British Virgin Islands: Re-Registration Of An International Business Company As A BVI Business Company Under The BVI Business Companies Act, 2004

The BVI Business Companies Act, 2004 (as amended) (the "BCA") permits companies incorporated under the International Business Companies Act (the "IBCA") to apply to the Registrar of Corporate Affairs to voluntarily re-register as a BVI business company under the BCA.

The re-registration process is relatively straightforward and no government fee is imposed to voluntarily reregister. For the purposes of obtaining approval of the application to re-register, this will entail either a resolution of directors or a resolution of members (depending on the current memorandum and articles of association). The memorandum of the re-registered company is required to comply with the BCA by the inclusion of a number of specific factual statements (relating to the original incorporation and the identity of the registered agent post re-registration) and the articles are required to state the circumstances in which share certificates shall be issued.

Any subsequent amendments to the memorandum and articles of association will be treated as an amendment to those documents in accordance with the BCA and will be subject to the usual filing fees.

The application for re-registration is required to be in an approved form ("Form 110") and to contain certain specific information about the company. Form 110 is then signed and filed by the registered agent for the company in the BVI together with the following documents:

1. a BCA compliant memorandum of association signed by the registered agent as the applicant for re-registration and which states the date of first incorporation, and details of the registered office and registered agent and, if relevant, the date with effect from which it was continued under the IBCA, and the fact that it was an IBC immediately before its re-registration; and
2. BCA compliant articles of association.

We recommend that if the existing IBC has standard memorandum and articles of association that, at the time of re-registration, a standard form of BCA compliant memorandum and articles of association are adopted.

If, however, the existing IBC is being used for a specific type of business (for example if it is a private or professional mutual fund with carefully tailored constitutional documents) we recommend that the opportunity be taken to review and revise those documents so that they are both BCA compliant and drafted to take account of all any new options which might be open to the company as a result of the new legislation, like the segregated portfolio provisions. If you require more information about segregated portfolio companies, please let us know.

On receipt, if satisfied that the requirements of the BCA have been satisfied, the Registrar will register the documents, allot a unique number to the company (this will be a different number to the company’s IBC No.) and issue a certificate of re-registration. The certificate represents conclusive evidence that the company has complied with the BCA with respect to re-registration. The date of re-registration is that which is specified in the certificate and our experience has shown that this is date that the application is filed.

Generally, we expect to receive the re-registration certificate and stamped filed documents back from the Registry within a week of filing although sometimes this period is shorter.

Effect of Re-Registration

The company, once re-registered, continues in existence as a legal entity and its re-registration (whether or not under a different name):

• does not prejudice or affect the identity of the company;

• affect its assets, rights or obligations; or

• affect the commencement or continuation of proceedings by or against the company.

Prior to voluntary or automatic re-registration, during 2006, existing International Business Companies will continue to be governed by the IBCA.

The provisions of the BCA only apply to companies incorporated under that Act and to companies which were International Business Companies and which have voluntarily re-registered under the BCA. Following 1 January 2007, those IBCs which have not voluntarily re-registered under the BCA will be deemed to have been automatically re-registered and therefore subject to the BCA from that date.

As we have already mentioned, if an IBC is automatically re-registered under the BCA, then, the transitional provisions in the BCA will apply to it and as a result certain concepts and requirements of the IBCA will continue to apply to that company in its re-registered state. In particular, provisions relating to the maintenance of capital, acquisition of own shares and the definition of surplus (which is relevant for the declaration of dividends) are retained.

From a practical perspective this will mean that the directors of the company will always need to be aware of and adhere to the transitional provisions in the BCA as well as the main body of the BCA.

The main areas of change under the IBCA and the BCA are summarised below

The concept of "authorised capital" has been omitted in the BCA. Consequently there is no requirement to give shares a par value (although it is still possible to do so) and the BCA does not contain provisions in respect of increase or reduction of capital, nor does it require maintenance of capital. The memorandum of a business company must state, instead, either the maximum number of shares that the company can issue or that the company can issue an unlimited number of shares.

