1 Relevant Authorities and Legislation
1.1 What regulates M&A?
The primary sources of regulation of M&A in the British Virgin Islands are the Business Companies Act, 2004 (the "Companies Act") and common law.
Part IX of the Companies Act facilitates mergers and consolidations between one or more companies, provided that at least one constituent company is a British Virgin Islands company.
- mergers and reconstructions by way of a plan of arrangement or a scheme of arrangement approved by the requisite majorities of shareholders and/or creditors and by an order of the British Virgin Islands court under section 177 or section 179A, respectively, of the Companies Act are available for complex mergers; and
- section 176 of the Companies Act provides a limited minority squeeze-out procedure.
The British Virgin Islands does not have a prescriptive set of legal principles specifically relevant to "going private" and other acquisition transactions (unlike other jurisdictions such as, for example, Delaware). Rather, broad common law and fiduciary principles will apply.
1.2 Are there different rules for different types of company?
There are no specific statutes or government regulation concerning the conduct of M&A transactions. Whilst the British Virgin Islands does not have a Stock Exchange, the shares or other securities of many British Virgin Islands companies are listed on the major international Stock Exchanges, and the rules of the relevant Exchange will need to be considered. The usual requirement under the Companies Act for shares to be transferred by way of a written instrument is disapplied (subject to the company's memorandum and articles of association) for shares listed on a recognised Exchange, if the transfer is carried out in accordance with the laws, rules, procedures and other requirements applicable to shares registered on the Exchange.
1.3 Are there special rules for foreign buyers?
There are no foreign investment restrictions or exchange control legislation in the British Virgin Islands; however, any company with an established physical presence in the British Virgin Islands must be structured and licensed in accordance with local laws, including with respect to ownership. Any company engaging in business locally (i.e. in the British Virgin Islands) is required to be licensed under the Business Professions & Trade Licenses Act, 1990 or the applicable financial services legislation. However, foreign investment, if considered beneficial to the British Virgin Islands' economy, is generally encouraged, and the British Virgin Islands government is considering introducing further incentives, including a special economic zone.
1.4 Are there any special sector-related rules?
There are change-of-control rules applicable to entities regulated by the British Virgin Islands Financial Services Commission under the relevant financial services legislation, including for example the Banks and Trust Companies Act, 1990 as amended and the Insurance Act, 2008 as amended.
1.5 What are the principal sources of liability?
Pursuant to section 120 of the Companies Act, a director of a British Virgin Islands must act honestly, in good faith and in what the director believes to be in the best interests of the company. In addition, at common law, the directors of British Virgin Islands companies owe fiduciary duties (generally described as being those of loyalty, honesty and good faith) to the company. Whilst it is common for directors of British Virgin Islands companies to be indemnified for certain breaches of this duty, pursuant to section 132 of the Companies Act, a company may not indemnify a director unless they have acted honestly, in good faith and in what they believed to be in the best interests of the company, and in the case of criminal proceedings, they had no reasonable cause to believe their conduct was unlawful.
To the extent that consent to a merger or acquisition is procured via an information memorandum or proxy statement, civil liability in tort may arise for negligent misstatement or fraudulent misrepresentation. Part II of the Securities and Investment Business Act, 2010 as amended ("Part II") will provide for rights to compensation for false or misleading advertisements of prospectuses; however, Part II is not in force.
The Insolvency Act, 2003 as amended provides a liquidator with the ability to challenge certain defined voidable transactions, including transactions at an undervalue or made with the effect of preferring a creditor.
2 Mechanics of Acquisition
2.1 What alternative means of acquisition are there?
The statutory merger regime is a longstanding feature of British Virgin Islands company law, and statutory merger is by far the most common method of structuring a complex acquisition or business combination. In certain cases, however, the statutory merger regime may not be suitable, and the traditional options, such as contractual equity or asset acquisition, remain. The threshold for a statutory merger (subject to the relevant constitutional documents of the company) requires only board approval and a shareholder resolution passed in accordance with the articles of association (typically, a simple majority of those shareholders attending and voting at the relevant meeting or by way of written resolution passed by shareholders with a majority of the voting rights). Dissenters to a merger have the right to be paid in cash the fair value of their shares as agreed with the company or, if agreement cannot be reached within the statutory timeframe, as appraised by independent appraisers pursuant to section 179 of the Companies Act. This can be a factor where the offer involves a share-for-share swap as opposed to a cash buy-out, or where the bidder anticipates issues with minority shareholders.
