Lenders of BVI contracting parties are often concerned with whether the company with which they are contracting has the capacity to enter into the transaction. However, there are a number of other questions which prudent lenders should address, and they would be wise to seek specialist BVI law advice before contracting. The following checklist provides an excellent starting point for any lender that intends to enter into contractual arrangements with a BVI company.
The legal status of a BVI company should be verified by conducting a search of its public records at the BVI Registry of Corporate Affairs. It is unlawful for companies that have been struck off to enter into a transaction with a lender, and where a company is not in good standing it should be restored to good standing before entering into the transaction. A certificate of good standing may be obtained from the Registry of Corporate Affairs once it is restored. Lenders should also conduct a search at the High Court Registry to confirm whether the company is the subject of liquidation proceedings or is or has been involved in civil proceedings before the BVI courts.
BVI law permits the formation of various types of company, including:
- companies limited by shares;
- companies limited by guarantee (with or without shares); and
- unlimited companies (with or without shares).
The most common type of company is a company limited by shares, but such companies could be formed as a restricted purpose company (RPC) or a segregated portfolio company (SPC).
When transacting with RPCs, particular care should be taken to ensure that the transaction falls within the purposes stated in the company's constitutional documents (ie, its memorandum and articles of association).
When transacting with SPCs, a lender should be able to clearly identify which of the portfolios it is contracting with. Such companies will be easily identifiable because the name must contain the designation 'Segregated Portfolio Company' or 'SPC'.
While the nature of the company is unlikely to be an issue in the majority of transactions, lenders should always confirm the type of company they plan to enter into contractual arrangements with, as this will inform the steps required to ensure the company's capacity and authorisation to transact.
Lenders should request a certified copy of the company's memorandum and articles of association (including any amendments thereto). The memoranda and articles of association of most companies, with the notable exception of RPCs, will usually contain a widely worded objects clause which empowers the company to engage in essentially any activity which is not unlawful under BVI law – but lenders should always verify this by reviewing the company's memorandum and articles of association.
The company's registered agent must keep either the original or up-to-date copies of the register of directors and the register of shareholders at the company's registered office in the British Virgin Islands. Lenders should therefore request a registered agent's certificate issued by the company's registered agent that verifies the identities of its directors and shareholders.
Two key steps are involved in the verification of authority:
- Review of the memorandum and articles of association – board approval to authorise entry by a BVI company into the transaction will suffice for most transactions. However, the board of directors may be limited or restricted by BVI law generally, or more specifically by the company's memorandum and articles of association, from entering into the relevant transaction. The memoranda and articles of association of most companies will not contain such provisions and in those cases, board resolutions alone will generally suffice. However, if BVI law or the memorandum and articles of association indicate that shareholder approval is required in certain instances, lenders should verify whether both board and shareholder resolutions are necessary to authorise the company's entry into the relevant transaction.
- Resolutions – resolutions (whether board resolutions alone or both board and shareholder resolutions) should be passed in accordance with the company's memorandum and articles of association to expressly authorise the company's entry into the transaction and an authorised representative to execute the transaction documents on the company's behalf.
For further information on this topic please contact Michelle Frett-Mathavious at Harney Westwood & Riegels by telephone (+1 284 494 2233) or email (firstname.lastname@example.org). The Harney Westwood & Riegels website can be accessed at www.harneys.com.
This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.