The BVI Company is the most popular offshore corporate vehicle in use today with roughly 450,000 active companies and closing in on 1,000,000 entities formed to date. This popularity, in part, comes from the flexibility afforded by the BVI Business Companies Act, 2004 (the "Act"). Seven years after coming into force, the Act will be enhanced by the BVI Business Companies (Amendment) Act, 2012 (the "Amendment Act") and complemented by the BVI Business Companies Regulations, 2012 (the "Regulations"). The Amendment Act will come into effect on 15 October 2012, and we expect the Regulations will have a similar effective date.
The Amendment Act does not effect sweeping revisions to the Act, rather, it clarifies and refines certain matters. In this briefing, we have drawn out the most significant changes that are made by the Amendment Act and the matters that are dealt with in the Regulations.
The Regulations address the number of characters that may be used in a company name, the use of foreign character names and introduce the concept of reusing company names.
Length of names
Pursuant to the Regulations, a company name may be no more than 100 permitted characters. A permitted character is a sign or symbol specified in Schedule 1 of the Regulations and would include a blank space between two other permitted characters.
Foreign character names
The process of registration of an additional foreign character name is formalised by the Regulations and will be beneficial to those who make use of BVI companies in Hong Kong, China and Asia more generally as well as Eastern Europe and the Middle East.
The memorandum of a company registered with an additional foreign character name will be required to contain a statement that the company has a foreign character name in addition to its name and also to state the foreign character name.
The Registrar of Corporate Affairs (the “Registrar”) may refuse to register a company with an additional foreign character name for a number of reasons. These reasons will include, where the name is identical to or so similar to a foreign character name that is registered to another company that it would be likely to be confusing or misleading. However, where companies are affiliates, the Registrar may register a company with an additional foreign character name that is similar to the foreign character name of such affiliate.
Re-use of names
The Regulations recognise that due to the number of companies that have been incorporated in the BVI there are limitations concerning the availability of company names. To address these concerns, the Regulations provide that in certain circumstances, the name of a company that has changed its name, been dissolved or discontinued may be re-used by another company.
Although the Act enabled a company to change its registered agent, it did not expressly provide for a company to appoint a new registered agent should it be without one. The Amendment Act closes this lacuna in the Act by providing that where a company does not have a registered agent it may appoint a new one.
The Amendment Act modifies the provisions relating to directors' resolutions, alternate directors and the removal of directors.
Resolutions of directors are brought into line with the provisions dealing with resolutions of members by the Amendment Act which now clarifies that a written resolution of directors may be passed by such majority of directors as is specified in the memorandum and articles of association of the company. The memorandum and articles of association must however expressly empower a majority of directors to adopt a written resolution otherwise unanimity will be required.
The Amendment Act introduces more detailed provisions concerning the appointment, termination of appointment, the rights, duties and powers of alternate directors. Of particular note is the fact that an alternate director will have the same rights as the appointing director in relation to any directors' meeting and any written resolution, in particular, that the alternate director can sign written resolutions in place of the appointing director. Further, the Amendment Act also confirms that an alternate director does not act as agent of the appointing director, an alternate director is subject to fiduciary duties and is liable for his own acts and omissions as an alternate director and the exercise of an alternate director's powers is effective as if the powers were exercised by the appointing director.
Removal of directors
An inconsistency in the Act concerning the removal of a director is dealt with by the Amendment Act. Where a members’ written resolution is used to remove a director, 75% of the members’ votes cast rather than the previous 75% of members entitled to vote will be sufficient to remove a director.
Conversion of shares
The Act did not contain an express statutory basis for conversion of shares between classes. The Amendment Act clarifies that shares in a company may be converted from one class to another class in accordance with a company's memorandum and articles of association.
Registration of charges
The Amendment Act revises a number of provisions concerning the registration of charges which will be beneficial to secured parties.
The categories of person who may effect the registration of a charge or variations to charges have been limited. The purpose of limiting those permitted to register or vary a charge on behalf of a company or a secured party to a BVI registered agent or a legal practitioner in the BVI is to reduce the risk of a secured party being prejudiced by issues which may otherwise arise where filings are made by those who are unfamiliar with the requirements.
Under the Act, only the chargor company may file a release of charge. The Amendment Act will introduce new rules in relation to the procedure for releasing a registered charge by permitting a BVI registered agent or BVI legal practitioner acting on behalf of a secured party to file a release of charge.
Further, the consequences that registration of a charge has concerning notice is clarified. Where a charge has been registered at the Registry third parties will be deemed to have notice of both the charge and the contents of such charge. This provision should reduce the risk of a subsequent bona fide purchaser, chargee or mortgagee for value of an asset which is subject to a charge registered successfully arguing that he had no notice of the charge.
The release of a charge under the Act is clarified. It will be possible to effect a release in full or in part, in relation to all or part of a company's property.
A secured party who is situated outside the BVI is now required to provide the Registrar with the name and address of a person in the BVI who is authorised to receive documents sent by the Registrar. Our BVI office would be happy to provide this service. The rationale for this requirement is to avoid circumstances in which documents sent overseas by the Registrar are returned undelivered.
Enforcement of share charges
The current statutory limitations on the enforcement of a mortgage or charge over shares governed by BVI law are modified for the benefit of secured parties by the Amendment Act. Provided that a mortgage or charge is so drafted, the remedies which are available on a default, being the power of sale and the power to appoint a receiver, will be exercisable immediately on a default occurring rather than following the expiry of statutory time periods.
The Amendment Act revises several provisions relating to the voluntary liquidation of a company.
Most notable of the changes is that former directors, and senior managers of a company will now be prohibited from acting as the company’s voluntary liquidator and to enter solvent liquidation the company must now be both cash-flow and balance-sheet solvent rather than just cash-flow solvent.
The Act is amended so that any notices filed by voluntary liquidators not resident in the BVI, must be filed by a person qualified to act as a registered agent or a legal practitioner, in either case, acting on behalf of the voluntary liquidator.
The commencement of a voluntary liquidation is clarified by the Amendment Act. Previously, the Act provided that a voluntary liquidation commenced on the appointment of the voluntary liquidator. The Amendment Act introduces greater certainty by providing that a voluntary liquidation commences on the date the liquidator files notice of appointment.
In order to avoid a resolution for the appointment of a liquidator being passed but not registered for an extended period, the Amendment Act provides that a resolution is void if the liquidator does not file a notice of appointment within 14 days.
The Act is amended so that the voluntary liquidator of a company in voluntary liquidation, who is of the opinion that the company is insolvent, will be required to give written notice to the Official Receiver and, where the company is a regulated person, to the Financial Services Commission.
The Act did not provide for a creditor to apply to the Court to convert a voluntary liquidation into a liquidation under the Insolvency Act, 2003. To assist creditors and avoid time and expense to a creditor of starting proceedings under the Insolvency Act, 2003, the Amendment Act will allow a creditor to apply to the Court for an order converting a voluntary liquidation into a liquidation under the Insolvency Act, 2003.
Striking off and dissolution
The Amendment Act amends the Act by reducing the period between striking off of a company from the Register of Companies and dissolution thereof by operation of law from ten years to seven years. The restoration by the Court of dissolved companies has been clarified so that a company that was in liquidation when dissolved must be restored into a state of liquidation. In addition to a creditor, former director, former member or former liquidator of a company, any person who can establish an interest in having the company restored to the Register will be able to make an application to restore a dissolved company to the Register.