Plans of arrangement under section 177 of the Companies Act and schemes of arrangement under section 179A of the Companies Act are appropriate in certain circumstances. A scheme or plan of arrangement transaction will involve the production of a circular, typically a detailed disclosure document which must provide stakeholders with all information required to make an informed decision on the merits of the proposed arrangement. The principal benefit of a scheme is that if all the necessary majorities are obtained, hurdles are cleared and the court approves the scheme, then the terms of the scheme become binding on all members of the relevant class(es) of shareholders or creditors, whether or not they (a) received notice of the scheme, (b) voted at the meeting, (c) voted for or against the scheme, and (d) changed their minds afterwards. The consents for approval of a plan of arrangement under section 177 may be determined by the court and are therefore less rigid than the prescribed majorities required for a scheme of arrangement under section 179A. However, it should be noted that the court may order that dissenters' rights apply to a plan of arrangement but not to a scheme of arrangement.
In a tender offer, private contractual acquisition or public takeover, where control of the majority of the voting equity is required, the statutory squeeze-out remains available where the relevant statutory thresholds are met. Where a bidder has acquired 90% or more of the voting shares in a British Virgin Islands company, it can direct the company to acquire the shares of the remaining minority shareholders and thereby become the sole shareholder. Such a "squeeze-out" requires the acceptance of the offer by holders of no less than 90% of the voting shares in the company (including the holders of no less than 90% of the shares in each class entitled to vote as a class). Dissenters have the right to object to the acquisition and to receive the agreed or appraised fair value of their shares. Contractual asset acquisitions, where the target ceases doing business and is liquidated after the consummation of the sale, are uncommon given the flexibility and ease of use of the statutory merger regime, but remain a useful option.
2.2 What advisers do the parties need?
Parties should engage British Virgin Islands counsel alongside their usual legal advisers. Generally, auditors, tax and financial advisers are also involved in deal structuring.
2.3 How long does it take?
Depending on the complexity of the transaction, the structure and regulatory status of the target and the method employed, it can take anywhere from a matter of weeks to a number of months. For example, straightforward mergers of British Virgin Islands companies, where the shareholder base is relatively limited and there is no applicable public listing, may be accomplished in a few weeks. Where the target company is listed or the merger is a crossborder transaction, a longer deal time is required. Schemes of arrangements can run for many months depending on their complexity and given the requirements for court approval, as can complex take-private transactions.
2.4 What are the main hurdles?
A statutory merger, the disposal by a company of a majority of its assets, a squeeze-out transaction and (if ordered by the court) a plan of arrangement can provide for certain dissenters' rights which, in each case, essentially provide for dissenting shareholders to be paid in cash the fair value for their shares as agreed with the company or, if agreement cannot be reached in the statutory timeframe, as independently appraised.
For schemes of arrangement, no dissenters' rights apply; however, the key challenge is achieving the high approval majorities required of each class of shareholder.
2.5 How much flexibility is there over deal terms and price?
Parties are generally free to contract as they wish as to terms and price, subject to the directors of a British Virgin Islands company discharging their statutory and fiduciary duties, including the duty to act bona fide in the best interests of the company.
2.6 What differences are there between offering cash and other consideration?
Again, parties are generally free to contract as they wish as to terms and price. However, in the context of a statutory merger, where dissenters have the right to be paid in cash the fair value of their shares, a share-for-share deal may add complexity.
2.7 Do the same terms have to be offered to all shareholders?
Where an acquisition is structured by way of a statutory merger or scheme of arrangement, differing consideration can be paid to shareholders. For tender offers utilising a statutory squeeze-out, the same "offer" must be made to all shareholders.
2.8 Are there obligations to purchase other classes of target securities?
There are no statutory or common law obligations to purchase other classes of target securities.
