On 15 October 2012 the BVI Business Companies (Amendment) Act, 2012 (the “BC Amendment Act”) came into force. It made a number of changes to the BVI Business Companies Act, 2004, (the “BC Act”) generally, and more specifically it made significant changes to the voluntary liquidation process for solvent companies. A year on from the BC Amendment Act coming into force, we look at how the voluntary liquidation process has changed and how to avoid some potential pitfalls of the process.
The voluntary liquidation process is only available to solvent companies, the solvency test being that the company either (a) has no liabilities, or (b) is able to pay its debts as they fall due and in addition, the value of its assets equals or exceeds its liabilities.
An outline of the steps to be followed by the company/liquidator is provided below:
Step 1 The voluntary liquidator must have consented to act in writing.
Step 2 The directors of the company are to make a declaration of solvency, confirming that the company meets one of the limbs of the solvency test (as outlined above). A declaration of solvency has no effect unless it is made on a date no more than four weeks earlier than the date of the resolution to appoint a voluntary liquidator and has attached to it a statement of the company’s assets and liabilities as at the latest practical date before the making of the declaration.
Step 3 A liquidation plan must have been formulated and approved by the directors by way of a directors’ resolution. A liquidation plan has no effect unless it is approved by the directors no more than six weeks prior to of the date of the resolution to appoint the voluntary liquidator.
Step 4 There must be either:
- A resolution of the directors appointing the proposed voluntary liquidator; or
- A resolution of the members, approving the liquidation plan and appointing the proposed voluntary liquidator.
Depending on who is empowered under the company’s memorandum and articles of association to appoint the voluntary liquidator, a resolution to appoint a voluntary liquidator will be void and of no effect where:
- A voluntary liquidator has not consented to its appointment in writing;
- A voluntary liquidator has been already appointed under the Insolvency Act, or an application to appoint a voluntary liquidator under the Insolvency Act is pending; and/oR
- A declaration of solvency has not been made by the directors, and/or the directors have not approved the liquidation plan.
Step 5 The voluntary liquidator must, within 14 days of its appointment file the following documents with the Registrar of Companies:
- A notice of its appointment;
- The declaration of solvency; and
- A copy of the liquidation plan.
If the voluntary liquidator fails to file the notice of his appointment within the required time, the resolution to appoint the voluntary liquidator is void and of no effect.
Step 6 The liquidator must, within 30 days, of his appointment advertise notice of his appointment.
The changes introduced by the BC Amendment Act
We outline a summary of the key changes made by the BC Amendment Act below:
- An additional limb was added to the solvency test, being that the company’s assets must equal or exceed its liabilities (s.197(b)). This part of the test must be addressed by the directors within the declaration of solvency. Prior to the BC Amendment Act the test was limited to either (a) the company having no liabilities; or (b) it being able to pay its debts as they fall due. This additional limb helpfully provides a quantifiable measure by which the directors can assess whether the company meets the solvency test.
- The BC Amendment Act provides that multiple voluntary liquidators can be appointed. To the extent that more than one voluntary liquidator is expressly appointed, all powers and actions of the voluntary liquidators may be performed by any one of the voluntary liquidators or on a joint basis (s.199). Additional voluntary liquidators may be appointed after the company has entered voluntary liquidation, subject to the consent of the BVI Financial Services Commission (s.205A(1)).
- The BC Amendment Act, and in turn the BVI Business Company Regulations, 2012, (the “Regulations”) sets out who is eligible to be appointed to act as a voluntary liquidator. Prior to this change the only guidance on this point was a Guidance Note issued by the BVI Financial Services Commission. In ignorance of, and contrary to, the Guidance Note, a number of companies had opted to appoint an existing director as a voluntary liquidator. There were a number of cases before the BVI Court which highlighted the potential pitfalls of not having an independent person act as a voluntary liquidator so the introduction of the requirements set out in the Regulations resolves this issue (s.200(3A) BC Act and s.19 and s.20 of the Regulations).
- A director/shareholder resolution to appoint a voluntary liquidator is now void and of no effect unless the voluntary liquidator files notice of its appointment on or before the fourteenth day following the resolution being passed (s.203(4)). Previously the appointment of the voluntary liquidator took effect from the date of passing the resolution by which it was appointed, and the filing of the notice of appointment was a formality.
- New procedures were established for the resignation of a voluntary liquidator whilst the liquidation was ongoing (s.205B). The BC Amendment Act also introduced a process, and established the grounds for which, the company, or a member, director, creditor, or the Official Receiver may apply to the Court to remove a liquidator from office (s.205C).
Avoiding the pitfalls of the voluntary liquidation process
Walkers recently acted on a case involving a BVI company which had attempted the voluntary liquidation process twice, and on both occasions missed key steps, although the company was dissolved at the conclusion of the attempted liquidation process. These defects were only identified when a creditor sought to restore the company to the Companies Register. In another case on which Walkers recently acted, cash in a bank account had been overlooked during the voluntary liquidation process and the company had to be restored in order for the directors to distribute the asset.
These cases highlight that, whilst the voluntary liquidation process is seemingly straightforward, if just one step or deadline is missed the appointment of the voluntary liquidator may be defective or the voluntary liquidation itself may be incomplete. Given that an application to Court is required to restore a company once dissolved following the completion of a voluntary liquidation, such defects can prove to be costly. Walkers can assist with any stage of the voluntary liquidation process, whether at the initial stages when voluntary liquidation is being considered, during the appointment process and through to the completion of the voluntary liquidation. Similarly if a company has been dissolved following completion of a voluntary liquidation, Walkers can assist with restoration of the company if it is, for example, subsequently discovered that an asset was overlooked during the liquidation process.