Introduction
The BVI Business Companies Amendment Act, 2022 and the BVI Business Companies (Amendment) Regulations, 2022 (the “Amendment Act” and the “Amendment Regulations” 1, together the “Amendments”) which were gazetted on 8 September 2022 and are due to come into force on 1 January 2023, contain a raft of changes to the BVI Business Companies Act (Revised Edition 2020), as amended (the “BCA”) and the BVI Business Companies Regulations (Revised Edition 2020), as amended (the “Principal Regulations”). Most notably, the Amendments make important and potentially far reaching changes to the voluntary solvent liquidation regime set out at Part XII, Division 1 (sections 196A-208) of the BCA, and the provisions relating to the striking-off, dissolution and restoration of companies set out at Part XII, Division 3 (section 212-221) of the BCA. While the primary focus of this article will be on these two areas, some of the other main changes are also briefly addressed below.
The Amendments are designed to make the BVI a more transparent and robust jurisdiction which will comply with international best practices and maintain the full confidence of its users and global regulatory authorities.
Changes to the voluntary liquidation regime under the BC Act
Solvent voluntary liquidation is a method by which directors or shareholders are able to bring the affairs of a BVI company to an orderly close and, at the completion of the process, the BVI company is dissolved. Crucially, the voluntary liquidation process is only available to a company which is solvent, meaning it has no liabilities or is able to pay its debts as they fall due and the value of its assets equals or exceeds its liabilities. The directors are required to sign a declaration to this effect. Moreover, the appointment of a voluntary liquidator (a “VL”) is prohibited where a liquidator has been appointed under the Insolvency Act 2003 (the “Insolvency Act”) or where an application has been made to appoint a liquidator and the application has not been dismissed.2
The principal changes under the amended regime are essentially threefold: first, eligible individuals will now have to possess certain qualifications in order to act as a VL; second, individuals will also have to comply with new BVI residency requirements unless they are to be appointed on a ‘joint ticket'; and third, VLs will assume new obligations to collect certain accountancy records, retain and send copies of these to the company's registered agent.
New qualification requirements
Under the existing regime unless the company is a regulated entity, for example licensed to conduct regulated financial services business, a person does not need special qualifications to act as a VL provided that they are a natural person who is not restricted from acting. The category of restricted persons, which in practical terms is very limited, includes: (a) any person who is disqualified from acting as a director under Part X of the Insolvency Act, 2003; (b) any person who is disqualified under section 409 of the Insolvency Act, 2003 as having had a bankruptcy restriction order made against them or has consented to a bankruptcy restriction undertaking; (c) minors; (d) undischarged bankrupts; (e) any person who has been a director or employed in the management of the company during the previous two years; and (f) any person who is a close relative of a person described in (e).
This contrasts starkly to the qualifications required of a Court appointed liquidator under the Insolvency Act, 2003 who has to be a licenced insolvency practitioner and thus resident in the BVI (unless appointed jointly with a BVI licensed insolvency practitioner). Although many companies do use BVI-based persons to act as VL, under the existing regime it is not uncommon for a VL of a BVI company to be a person without any legal or accountancy qualifications, and sometimes such VL might be located in a foreign jurisdiction beyond the reach of the BVI courts. Increasingly, concerns have mounted that the relatively relaxed eligibility criteria for a VL renders the solvent voluntary liquidation regime a ‘light touch' that is potentially open to abuse.
From 1 January 2023, any individual appointed as a VL will need to meet a new set of qualification requirements.3 First, they must have liquidation experience of not less than 2 years. Second, they must have professional competence to liquidate the specific company concerned. Third, they must be able to demonstrate that they hold either a BVI insolvency practitioner's licence or have appropriate professional qualification and experience of providing legal or financial advice or support to companies in the financial services sector. Fourth, they must be fully conversant with relevant financial services legislation connected to the business of the company to be liquidated.
New residency requirement
The Amendment Act also introduces a BVI residency requirement for a person to act as a VL. From 1 January 2023 a VL will be required to have physically lived in the BVI for at least 180 days, either continuously or in aggregate, prior to their appointment. This change brings the position for VLs substantially in line with the requirements for a liquidator appointed under the Insolvency Act, 2003. In cases where joint VLs are appointed, it should be noted that only one of the VLs is required to comply with the BVI residency requirement. This recognises the fact that there may be foreign language, or time zone benefits in having a local liquidator in the place where a company has its main operation or business.
