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IBCF: NEWS AND INFORMATION
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The British Virgin Islands Business Companies Act 2004
The past two years have been an extremely busy time for the BVI as various Amendments and modifications have been made to the BVI IBC Act to respond to the OECD (Organization for Economic Co-operation + Development) and its FATF (Financial Action Task Force.) In particular, changes were made (such as those to bearer shares) to respond to OECD calls for greater transparency and “ring fencing”, the provision of separate and preferential tax treatment for nonresident as opposed to resident companies.
The new Act - the BVI Business Companies Act 2004 (the BVIBC Act) came into effect on 1 January 2005 and combines two previous pieces of legislation – the IBC Act and the local Companies Act. There is now one corporate vehicle in the BVI, useable for both local and international purposes with zero income or corporate tax.
The BVIBC Act is being phased in over a two-year transitional period as follows:
2005 – Until 31 December 2005 clients can continue to form companies under the old IBC Act. During this period clients can incorporate companies under the BVIBC Act as well.
2006 – Beginning 1 January 2006 all new incorporations will be formed only under the BVIBC Act. During the period 1 January 2006 through 31 December 2006, existing companies incorporated under the original IBC Act and the domestic “Companies Act” will be permitted to continue operating under those Acts to enable them to prepare for transition to the new Act.
2007 – On 1 January 2007, existing companies maintained under the existing IBC Act and Companies Act will automatically be re-registered under the BVIBC Act. By 2007, all companies registered in the BVI will be operating under the new regime.
Variety of available corporate structures
Under the IBC Act, only companies limited by shares were available. Under the BVIBC Act, the range of corporate vehicles available has been greatly increased. Clients can now form the following types of companies under the BVIBC Act:
- companies limited by shares
- companies limited by guarantee authorized to issue shares (sometimes called ‘hybrid companies’)
- companies limited by guarantee not authorized to issue shares
- unlimited companies authorized to issue shares
- unlimited companies not authorized to issue shares
- restricted purposes companies
- segregated portfolio companies (SPCs)
A restricted purpose company is a company limited by shares but with restricted objects or purposes, as specified in its memorandum of association. It is expected that these companies will be used in structured finance transactions. Segregated portfolio companies are companies limited by shares and have previously only been available for use by insurers in the BVI. SPCs may now be used by private/professional funds and public funds after obtaining approval from the Financial Services Commission.
The different types of companies can have different name endings. Unlimited companies will end with either “Unlimited” or “Unltd”. Restricted purpose companies will use “(SPV) Limited” or “(SPV) Ltd.” in its name. Limited companies (limited by shares or guarantee) will continue to use the endings now in use under the IBC Act – “Limited”, “Corporation”, “Societe Anonyme”, “Sociedad Anonima”, “Incorporated” or their respective abbreviations, “Ltd.”, “Corp.”, “S.A.”, “Inc”.
Regulations expected to be enacted pursuant to the BVIBC Act may also allow the re-use of names previously used by companies that have changed their names, been struck off the register or been dissolved.
It is also now possible to incorporate companies where the company number is used as a name (for example “BVI Company Number 1234567 Limited”) and if a name is used in that form the company can also have an additional foreign character name approved by the Registrar.
There is no concept of authorized capital or of share capital contained in the BVIBC Act and companies that are authorized to issue shares must simply state in the memorandum of association the maximum number of shares the company is authorized to issue.
This means that companies are not required to state in the memorandum of association an authorized share capital, or the par value of shares with par value, or the currency of shares that the company is authorized to issue. As a result of having no authorized share capital, the BVIBC Act does not contain any provisions relating to capital. These matters are dealt with in the provisions relating to the alteration of the memorandum and the purchase by the company of its own shares.
Filing fees will now be based on number of authorized shares the total par value as was previously the case. For companies not exceeding 50,000 shares, the filing fee will be $350 USD. For companies exceeding 50,000 shares (or allowing bearer shares where permissible), the filing fee will be $1100.
Purpose Clause (Objects)
The BVIBC Act contains no requirement to state the objects or purposes for which the company is formed in the memorandum of association, but it can do so if desired. The exception to this rule is a restricted purposes company, which must state the purposes for which it is incorporated.
