The BVI Business Companies Act 2004 (the Act) is widely regarded as among the most modern and flexible corporate legislation in the world. It is a key reason for the BVI continuing to be the most popular place to set up an offshore holding company.
To ensure that the Act retains its standing, and the BVI keeps pace with changes in international regulatory standards, a new wave of improvements have been made to the Act.
This briefing looks at the most important of those improvements.
Shares listed on a recognised exchange
The Act requires the transfer of a share to be made by a written instrument signed by the transferor containing the name and address of the transferee.
The Act now clarifies that, where a company's shares are listed on a recognised exchange, the shares need not be transferred by a written instrument if the transfer is:
- carried out in accordance with the laws, rules, procedures and other requirements applicable to shares listed on the recognised exchange; and
- made subject to the company's memorandum and articles of association (M&A) and the Listed Companies and Funds Regulations (the regulations have not been drafted yet).
For this purpose, a recognised exchange is a securities exchange that is a member of the World Federation of Exchanges (see www.world-exchanges.org) or that is listed as such in a notice published in the BVI Gazette.
The Act also now expressly permits a listed company to record in its register of shareholders, in addition to the information required by the Act, any information required by its M&A. This change is welcome because, for example, it will allow a listed company to record on its register of shareholders information like:
- the identity of the person for whom a broker or other nominee holds shares;
- the identity of any person interested in shares based on information provided under a disclosure notice; and
- the fact that shares are subject to default provisions under the company's M&A for failure to provide information in response to a disclosure notice.
Surrender of shares
The Act now includes a mechanism for a shareholder to surrender the shareholder's fully paid shares to the company. The shareholder simply needs to sign a document stating that the shareholder wishes to surrender the relevant shares.
This will be particularly useful in the context of employee share schemes where shares can be surrendered when an employee leaves the company.
Consideration for the issue of shares
The Act now clarifies that a share can be issued for a consideration that includes a mix of different types of consideration. So, for example, a share may be issued for a consideration that comprises cash, a promissory note and a share in another company.
In addition, where shares are issued (in whole or part) for a non cash consideration, the Act no longer requires the directors to attribute a value to the non cash consideration paid.
Many BVI companies include an arbitration provision in their M&A. The Act now puts the ability of a company to do this on a statutory footing. It states that a company's M&A may provide for any dispute involving the company, the company and its shareholders or the shareholders among themselves to be resolved by arbitration. The arbitration proceedings may be held in the BVI or elsewhere.
Instructing registered agents
An issue that has been problematic in the past is dealing with a company's registered agent. A registered agent will only act on the instructions of the person it treats as its client of record. On many occasions, the client of record is a person who is not a director or an authorised signatory of the company but an intermediary (like an accountant or lawyer acting on behalf of a client) who initially instructed the registered agent to set up the company.
This issue has created problems where, for example, a company terminates its relationship with the intermediary who is the client of record or a security taker seeks to enforce a security interest over the company's shares.
The Act now resolves this issue by including a new provision stating that, unless a company's M&A state otherwise, a registered agent must:
- act on instructions of the company's directors if the instructions are set out in a resolution of directors and a copy of the resolution is given to the registered agent; and
- recognise and accept the appointment or removal of a director by the shareholders.
Execution of deeds
Two important and helpful changes have been made to the Act regarding the execution of deeds.
First, the Act abolishes the common law rule regarding the execution of deeds by a foreign body corporate which required deeds to be executed under seal. It now allows a foreign body corporate or other entity to execute a document under seal or deed governed by BVI law in any manner allowed by the place where that party is incorporated, registered or organised.
Affixing signature pages
Secondly, the Act disapplies the decision of the High Court of England & Wales in the Mercury case (R (on the application of Mercury Tax
Group Ltd and another) v HMRC & Others  EWHC 2721), which although not binding on the BVI courts, is likely to have been followed by them.
In the Mercury case, the court said that a deed is only validly executed by a party if the party executes and delivers an entire copy of the deed. In other words, a party cannot validly execute a deed by executing the signature page from a draft of the deed and affixing it to the execution copy. The decision was problematic because it was reasonably common practice for pre signed signature pages to be affixed to the final version of a document.
The Act now allows a document under seal or deed to be executed in any way contemplated by the parties to it, including by:
- executing a complete copy of the document under seal or deed; and
- executed signature pages being attached to, or complied with, the remainder of the document under seal or deed, whether physically or electronically and whether or not the remainder of the document under seal or deed was in final form at the time the signature pages were executed.
Continuations into BVI
The Act allows a foreign company to continue as a BVI company if the laws of its jurisdiction of incorporation allow it to do so and it is not subject to any insolvency procedure or proceedings.
It was previously the policy of the registrar of corporate affairs (the registrar) to require a legal opinion from a lawyer in the foreign company's jurisdiction of incorporation and a statement made on oath or by affirmation from a director of the foreign company to establish that these criteria were met. The need to get a legal opinion increased the cost of continuing to the BVI which made the process less attractive. The Act now replaces these requirements with a certificate to be given by a director of the foreign company which addresses the criteria mentioned above and which attaches an extract of the law which allows it to continue to the BVI. The certificate must be signed by a director and notarised or otherwise legalised under the laws of the foreign company's jurisdiction of incorporation.
Continuations out of BVI
Previously, the registrar would not allow a BVI company to continue to a jurisdiction outside the BVI if particulars of charge in respect of any of the company's property were registered with the registrar. Consequently, a notice of satisfaction or release for the charge would need to be filed before the company could continue to the foreign jurisdiction. This would create difficulties where both the company and the security taker wanted the security to remain in place.