Additional obligation to collect accountancy records
The Amendments also impose additional obligations on VLs to collect, retain and send copies to the company's registered agent, of certain ‘liquidation records'. The Amendment Regulations specify that these records include those kept and maintained by the company that are sufficient to show and explain the company's transactions and will, at any time, enable the financial position of the company to be determined with reasonable accuracy.
Implications of the amendments to the voluntary liquidation regime
The amendments will undoubtedly tighten the solvent voluntary liquidation regime and reduce the potential for its abuse for four principal reasons. First, it will no longer be possible for underqualified and potentially unaccountable individuals (the proverbial “fisherman in Atlantis”) to act in this capacity. Second, the new qualification and eligibility requirements will likely herald an increase in voluntary liquidations being conducted by BVI insolvency practitioners. While this will guarantee higher standards and will also make VLs more accountable, this will result in the process becoming more expensive. Third, the new statutory obligations imposed on VLs will ensure that declarations of solvency can be verified directly against the company's accountancy records. This may result in an increase in voluntary liquidations being converted into liquidations under the Insolvency Act under the procedure set out at sections 209-211 of the BCA.4 Fourth, the requirement for a VL to send copies of a company's accounting records to its registered agent for retention will facilitate the retention of a liquidated company's records in the BVI
Amendments to the striking-off, dissolution and restoration regimes
Strike off and dissolution
From 1 January 2023, where a company is struck off the Register of Companies (the “Register”) it will also be dissolved following publication of the striking off notice by the Registrar, subject to a 90 days' notice period to the company to regularise its status. This is a big change as under the current regime, a company would not be dissolved (following strike off) until seven years had expired following the date of initial strike off.
Under the present regime, companies may be struck off the Register in a number of different circumstances, for example the non-payment of annual fees or the failure to appoint a replacement registered agent where the old one has resigned. Once struck off, the effect of Section 215 of the BCA is to preclude the company, its directors, members, and any liquidator or receiver from taking any action with respect to the affairs of the company, until the company is put back into good standing by curing the defect for which it was struck off. If the company remains struck off for a continuous period of seven years, it is automatically dissolved.
Restoration
Likewise, from 1 January 2023 the process of restoring a company to the Register will change dramatically. Under the current restoration regime5, an application can be made to the Court to restore a dissolved company to the Register by a creditor, former director, former member, former liquidator of the company or any person who can establish an interest in having the company restored to the Register, provided that the application is made within 10 years of the date of dissolution of the company. On such an application the Court has wide discretion and may order that the company be restored to the Register subject to such conditions as it considers appropriate and give such directions or make such orders as it considers necessary or desirable for the purpose of placing the company and any other persons as nearly as possible in the same position as if the company had not been dissolved or struck off the Register. Ordinarily, such conditions will include a requirement that all outstanding licence and any penalty fees be paid to the Companies Registry.
Under the Amendments a dual-system will be introduced. In the case of companies that have been dissolved “purely administratively”6, the system of applying to Court has been replaced by a system of applying to the Registrar of Corporate Affairs within 5 years of the date of dissolution. On such an application the Registrar has a discretion to restore the company subject to receiving the application in the approved form and upon the Registrar being satisfied that the following conditions have been met: that (a) the company was carrying on business or in operation at the date of its striking off or dissolution; (b) a licensed person is willing to act as registered agent; (c) if any property of the company has vested in the Crown bona vacantia the Crown's consent to the restoration is obtained; (d) the company has paid the restoration fee; and (e) the Registrar is satisfied that it would be fair and reasonable for the company to be restored to the Register. The rational for this change is to avoid burdening the BVI courts with routine restoration applications which tend to be very common and use up a significant amount of the courts' time and resources. It should be noted though that the procedure is not quite as simple as restoring a struck off company under the current regime.
