been struck off, neither the company nor any directors, members, liquidators or any receiver thereof may act in any way with respect to the assets or affairs of the company. They may not carry on any business or in any way deal with the assets of the company. They are also restricted from commencing or defending any legal proceedings (other than those on foot prior to the date of striking off), making any claim or claiming any right for, or in the name of the company.
It is important to note that when a company is struck off the register, it does not affect the liability of any of its members, directors, officers or agents, nor does it prevent the company from incurring liabilities, or any creditor from making a claim against the company.
Can a company be restored to the register once it has been struck off?
Where a company has been struck off the Register for a period of less than 7 years, it can be restored simply by making an application to the Registrar of Corporate Affairs (the "Registrar"), along with payment of the restoration fee, (currently US$375 if the application is made 6 months or less following the strike off; or US$775 if the application is made after that time) and all outstanding fees and penalties. Any third party with an interest in restoring the company may apply to the Registrar to do so by paying the relevant fees. Upon restoration of the company, the Registrar will issue a certificate of restoration and, once restored, the company is deemed never to have been struck off the Register.
Where a company has been struck off the Register for non-payment of fees (and remains struck off continuously for a period of seven years) it will be dissolved with effect from the last day of that period. An application may be made to the court to restore a dissolved company to the Register. For further information about this, please see our update entitled, "Applications to Court for the Restoration of Dissolved BVI Companies", which specifically deals with such an application and the grounds on which it will be granted.
Can a company apply to be struck off?
There is currently no process in the BVI for a company itself to apply to the Registrar to be struck off the Register. If a company is no longer required, the options are either: (i) a voluntary liquidation of the company; or (ii) allow the annual fees to lapse, causing the company eventually to be struck-off.
The voluntary liquidation route results in the immediate dissolution of the company upon the completion of the liquidation. However, as set out earlier, the company will not be dissolved for a further seven years, following a strike off. The striking off of a company does not terminate a director's duties to the company. A director who vacates the office of director will prima facie remain liable in respect of any acts, omissions or decisions made whilst he was a director. Accordingly, directors may wish to choose the voluntary liquidation route as opposed to simply allowing the company to lapse, to provide themselves with more certainty as to their period of exposure for potential liability.
For further information, please speak with your usual Maples and Calder contact or one of the individuals listed above.