The BVIBC Act contains provisions for three types of members – shareholders, guarantee members and members of an unlimited company who are not shareholders. A member is a person whose name is entered as a member in the register of members.
The BVIBC Act clarifies the rights that attach to a share where the memorandum is silent on the point. These include:
- the right to one vote at a meeting of the company or on any resolution of the members of the company;
- the right to an equal share in any dividend paid in accordance with the BVIBC Act; and,
- the right to an equal share in the distribution of the surplus assets of the company.
These rights can be modified, excluded or added to where expressly included in the memorandum of association.
A company must have at least one director and must keep a register of directors. Directors must be appointed within 30 days of the date of incorporation and a natural person acting as director must be at least 18 years of age. Note that the time requirement is an attempt to limit the use of shelf companies. Unlike the IBC Act, the BVIBC Act requires that a person cannot be appointed a director unless he has consented in writing to be a director.
The concept of a “shadow director” is introduced in the BVIBC Act. This means that, in certain circumstances, the client who is giving directions to a “nominee” director can be held personally liable for the actions of the director.
Disclosure of directors’ interests
The provisions relating to disclosure of directors’ interests are different to the IBC Act in that a director is required to disclose to every other director on the board his interest in any transaction to be entered into by the company. Regulations will be enacted pursuant to the BVIBC Act which clarify the circumstances in which a director is considered to be interested in a transaction. A transaction entered into by a company where a director is interested is voidable if the director does not disclose his interest prior to the company entering into the transaction unless the director’s interest in the transaction is known by the members and the transaction is approved by them, or if the company received fair value for the transaction.
If the memorandum of association so specifies, a company can issue shares of different classes and different series within a class, but any rights, privileges, restrictions and conditions attached to each class of shares must also be specified. However, there is no need to specify the number of shares in each class or series or their par value. A company can issue bonus shares, partly paid shares and nil paid shares and can issue fractional shares if permitted by its memorandum. A company can also hold treasury shares.
A company cannot issue bearer shares unless expressly authorized by its memorandum of association to do so and registered shares may not be converted to or exchanged for bearer shares unless specifically permitted by the memorandum. The memorandum must state whether the company is or is not allowed to issue bearer shares. Segregated portfolio companies are not allowed to issue bearer shares.
As with the IBC Act, bearer shares must be deposited with a custodian authorized or recognized by the FSC. Bearer shares not deposited with a custodian are immobilized and the rights attaching to them are disabled and any transfer of the certificate is void. The custodian becomes the member of the company but the beneficial ownership of the share remains with the intended bearer.
Dividends and distributions
Since the concept of surplus is no longer retained in the BVIBC Act, distributions of the company’s money or assets can only be made if the directors are satisfied on reasonable grounds that the company will, immediately after the distribution, satisfy the solvency test – that the value of its assets exceeds its liabilities and it is able to pay its debts as they fall due. These provisions relate to any distributions to a member, not only dividends as in the IBC Act, which includes any director or indirect transfer of an asset to or for the benefit of a member.
New regime for registration of charges (liens)
Under the BVIBC Act, particulars of a charge can now be registered in a new, public Register of Registered Charges maintained by the Registrar in respect of each company. Some features of the new system include:
- Companies are required to keep at their registered office a register of all charges setting out certain information about the nature of the charge and the parties thereto.
- The Registrar of Corporate Affairs is required to keep a Register of Registered Charges noting, among other details, the time and date that any charge is registered.
- A company or the chargee may, but is not required to, apply to the Registrar to register a charge. A decision not to register will not make the charge unenforceable against a liquidator or creditors.
- A registered charge has priority over a subsequent registered charge on the same property and an unregistered charge. However, the order of priority of registered charges can be varied with the consent of a superior chargee or by agreement between the chargeholders.
Charges created prior to 1 January 2005 will continue to rank in the order in which they would have ranked prior to the enactment of the BVIBC Act.
The new charges system is important for financial institutions in particular, as it gives chargees far more certainty than the current system (where there is no central register of charges and where priority is determined by entry in a register of charges that the company may chose to maintain only at its registered office). In the transitional period between 1 January 2005 and 1 January 2007, financial institutions may want to consider requiring chargors to re-register under the BVIBC Act to enable charges to be registered and take priority in accordance with the new legislation.
