International finance centres ("IFCs"), also known as offshore finance centres, are a familiar part of the global financial system. IFCs facilitate capital flows into developed and emerging economies by offering a platform for raising finance, acting as efficient portals for collective investments, and providing well understood cost effective corporate vehicles for cross-border transactions and investment. British Virgin Islands ("BVI") companies do not add extra layers of taxation to the taxes investors already pay in their home country, which creates a level playing field for investors from all jurisdictions. This article focuses on the advantages offered by the use of BVI companies and the positive impact of these on deal costs, and the cost and ease of ongoing maintenance and governance.
Investors have always been attracted to the BVI for its common law legal principles, administrative simplicity and the ability to ring-fence liabilities. BVI securities laws are recognised by regulators worldwide, enabling investors to exit through a private sale or a listing on a major stock exchange. BVI companies can list their shares on stock exchanges worldwide, including the London Stock Exchange, LSE's AIM exchange, the New York Stock Exchange, NASDAQ, the International Securities Exchange, the Toronto Stock Exchange, and the Hong Kong Stock Exchange.
The BVI does not impose a double layer of regulation. For example, there is no BVI takeover code or public filing requirement in the BVI applicable to a listed company. BVI companies are extremely flexible in their structure and handling, and there are few prescriptive statutory requirements. Ultimately, a BVI business company will be more flexible in operation, particularly if the company needs to raise equity finance for working capital purposes.
The fact that there is no additional layer of tax and regulation ensures that the incorporation and ongoing costs of using a BVI company are low, whilst high standards are maintained as required by the International Organization of Securities Commissions (IOSCO), of which the BVI is a member.
Some key benefits of incorporation through a BVI company are as follows:
Directors' powers and corporate governance: BVI companies can model their corporate governance to suit the business needs of the company; the BVI imposes no additional mandatory corporate governance requirements. Directors' fiduciary duties are based on well understood English common law principles, but have been clearly codified into statute in the BVI which offers certainty to both directors and investors. The board of directors is free to manage the company without the need for shareholder involvement. For example, the board has freedom to amend the memorandum and articles of association to increase the authorised number of shares in order to raise capital.
Joint ventures and group companies: A director of a joint venture company may act in the best interests of the joint venture party that appointed him, and a director of a wholly owned subsidiary may act in the best interests of the parent company, even where the action is not necessarily in the best interests of the joint venture company or subsidiary.
No share capital: BVI law no longer requires a company to have a share capital. A company may simply be authorised to issue a specified or unlimited number of shares. This allows greater flexibility when a company proposes to declare distributions, carry out reverse share splits, change the par value of its shares and/or effect redemptions.
Payment of dividends: Dividends may be declared by the directors, subject only to a basic solvency test. The funds that may be distributed are not limited, provided the company's assets exceed its liabilities and that the company will continue to be able to pay its debts as they fall due immediately after the distribution.
Purchase of own shares: A BVI company may acquire the shares of a member, subject to the same solvency test, and with the consent of the member (or as otherwise provided in the company's memorandum and articles).
No financial assistance restrictions: A BVI company may give assistance to a third party to acquire its shares, and may provide guarantees and security for third parties.
Voting majorities: BVI law permits the creation of the parties' desired voting majorities for approving corporate matters, and is not restricted to prescribed statutory majorities.
Members' remedies: BVI law has codified the traditional English common law basis for members' remedies. BVI company law goes further and provides statutory dissent and appraisal rights for shareholders who object to certain corporate actions, such as a merger, compulsory acquisition, or disposition of major assets. This enables a shareholder to exit the company at fair value without halting or delaying the transaction (in the absence of wrongdoing).
Continuation/migration: A BVI company may migrate to or from another jurisdiction that permits corporate migration.
Inclusion of squeeze-out provisions: The holders of a majority of 90% or more of the shares may require the company to redeem the minority shares for fair value. There is a statutory process for the independent appraisal of fair value without requiring an application to court.
Schemes and plans of arrangement: A wide variety of transactions may be carried out by way of a court approved scheme or plan of arrangement, which is binding on all members and creditors once duly adopted.
Mergers/consolidation regime: A BVI company can merge with one or more BVI companies, or foreign companies, and the surviving company may be in a foreign jurisdiction. This ability provides great flexibility for structuring mergers and acquisitions by listed BVI companies.
Shareholder protective provisions: Whilst the constitution of the BVI company can easily be amended to reflect the desired shareholder protective provisions (for example disclosure of director interests, authority for issuance of shares, independent valuation for issuance of shares for non-cash consideration and retirement of the directors by rotation), these are not required as a matter of BVI law and can be tailored to suit the company and its target investor base.
For creditors lending to or taking security from a BVI obligor, the jurisdiction offers the following advantages:
- Limited corporate rehabilitation: The BVI has no US style Chapter 11 or UK administration provisions in force. The appointment of liquidators over a company under the BVI Insolvency Act, 2003 brings about a moratorium on claims against the company, but this does not prevent the enforcement of security by a secured creditor.
- Statutory rules allow liquidators to challenge transactions at an undervalue, unfair preferences, and voidable floating charges.
- A BVI company has very limited categories of preferred creditors on its insolvency.
- Short particulars of security given by a BVI company may be registered publicly in the BVI thereby providing statutory priority.
- Contractual subordination agreements may vary the statutory priority waterfall.
- The enforceability of netting and set off provisions is recognised by statute.
- Share security is on a statutory footing. Share security may be governed by foreign law, permitting, for example, an English law governed charge over shares in a BVI company to include the 'self-help' remedy of appropriation.
- The BVI has a modern, purpose built dedicated commercial court with an experienced Judge, excellent availability and a fast and cost effective process.
It can be seen that the 'BVI advantages' are extensive, and for group companies or investment vehicles the low cost and the simplicity of ongoing maintenance, and the positive impact on transaction costs, can be sound grounds for structuring through BVI companies.
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.
