General requirements for continuations
General requirements for discontinuations
Practical considerations
Discontinuations and registered security interests
Effects of continuations and discontinuations
Comment
One of the many flexible features of the Business Companies Act 2004 is the ability to continue a foreign company as a BVI company and a BVI company under the laws of another jurisdiction – commonly referred to as a 'continuation' and a 'discontinuation', respectively. This update provides a brief overview of the process and requirements for continuations and discontinuations.
General requirements for continuations
To continue as a BVI company, a foreign company must be permitted to continue in the British Virgin Islands under the laws of its jurisdiction of incorporation and must not:
- be in, or be the subject of any undetermined court application for, liquidation or equivalent insolvency proceedings in any other jurisdiction;
- have a receiver or manager appointed in relation to any of its assets; or
- have entered into an arrangement with creditors that has not been concluded.
An application is filed in the British Virgin Islands, together with supporting documents including evidence of approval of both the continuation and the company's new memorandum and articles of association. These must be approved:
- by a majority of directors or persons exercising the powers of the company; or
- in the manner established for exercise of the company's powers.
If satisfied, the registrar of corporate affairs will issue a certificate of continuation confirming the incorporation of the company under the Business Companies Act. However, the registrar may refuse a continuation that he or she believes would be contrary to public interest.
General requirements for discontinuations
In order to discontinue, a BVI company must:
- be in good standing (ie, up to date with government fees and not struck off);
- be permitted to discontinue under its memorandum and articles of association;
- resolve to discontinue by a board or shareholder resolution, subject to any specific approvals required under its memorandum and articles of association; and
- file a declaration through its BVI-registered agent, confirming that the laws of the relevant foreign jurisdiction permit the continuation and that the company has complied with these laws.
If satisfied that these requirements have been complied with, the registrar will issue a certificate of discontinuance, following which the company will be struck off in the British Virgin Islands and cease to be a company under the Business Companies Act.
In practice, BVI counsel should consider the requirements of the original or new jurisdiction (as applicable) in advance with overseas counsel. For example, the laws of such jurisdictions may impose additional legal formalities (eg, a BVI legal opinion). On a continuation in the British Virgin Islands, the registrar may rely on a formal director's certificate to determine that the BVI requirements have been met. However, this must be duly legalised under, and include an extract of, the relevant laws of the original jurisdiction. On a discontinuation, the registrar must be provided with proof that the company has complied with the laws of the new jurisdiction and – while this is often in the form of a certificate of registration or equivalent document – the registrar may also rely on a provisional certificate of continuance to issue the BVI certificate of discontinuance.
The timings of the various filings should also be carefully coordinated. In particular, it is usually preferable to ensure same-day treatment of the continuation or discontinuation, to avoid the company existing at the same time under two different company laws and any resulting conflicts of law or other issues.
Discontinuations and registered security interests
On a discontinuation, if a charge or other security interest is registered publicly in the British Virgin Islands in respect of the company's property which has not been released or satisfied, it must first make a written declaration to the registrar. The declaration must state:
- that a notice of satisfaction or release has been filed and registered in respect of the charge;
- if such a notice has not been filed and registered, that the holder of the charge has been notified in writing of the intention to discontinue and has consented or not objected; or
- if the holder of the charge has not consented or has objected following notice, that its interest secured by the charge will not be diminished or compromised by the discontinuation and, broadly, will continue to be a liability recognised under the relevant provisions of the Business Companies Act.
Effects of continuations and discontinuations
Under the Business Companies Act, the effect of a continuation or discontinuation is as neutral and seamless as possible, and the relevant company is regarded as the same legal entity. From the date of continuation in the British Virgin Islands, a company is subject to the Business Companies Act and its new memorandum and articles of association, and is no longer treated as incorporated in the original jurisdiction. On a discontinuation, a company will cease to be subject to BVI law only when a certificate of discontinuance is issued.
The Business Companies Act provides that:
- the company continues to be liable for all of its obligations that existed before its continuation or discontinuation;
- the continuation or discontinuation does not impair or release any such liabilities or obligations, or any judgments or claims against the company; and
- any pending or actual proceedings by or against the company remain unaltered.
In the case of a BVI company that has been discontinued, service of process may continue to be effected on its BVI-registered agent in respect of any claim, debt, liability or obligation of the company during the period of its existence under the Business Companies Act.
The British Virgin Islands is the world's leading incorporation jurisdiction due to the clarity and flexibility of its company law. The ability to continue a foreign company as a BVI company or to continue a BVI company as a company under the laws of another jurisdiction quickly and seamlessly is just one example of this flexibility and is particularly useful in the context of corporate reorganisations.
For further information on this topic please contact Joshua Mangeot at Harneys by telephone (+1 284 494 2233) or email ([email protected]). The Harneys website can be accessed at www.harneys.com.