However, you should be aware that the transitional provisions in the BCA preserve certain specific provisions of the IBCA relating to authorised capital and the maintenance of that capital by carrying them into the BCA and deeming them to apply to international business companies which are automatically reregistered under the BCA.

Under the IBCA, dividends could only be declared and paid out of surplus. It was also a requirement that the directors must determine that, immediately after the payment of the dividend, the company would be able to satisfy its liabilities as they become due in the ordinary course of business and that the realisable assets of the company would not be less than the sum of its total liabilities, other than deferred taxes.

In contrast, the BCA uses a definition of a "distribution" which includes dividends but is wider so that it also includes, for example, transfer of an asset. There is a statutory test, the "solvency test" which must be satisfied before a distribution can be lawfully made and the directors must have reasonable grounds for forming the opinion that, immediately after the distribution has been made, the company will be able to satisfy the solvency test.

A company satisfies the solvency test if (1) the value of the company’s assets exceeds its liabilities and (2) the company is able to pay its debts as they fall due.

Again, the transitional provisions in the BCA preserve the old IBC test that dividends may only be paid out of surplus and the definition of "surplus" itself in respect of international business companies which are automatically re-registered under the BCA.

Unlike the IBCA, the BCA specifically states that the director of a wholly owned subsidiary is allowed to act in a manner which he believes is in the best interests of the holding company if the Memorandum and Articles of the subsidiary expressly state so. If the subsidiary is not wholly owned, the consent of shareholders is also required for the Director to act in the interests of the holding company.

The provisions in the BCA in relation to disclosure of Directors’ interests are similar to those under the IBCA. Under the IBCA an agreement could become void if it could be shown that the transaction was unfairly prejudicial to the members or creditors of the company and one or more directors (or a liquidator) had an interest in the transaction and failed to declare it.

The BCA expressly requires a director of a company on becoming aware of the fact that he or she is interested in a transaction to be entered by the company to disclose that interest to the board of the company. A transaction entered into by the company is voidable by the company unless the directors interest was disclosed as required or there the interest was not required to be disclosed at all due to a statutory exemption.

However, a transaction will not be voidable (even if no disclosures have been made) it the material facts of the interest are known by the directors and the transaction is approved or ratified by the members or where the company received fair value for the transaction.

Under the IBCA, a company could execute agreements or deeds by obeying analogous formalities to those applying to natural persons. For example, where a contract in writing could be entered by an individual by signing the contract, the IBCA provided that a person acting with the express or implied authority of the company could sign the contract on behalf of the company.

In the case of documents which had to be entered under seal, the common seal of the company needed to be affixed and attested to by someone authorised by the Memorandum and Articles of the company. There were only limited exceptions to this rule. The first was where the company appointed the signatory under an "instrument in writing" pursuant to section 72(1) of the IBCA. A person appointed under an instrument in writing could bind the company whether or not the company seal was used to execute that instrument. The second exception was that as a matter of common law, if an attorney is appointed by the company using a power of attorney executed under the seal of the company, the attorney could bind the company to a deed by using his personal seal, rather than the company seal. As the requirement for individuals to use seals was abolished, this essentially meant that an attorney could execute a deed under hand.

The position is somewhat different (and in reality, much better) under the BCA. A deed or instrument under seal is now regarded as validly executed by a BVI business company if it is either: (1) executed under seal witnessed by a director or someone else authorised under the Memorandum and Articles of Association of the company or (2) expressed or expressed to be executed as a deed or is otherwise clear on its face that it is intended to be a deed and signed by one director or by a person acting under the express or implied authority of the company.

In relation to powers of attorney, the BCA allows the power of attorney to either be (1) executed as a deed (and the same formalities as to execution apply as for other documents which are deeds), or (2) signed by a person acting under the express or implied authority of the company.

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.