Amendments to BVI Business Companies Act
July 2012

Following a period of consultation with the private sector a bill proposing a number of amendments to the BVI Business Companies Act (the "Act") is in the final stages of the BVI legislative process. The Business Companies Amendment Act, 2012 (the "Amendment Act") is designed to clarify certain matters and build in added flexibility to the existing law. Accompanying the Amendment Act are the new Business Companies Regulations 2012 (the "Regulations"). These have already been approved and will come into force together with the Amendment Act. Summarised below are some of the main proposals in the Amendment Act and the Regulations:

Company Names

Under the Regulations, BVI companies will be allowed to register an "additional foreign character name" which does not necessarily need to be an exact translation of the English name. Additionally, company names may also be re-used where a company has changed its name, been struck-off, dissolved or continued out of the jurisdiction.

Conversion of Shares

Previously a conversion of shares in a BVI company could only be achieved by redeeming shares from one class and then issuing shares from another class in their place. This had the potential to throw up tax issues for the shareholders concerned. The Amendment Act makes specific statutory provision for shares to be converted from one class to another in such manner as may be specified in the Memorandum and Articles of the company. This statutory basis should strengthen any argument a shareholder may wish to make, for tax reasons, that in the act of conversion they never actually relinquished their investment in the company.

Members Meetings

Under the Amendment Act short notice of general meetings of shareholders may be waived by such majority as is specified in the Memorandum and Articles of a company. Previously the maximum requirement was a 90% vote. Also the Amendment Act confirms that where a member has consented company notices may be served upon them electronically.

Enforcement of Share Charges

To date the Act has stipulated that where BVI law is the governing law of a mortgage over shares in a BVI company, the remedies in the event of a default (the power of sale and the power to appoint a receiver) may not be exercised until an event of default has occurred and is continuing for a period of not less than 30 days unless a shorter period is specified in the mortgage document. Furthermore, such remedies are not exercisable unless the default has not been rectified within 14 days from service of the notice of default, unless a shorter period is specified in the mortgage document. In keeping with the notion of being a creditor friendly jurisdiction the Amendment Act now allows for the remedies to be exercisable by the chargor immediately upon a default if the mortgage document so provides.

Segregated Portfolio Companies

The Amendment Act sets out the steps the directors of a segregated portfolio company must take if they fail to record that a document has been entered into by the company on behalf of a specific portfolio.A segregated portfolio company may also now terminate portfolios which have no assets or liabilities and which are no longer needed. Terminated portfolios may be re-instated at a later date. It should be noted that if the segregated portfolio company is regulated by the BVI Financial Services Commission ("the Commission"), for instance as a mutual fund, then notice of a termination must be given to the Commission and that the Commission's prior approval will be required before a portfolio can be re-instated.

Voluntary Liquidations

Voluntary liquidations will now commence from the date that the Notice of Appointment of the Liquidator is filed with the BVI Registry of Corporate Affairs as opposed to commencing from the date the liquidator is appointed.
The Regulations also specify that neither a director of a BVI company or a person in a senior management position within the company or an affiliate may be appointed as liquidator of that company.

Strike Off/Restoration

To date under the Act there has been no formal process for a BVI company to apply to be struck-off the BVI Register of Companies.  Typically, the directors of a company that wishes to avoid the cost of a formal wind down will instead allow the company to be struck-off for non-payment of annual licence fees.  Strike off occurs six months after non-payment of an annual licence fee and after 10 years the company will be automatically dissolved. Between strike off and dissolution a director even if they have resigned their position remains liable for any acts or omissions whilst a director if the Act imposes liability in respect thereof. The Amendment Act proposes to reduce the period between strike-off and dissolution from 10 to 7 years thereby reducing the period of potential liability for directors of struck off companies. Currently an application to restore a BVI company can only be made by a creditor of the company, a former member or the liquidator. The Amendment Act will permit a former director or any person who can establish an interest in having a BVI company restored to also make an application for the restoration of the company.  It continues to be the case that no application to restore a company may be made more than 10 years after the date of its dissolution. The Amendment Act also sets out various powers that the BVI Court may exercise in respect of a restoration application including making such orders as it deems necessary to place the company and any other persons as nearly as possible in the same position as if the company had not been dissolved.

For more information on the amendments to the BVI Business Companies Act or BVI corporate matters generally please contact Rob McIntyre, Head of BVI Funds and Corporate, at rmcintyre@lennoxpaton.com

July 2012





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