Applications to restore a dissolved company can still be made to the BVI Court but only in the following scenarios: (a) the company was dissolved following the completion of either a voluntary liquidation or a liquidation under the Insolvency Act; (b) on the date of dissolution, the company was not carrying on business or in operation; (c) the purpose of the restoration is to (i) initiate, continue or discontinue legal proceedings in the name of or against the company; or (ii) to apply for property that has vested in the Crown as bona vacantia to be returned to the company; (d) in any circumstance, other than (a), (b) or (c) or where an application cannot be made to the Registrar, the Court considers it is just and fair to restore the company to the Register.
Implications / consequences of the key changes
The failure of a company to keep up to date with its annual filing fees , now carries with it far more draconian consequences. In the vast majority of cases, it will no longer be possible to pay an outstanding filing fee to return the company to good standing without going to the additional expense of making an application to either to the Registry or the BVI court. Practically speaking, the consequences of failing to remain compliant will take longer to rectify with the knock-on effect that the company will be unable to conduct its business during this period. It is therefore imperative that directors (and members) of BVI companies appreciate the importance of paying the annual filing fees on time and registered agents will also need to ensure that they have efficient procedures and appropriate safeguards in place to ensure that mere administrative errors (non payment of filing fees) do not result in the dissolution of companies.
A potential impact of these changes is that we might see more companies being dissolved (following strike off) instead of being formally liquidated by a liquidator. The obvious advantage of this is the reduced costs but it should be noted that the dissolution process does not provide so much closure. In particular, it leaves the company at risk of being restored by an interested party in the future. Conversely, based on the current authorities, it is a much more onerous task to restore a company following liquidation, the reason being that liquidation is intended to be terminal and all rights and obligations will have been settled.7 There are therefore clear advantages in formally liquidating a company.
Other Changes contained within the Amendments
In addition to the changes to the solvent voluntary liquidation regime and the striking-off, dissolution and restoration of companies, the Amendments also make four other changes of note which will also come into force on 1 January 2023. First, registers of directors (which are currently required to be filed but are kept confidential) will become publicly available upon request to the Registrar and payment of a fee. Second, companies will be required to file an annual financial statement with their registered agent within nine months of the end of the year to which the return relates, with registered agents being obliged to notify the Registrar of any non-compliance in this regard. Third, companies intending to continue outside of the BVI will be required to provide advance notice to their members and creditors. Fourth, the period of written notice of intention to resign required to be given by registered agents to a company will be reduced from 90 days to 60 days.
Conclusion
The Amendments demonstrate the BVI's commitment to providing a robust business companies regime which aligns with international standards and best practices. The welcome changes to the solvent voluntary liquidation regime should militate against abuse, and the perception of abuse, and ensure that voluntary liquidation is conducted in an orderly and correct fashion. The changes to the striking-off, dissolution and restoration regime make it imperative that relevant stakeholders are aware of their corporate responsibilities. If you require any advice regarding how the Amendments might apply to your BVI entity, please do not hesitate to get in touch with your usual Forbes Hare contact or alternatively contact the authors below directly.
Footnotes
1. Virgin Islands Statutory Instrument 2022 No.73.
2. These prohibitions extend to the appointment of an administrator or an undetermined application to appoint an administrator but are omitted here since Part III of the Insolvency Act (which contains the administration regime) has not yet been brought into force.
3. See paragraph 6(b) of the Amendment Regulation which amends Regulation 19 of the Principal Regulations by inserting a new sub-regulation (1A).
4. These provisions require a voluntary liquidator to serve written notice on the Official Receiver and the BVI Financial Services Commission (where the company is a regulated person) if he/she is of the opinion that the company concerned is either balance sheet or cash flow insolvent. The voluntary liquidator is then required to call a meeting of creditors within 21 days and is required to conduct the liquidation as if he/she had been appointed under the Insolvency Act.
5. Set out at sections 218-218A of the BCA.
6. Such reasons for striking off and dissolving a company include: (a) failure to pay annual company fees, (b) failure to appoint a new registered agent following the resignation of the old registered agent, (c) carrying an licensed activity without a licence, rather than having been formally dissolved by a liquidator.
7. Jason Hughes (as former director of Flowery Developments Limited) v The Registrar of Corporate Affairs BVIHCV(COM) 2020/0078 (delivered 10 September 2020) per Jack J at [6]
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.
