John Gosling and Marianne Rajic, Walkers provide an overview of the recent changes to the BVI Business Companies Act highlighting how the recent amendments will further strengthen the jurisdictions reputation for having one of the most flexible compa
The BVI has an envied reputation as having one of the most flexible and convenient company law statutes in the world. Further improvements expected to come into force shortly will improve it still further.
The BVI Business Companies Act, 2004 (or the BC Act as it is known to BVI law practitioners) is based on English company law but with two significant areas of modification. First, many of the restrictions on English companies found in the English Companies Act and common law, such as the maintenance of capital requirements and common law restrictions on financial assistance are excluded by the BC Act. Secondly, provisions in the BC Act not found in the English legislation enable BVI companies to enter into types of transaction which simply are not available to English companies, such as mergers/consolidations with a BVI or foreign company with either being the surviving company and continuations/migrations between the BVI and another jurisdiction. As a result, the BC Act provides much greater flexibility than the English Companies Act when it comes to structuring transactions, whilst retaining the English Companies Act’s long established principles of company law where these do not adversely affect that flexibility. It is perhaps not surprising given that flexibility and the other attractions of the BVI as a jurisdiction described below that that there are currently more than 460,000 active companies incorporated in the BVI according to the latest available statistics.
BVI companies can be found listed on all the world’s major stock exchanges with market capitalisations ranging from a few million to several billion US dollars. Such listed companies include both companies which traded as private companies for many years before coming to the market as well as newly formed BVI holding companies formed specifically for the purposes of an IPO. For example, last year saw the listing on the New York Stock Exchange of the BVI company Arcos Dorados Holdings Inc., the world’s largest McDonalds franchisee which owns all the McDonalds franchises in South America, in an IPO which valued the company at over US$3 billion. Companies and their advisers have also been quick to recognise the BC Act’s flexibility advantages in specialist IPOs, with numerous BVI incorporated Special Purpose Acquisition Companies (SPACs) having been listed over the last few years.
The flexibility of the BC Act also provides a wealth of structuring options in the public M&A space, with some onshore advisers impressed to discover that the BC Act not only permits the structure they are considering, but also provides them with one or more possible alternative structures. Public takeovers of BVI companies can be structured in at least four different ways, including two which include sanction by the BVI courts, which can have both regulatory and tax advantages under the laws of the country where the BVI company is listed or investors are located.
The BC Act is equally flexible and user friendly in private company transactions, where BVI companies are frequently used as holding companies or joint venture vehicles. Here again, the BC Act allows for a broad range of structures to be implemented. The ease of the process for share subscription and absence of a capital maintenance regime facilitate easy investment in or exit from BVI companies by shareholders. There are no BVI law requirements as regards BVI companies preparing formal accounts, leaving companies able to elect whether to prepare accounts under such accounting principles as are considered appropriate. In private M&A transactions, acquisitions and disposals of BVI companies are usually implemented under non-BVI law governed documentation, with BVI lawyers providing input on BVI specific requirements such as transfer of legal title to shares and changes of directors on closing.
In financing transactions, banks are also comfortable with BVI company structures, with the BC Act allowing for both BVI and foreign law governed security to be given by a BVI company over its assets or by its shareholders over its shares. BVI lawyers are invariably able to issue legal opinions in relation to the security satisfying the banks’ most stringent requirements.
The BVI is the home to the second largest number of regulated investment funds globally, and is becoming increasingly popular as a jurisdiction for the establishment of offshore investment funds. There is no taxation in the BVI in relation to dividends, interest, rents, royalties, compensations and other amounts paid by an investment fund to persons who are not resident in the BVI. All instruments relating to transfers of property to or by the investment fund and all instruments relating to transactions in respect of the shares, debt obligations or other securities of the fund and all instruments relating to other transactions relating to the business of the fund are exempt from the payment of stamp duty in the BVI.
By far the most commonly used vehicle for both open-ended and closed ended investment funds in the BVI is a BVI business company, taking advantage of the flexibility offered by the BC Act. The BC Act does not impose any residency requirements for directors of a BVI company, nor does it mandate the frequency and place of shareholder meetings. BVI companies may be structured to issue participating shares which can, subject to certain restrictions, be redeemed, as well as voting "management" shares, allowing convenience and ease of management of the affairs of the fund. The rights and obligations of the shareholders, the terms of redemption and method of valuation are set out in the company's Memorandum and Articles of Association and the offering documents. The management and supervision of BVI companies is undertaken by the directors, however the directors of an open-ended fund commonly delegate all day to day management tasks to contractual functionaries of the fund.
The BVI Companies Registry’s online filing and registration system must also take much of the credit for the BC Act’s popularity, with practitioners within the BVI able to make company filings and incorporate companies through the registry’s online “VIRRGIN” (Virtual Integrated Registry Regulatory Information Network) system. The incorporation of a BVI company can be undertaken on the day the application for incorporation together with the incorporation Memorandum and Articles of Associations are submitted. Amendments to the Memorandum and Articles of Associations are acknowledged and dated as at the date of the filing, allowing investment funds to control the date of important amendments to their documents. Registrations of security against BVI companies which provide priority to the bank are timed to the minute by VIRRGIN and automatically acknowledged by return email, providing reassuring certainty for banks and their advisers.
In the event of a dispute arising in relation to a BVI company, the BVI also has a dedicated Commercial Court from which an appeal ultimately lies to the Privy Council in London. As noted above, the BVI courts also have the power to sanction certain types of corporate transactions.
In addition to being one of the most flexible, the BVI is also one of the most cost effective international finance centres, with relatively low companies registry and corporate administration fees in comparison to its major competitors.
Despite all the current advantages described above, the BVI government, Financial Services Commission and practitioners in the private sector see further room for improvement, with the government in consultation with stakeholders currently in the process of enacting amendments to the BC Act and new regulations to be made under it. Areas of the BC Act targeted for further improvements in the BVI Business Companies (Amendment) Act 2012 and the BVI Business Companies Regulations, 2012 include the introduction of special provisions applicable to the shareholders registers of listed companies and funds, conversion of shares between classes, clarification of consequences of registration of security, share charge enforcement, short notice of shareholder meetings, changes of registered office, alternate directors, further provisions in relation to segregated portfolio companies, the voluntary filing at the BVI registry of shareholders and directors registers, the re-use of company names, foreign character names and voluntary liquidations. This is clear evidence of the jurisdiction’s commitment not only to maintain but improve its position.
Marianne Rajic is a partner in Walkers' Global Finance and Corporate and Investment Funds Groups. Marianne joined Walkers' British Virgin Islands office in 2008 where she heads up the BVI funds practice. She focuses on investment funds and in particular structure and operation of hedge funds, real estate funds, private equity arrangements and other alternative investment products, including innovative hybrid and crossover funds, investing in a diverse range of assets.
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