Registered agent, company records, seal
As with an IBC, a BVIBC company must have a registered agent in the BVI. Failure to do so can result in the company being struck off the register.
The company must keep certain documents with the registered agent, including the memorandum and articles of association, the register of members (or a copy), the register of directors (or a copy), and copies of all notices and other documents filed by the company in the preceding 10 years. If it keeps only copies of the register of members or register of directors with the registered agent, it must notify the registered agent in writing within 15 days of any changes to those registers and provide the registered agent with the physical address where the originals are kept. Copies of resolutions and minutes of meetings may be kept with the registered agent or some other place, in which case the registered agent must be given a written record of the physical address of where they are kept.
Unlike the IBC Act, the BVIBC Act does not require a company to have a seal. However, there is still a need to have a company seal affixed to instruments governed by BVI law that are executed as deeds.
The BVIBC Act allows a foreign company to continue as a company under the BVIBC Act but only if the laws under which it is registered allow it to continue in another jurisdiction. This provision is unlike the IBC Act, which allows a foreign company to continue to the BVI regardless of whether there are any laws to the contrary in the foreign jurisdiction.
There are certain circumstances where a foreign company cannot continue in the BVI, such as if the company is in liquidation or an application has been made for its liquidation, if a receiver or manager has been appointed over any of its assets, or it if has entered into an arrangement with its creditors.
A BVIBC company may continue under the laws of another jurisdiction if the Registrar would issue a certificate of good standing in respect of the company but the company does not cease to be incorporated under the BVIBC Act unless the laws of the other jurisdiction permit continuation and the company has complied with those laws. The registered agent must file a notice of the continuation with the Registrar that the company has continued under foreign law within 30 days of the continuation.
Foreign companies (companies formed outside the BVI and not continued in the BVI) cannot carry on business in the BVI unless they are registered under the BVIBC Act.
The voluntary liquidation provisions set out in the BVIBC Act have been drafted to interface with the new Insolvency Act. A voluntary liquidator appointed in respect of a solvent liquidation will not have to be a licensed insolvency practitioner, but must be an individual person, not a corporate entity. A clear transfer route from a solvent liquidation to a liquidation under the Insolvency Act is provided in the event that the company is found to be insolvent.
The procedure for a voluntary liquidation requires the directors to make a declaration of solvency and approve a liquidation plan at least six weeks before the appointment of a liquidator. A voluntary liquidator has custody and control of the company’s assets and, although the directors remain in office, they cease to have any powers or functions. The directors can authorize the liquidator to continue the business if he determines that it would be in the best interests of the creditors or members. A voluntary liquidator’s duties are to realize the assets of the company, provide for the payment of all claims and liabilities, distribute any surplus to members, and prepare a statement of account. Once he has completed his duties, he will cause to be filed a statement with the Registrar that the liquidation has been completed and the company is struck off and dissolved.
Striking off and restoration to the Register under the BVIBC Act
The Registrar can strike the name of a company off the Register on the following grounds:
- if it fails to appoint a registered agent;
- if it fails to file any document required to be filed;
- if the Registrar is satisfied that the company has ceased to carry on business;
- if the company is carrying on business without a license; or
- if it fails to pay its annual fee or penalty.
Before striking off (except in cases of failure of payment of annual fees or penalties), the Registrar must send the company a notice warning that it will be struck off unless the company shows cause and must publish a notice of his intention in the Gazette. Where a company is struck off, it or its directors, members or any liquidator cannot carry on its business or deal with its assets or commence or defend legal proceedings. But it is not prevented from incurring liabilities and a creditor is not prevented from making a claim or pursing a claim to judgment or execution.
The company, its members, directors, liquidator or receiver can apply to the Registrar for the restoration of the company. A person aggrieved by the striking off (a creditor for example) can apply to the Court for relief. If a company remains struck off for a period of 10 years, it is dissolved automatically.
Where a company has been dissolved, an application can be made to the Court within 10 years of dissolution to restore the company to the register. The application can be made by the company, a creditor, a member or liquidator, and the Court has wide jurisdiction to restore the company subject to such conditions as it considers just. Where a company is restored by the Court, it is deemed never to have been struck off.
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