The Act now allows a company to continue to a jurisdiction outside the BVI where particulars of charge in respect of any of its property have been registered with the registrar if:
- the security document does not prohibit the company from continuing to a jurisdiction outside the BVI; and
- the company files with the registrar
a written declaration addressed to the registrar stating that a
notice of satisfaction or release for the charge:
- has been filed and registered; or
- has not been filed and registered
- the security taker has been given written notice of the company's intention to continue to a jurisdiction outside the BVI and has consented or has not consented or objected to it; and
- where the security taker has not consented or objected to the company's continuation after being notified of it, the security taker's interest secured by the charge will not be diminished or compromised in any way by the company's continuation and the company will continue to be liable for the debts secured by the charge.
Previously, the registrar would not allow a company to be placed into voluntary (solvent) liquidation if particulars of charge in respect of any of its property were registered with the registrar.
The Act now allows a company to be placed into voluntary liquidation if particulars of charge are registered if it is able to pay its debts as they fall due and the value of its assets equals or exceeds its liabilities. In these circumstances, the Act states that the voluntary liquidator is bound to give effect to the priority of the claims of the company's secured creditors.
Court ordered shareholder meeting
The Act allows a shareholder to apply to the High Court for an order that a shareholders' meeting be held.
The Act now expands the circumstances in which a shareholder may make an application by including the failure by the directors to call a shareholder meeting when they have been required to do so by shareholders holding the necessary percentage of voting rights (which is 30 per cent or any lower percentage stated in the company's M&A).
Changes in particulars of charge
The Act requires a company to keep a register of charges at the office of its registered agent which records prescribed particulars of all charges created by it over its property.
Where a change occurs in:
- a charge created by a company over any of its property; or
- the particulars of charge which the company is required to record in its register of charges,
the company is now required to send details of the change to the company's registered agent within 14 days of the change.
Records and underlying documents
The Act now includes, and strengthens, provisions from the Mutual Legal Assistance (Tax Matters) Act 2003 regarding records and underlying documents. These provisions are designed to ensure that the BVI meets international standards of transparency and cooperation.
What must be kept?
A company must keep records and underlying documents that:
- are sufficient to show and explain its transactions; and
- will enable its financial position to be determined with reasonable accuracy at any time.
For this purpose, records and underlying documents include accounts and records (like invoices, contracts and similar documents) relating to:
- all sums of money received and paid by the company and the matters to which each receipt and payment relates;
- all sales and purchases of goods by the company; and
- the assets and liabilities of the company.
How long must they be kept?
A company must keep records and underlying documents for a period of at least five years from the date:
- of completion of the transaction to which they relate; or
- on which the company terminates the business relationship to which they relate.
For this purpose, a business relationship means a continuing arrangement between the company and any other person with whom it engages in business (whether on a one off, regular or habitual basis).
Where must they be kept?
The company must keep its records and underlying documents at its registered agent's office, or if its directors choose to keep any of them elsewhere, it must give its registered agent written notice of:
- the physical address of the place where the original records and underlying documents are kept;
- the name of the person who keeps and controls them; and
- any change in the physical address or person within 14 days of the change.
If the company's records and underlying documents are not kept at its registered agent's office, the registered agent must keep a record of the name and physical address of the person who keeps and controls them.
If the BVI Financial Services Commission or any other BVI competent authority exercises a power conferred on it and requires a company's registered agent to request from the company any of its records or underlying documents;
- the registered agent must request them; and
- the company must provide them to its registered agent without delay.
Penalty for breach
If a company or a registered agent breaches any of the requirements set out above, it commits an offence and, if convicted, is liable to a fine of US$50,000.
Register of directors
One of the measures the BVI is implementing to show its continued commitment to transparency and international cooperation and to address the objectives of recommendation 24 of Financial Action Task Force on Money Laundering, is to include in the Act a new requirement for a company to file a copy of its register of directors with the registrar.
The register is also required to include additional information about a director, like the residential address, date of birth and nationality for an individual and business address and place of incorporation for a body corporate.
The new provisions come into force on 1 April 2016.
A copy of company's register of directors must be filed:
- in the case of an existing company, by 31 March 2017 (although it is possible to apply for an extension of up to six months); and
- in the case of a new company, with 14 days of the appointment of its first directors.
Once a company has filed a copy of its register of directors, it must file an updated register within 21 days of any change to it.
Access to filed register
Importantly, the general position is that the copy of a company's register of directors that has been filed with the registrar will be kept confidential and will not be disclosed to any person.
The limited circumstances in which the registrar will give access to, or disclose a copy of, the filed register are as follows:
- the company, its registered agent and any other person authorised by the company in writing to do so will have access;
- if the company elects to make the
copy of the register publicly available, it will be disclosed to
any person who searches the records for the company kept by the
- a copy of the register will be disclosed to any person to whom disclosure is required by a court order; and if requested in writing, a copy of the register will be disclosed to any competent authority: acting in the exercise of its powers as a regulator of financial services business, tax administrator or law enforcement agency; or
- for the purposes of dealing with any matter for which it has authority under any law (including under a mutual legal assistance request received or made by it).
Penalties for breach
The penalties for failing to file a copy of the register are:
- US$100 for failing to file a copy of the register within the time period (or any extension) mentioned above; plus
- US$25 per day for each day the company fails to file a copy of the register after the original deadline.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.