2.9 Are there any limits on agreeing terms with employees?
There are no such limits applicable under British Virgin Islands law, save in the context of a business acquisition, to which the Labour Code, 2010 as amended may apply with regard to employees in the British Virgin Islands.
2.10 What role do employees, pension trustees and other stakeholders play?
Aside from a general consideration with respect to the relevant employment contracts, there are no employee or pension-specific provisions applicable to a statutory merger, save that where the surviving company is a British Virgin Islands company, it shall be liable for and subject to, in the same manner as the constituent companies, all contracts, obligations, claims, debts and liabilities of each of the constituent companies, including any employment liabilities.
For a scheme of arrangement, there are no specific employee or pension-specific provisions applicable, but where the rights of creditors are to be affected, the consent of the requisite majority will be required.
Employee, pension or creditor consideration will not be relevant to a tender offer or statutory squeeze-out or to an asset acquisition, save to the extent there are employees in the British Virgin Islands.
2.11 What documentation is needed?
Whilst not strictly prescribed by the Companies Act, any complex merger will require some form of disclosure statement, whether or not required by applicable listing rules or regulation in the jurisdiction in which the company operates or has a listing. The Companies Act requires each constituent company to enter into a written plan of merger, setting out certain prescribed information. For more complex transactions, this is usually accompanied by a long-form merger or framework agreement.
For schemes or plans of arrangement, alongside the applicable court documents, the scheme or plan circular must be provided to the scheme or plan participants, including sufficient information in order to allow them to make an informed decision in relation to the merits of the proposed arrangement.
For a tender offer, there is no British Virgin Islands prescribed documentation, but again relevant jurisdictional listing rules or regulation may be applicable. For a statutory squeeze-out, the Companies Act requires notice be given to dissenting shareholders. For an asset acquisition, there are no specific documentation requirements, and the parties are free to contract as they see fit.
2.12 Are there any special disclosure requirements?
For schemes or plans of arrangement, the scheme or plan circular must be provided to the scheme or plan participants and must include sufficient information in order to allow them to make an informed decision in relation to the merits of the proposed arrangement. For statutory mergers, the plan of merger must contain certain limited prescribed information and be approved by the board and a resolution of the shareholders of each British Virgin Islands constituent company.
2.13 What are the key costs?
The key costs will be service provider fees. Government filing fees will generally be minimal, and no stamp duty is payable on documents entered into by a British Virgin Islands company, provided that it does not hold an interest in land in the British Virgin Islands.
2.14 What consents are needed?
Other than as set out at question 1.4 above and absent any contractual consents required, there are generally no authorisations, consents, approvals, licences, validations or exemptions that are required by law from any governmental authorities or agencies or other official bodies in the British Virgin Islands in connection with merger and acquisition transactions.
The substantive merger documents are required to be filed with the Registrar of Corporate Affairs and, upon the satisfaction of the statutory requirements, the plan of merger shall be registered. A scheme of arrangement is subject to the sanction of the court, although the court's principal role in the scheme is to ensure procedural fairness and not to assess the commercial benefits of the proposal. Any shareholders or creditors who object to the scheme are entitled to attend the relevant court hearing to object – however, an objection solely on the grounds that it is a "bad deal" commercially is usually unlikely to succeed if the scheme has the support of the requisite majorities.
The court will determine the appropriate consents (if any) required to a plan of arrangement.
2.15 What levels of approval or acceptance are needed?
Absent any special thresholds or consent required by the constitutional documents of a British Virgin Islands company, or by contract, and the consents discussed at question 1.4 above, for a statutory merger, both board approval and shareholder approval (generally a simple majority of those attending and voting at the relevant meeting) are required.
A scheme of arrangement will require the requisite approval of each of the relevant class(es) of shareholders or creditors whose rights are to be subject to the scheme (namely, a majority in number representing 75% in value of the creditors or class of creditors, or shareholders or class of shareholders, as the case may be, present and voting either in person or by proxy at the meeting). The court will determine the appropriate consents (if any) required to a plan of arrangement.
2.16 When does cash consideration need to be committed and available?
There are no British Virgin Islands legal considerations relevant to determining when cash consideration needs to be committed and available.
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