British Virgin Islands: Dividends And Other Distributions By BVI Companies

Last Updated: 15 November 2016
Article by Claire McConway

The British Virgin Islands (BVI) is a British dependent overseas territory in the eastern Caribbean. A leading jurisdiction for the incorporation of joint venture and private equity vehicles, the BVI is also an increasingly popular choice for establishment of investment funds. A bedrock principle of flexibility underpins the current BVI corporate statute, the BVI Business Companies Act (the "Act").

Solvency test and source of funds

BVI law applies a single unified test to all distributions. The Act provides that the directors may, by resolution, authorise a distribution if they are satisfied, on reasonable grounds, that the company will, immediately after the distribution, satisfy the statutory solvency test. A distribution includes cash and in specie dividends (but not stock dividends), share redemptions and repurchases of shares, capital reductions, and the direct or indirect transfer of an asset or the incurring of a debt for the benefit of a shareholder. The solvency test combines two parts: balance sheet (net assets) and liquidity (cash flow). It requires that the value of the company's assets will exceed its liabilities and the Company will be able to pay its debts as they fall due. This aligns with the BVI's  test for insolvency for general purposes; there is no separate earnings or profi ts based test.

There is no requirement to demonstrate surplus or any other form of distributable reserves and no restrictions on the use of share subscription proceeds. Consideration for the issue of shares simply forms part of the assets of the company which can (assuming solvency) be applied as the directors see fi t. Concepts of capital, share premium and surplus accounts have thus been abandoned. The only exception relates to companies incorporated under the previous statute, which may only pay dividends out of surplus unless they have opted to apply the rules under the Act.

Although Delaware is frequently cited as the inspiration behind the Act, the BVI distributions rules most closely resemble the ABA's Revised Model Business Corporation Act. They also have much in common with New Zealand and Canada. The BVI approach has since been adopted in Guernsey.

Valuation of net assets

Despite the simplicity of the balance sheet part of the test, it still requires a valuation of the company's net assets. BVI companies are not required by BVI law to conduct an annual audit or to follow any particular accounting principles although many opt to do so. It is thus unsurprising that the BVI follows the prevailing U.S. approach that no single objective valuation standard for distributions is necessary. Adherence to formal accounting principles in applying a balance sheet test for distributions can be problematic, especially if a company's assets have a market value exceeding book value (common with start-ups). Directors will typically look to accounting and finance teams for support in all but the most clear cut cases, but the BVI follows Delaware's example and allows the board to determine the appropriate reference data.


Absent any additional substantive or procedural requirements in the company's articles of association, the board is free to declare and pay a dividend at any time. The authorising board resolution must confirm that the directors are satisfied on reasonable grounds that the company will, immediately after the dividend, satisfy the solvency test. It is common for the articles of association to require that notice of the dividend be given to each shareholder. Other types of distributions must follow the relevant statutory process and any provisions in the articles of association. Significant distributions may require shareholder approval. The Act requires shareholder consent for certain dispositions exceeding 50% in value of the company's assets outside its usual course of business. Distributions are not carved out of the scope of the rule even though shareholders in companies with a single class of shares arguably do not typically need such protection. The rule can be disapplied in the company's articles of association, but otherwise a distribution representing more than half of a company's net assets may require a shareholder resolution.

Unlawful and improper dividends

Distributions made in breach of the solvency test may be subject to reversal and "claw back" from the shareholder under the Act. This does not apply if the shareholder received it in good faith and without notice of the breach, it altered its position in reliance on the distribution's validity, and it would be unfair to require repayment. In that situation, the directors are personally liable to make good the shortfall if, before the dividend was paid, the directors ceased to be satisfied that the company would satisfy the solvency test but failed to take reasonable steps to prevent it being made. If the company could have satisfied the solvency test by paying a lower amount, the courts may limit shareholder or director claw-back to the extent of the difference.

Directors may later incur liability for insolvent trading under insolvency laws even if a distribution was made lawfully at the time. A distribution may also amount to a voidable preference under insolvency laws. In BTI 2014 LLC v Sequana SA & others [2016] EWHC 1686, the English High Court held that a dividend was a transaction entered into at an undervalue within the relevant statutory definition, there being nothing in the wording to exclude the payment of a dividend from its scope. The BVI has a virtually identical definition of a transaction at an undervalue for insolvency purposes so it is likely that the BVI courts would take the same approach.

Compliance with the minimum requirements in the Act does not absolve the directors from liability to liquidators or shareholders if the making of a distribution amounts to a breach of their fiduciary duties. Generally, directors acting in good faith may be able to protect themselves to some extent by seeking shareholder approval of discretionary decisions (although the outer limits to this doctrine are unclear). The Act contains an unusual provision, allowing companies to modify the general rule that directors' duties are owed to the shareholders of a solvent company, taken as a whole. A company can permit its directors to act in the interests of the shareholder(s), even if this is not in the best interests of the company of which (s)he acts as director. This is limited to wholly or partly owned subsidiaries and "joint ventures" (although the latter term is not defined for these purposes).


The BVI does not levy income or other tax (either by deduction or withholding) on distributions made by BVI companies. Appropriate advice should however be taken in any jurisdiction where a shareholder is liable to tax. This is particularly important where payments are made from sources other than profits, as they may be taxable in the hands of overseas shareholders as a return of capital rather than income. In First Nationwide v The Commissioners for HMRC [2012] EWCA 278 the English High Court ruled that it is the legal machinery under applicable company law - and not the source of the funds - that is determinative of their nature for tax purposes. This provides some welcome certainty for UK shareholders but not all jurisdictions will adopt the same approach.


Regulation of the ability to distribute assets to shareholders protects creditors and preferred shareholders, but critics of more rigid rules argue that over reliance on accounting principles can artificially preclude financially sound companies from making distributions. The BVI is in the global vanguard of flexible distribution policy, giving directors the latitude to apply sustainable capital management principles best suited to the company's particular circumstances. This reflects a wider trend towards abandoning many aspects of traditional capital maintenance doctrine in favour of a focus on solvency and emphasising compliance by directors with their fiduciary duties.

Reproduced from an original article in HFM's 2016 BVI Report.

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
24 Jan 2018, Conference, St Peter Port, Guernsey

In association with the Guernsey Training Agency, we are pleased to offer a unique, interactive event that will explore the role of integrity in the modern employment relationship, with a particular focus on the financial services sector.

6 Feb 2018, Conference, St Helier, Jersey

Carey Olsen, part of Jersey eGaming, the group of companies which provide services to the eGaming sector in Jersey, Channel Islands, will once again be attending ICE, London in February 2018.

20 Feb 2018, Conference, St Helier, Jersey

Carey Olsen partner Marcus Pallot is speaking at the 2nd Annual International Taxation Conference held on 20 February and organised by the Jersey International Business School.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions