O’Neal Webster has advised on a JPY 3.8 billion British Virgin Islands plan of arrangement which was recently approved by the Eastern Caribbean Supreme Court (British Virgin Islands) on April 6, 2020. Articles of arrangement were subsequently filed with the BVI Registry of Corporate Affairs, giving effect to the plan of arrangement. The deal is the most recent BVI approved plan of arrangement and one of only a handful ever approved in the BVI.
The O’Neal Webster team was led by corporate partner Christopher Simpson and litigation partners Nadine Whyte-Laing and Dan Wise, advising on the corporate and court aspects of the transaction, respectively. The team worked in conjunction with Nakayama & Partners of Japan and Simon C.W. Yung & Co., of Hong Kong.
Partner, Simpson commented that “this transaction demonstrates the depth and skill of the corporate and litigation teams at O’Neal Webster. They worked together, seamlessly, dealing with multiple time zones while facing opposition, ultimately securing approval for our client, which was the best result for their business.”
Section 177 of the BVI Business Companies Act, 2004 (as amended)
The British Virgin Islands plan of arrangement was approved pursuant to section 177 of the BVI Business Companies Act, 2004 (as amended) (the BC Act), which allows for various types of corporate transactions to be approved by the Court. Court approval can produce certain benefits, including certainty of rights and obligations coupled with the recognition of such transactions by foreign jurisdictions.
In this instance, the plan of arrangement was used to capitalize a debt owed by a BVI company to a Japanese company on the basis of a settlement agreement arrived at in the Tokyo District Court. The sole shareholder of the BVI company which made the application for approval of the plan of arrangement had died, and a potential beneficiary of his estate ultimately challenged the plan of arrangement. Prior to the BVI company making the application for approval of the plan of arrangement, extensive accounting and legal analysis was conducted to determine the best route to extinguish the debt. Ultimately, one plan was chosen. After several hearings, the plan of arrangement was approved following the arguments advanced on behalf of the company regarding the benefit of the plan to the company and the Japanese creditor, and a settlement being reached with the potential beneficiary.
Section 177 of the BC Act provides that a plan of arrangement may be used to effect any of the following corporate transactions:
- An amendment to the memorandum or articles of association
- A reorganisation or reconstruction of a company
- A merger or consolidation of one or more companies that are registered under the BC Act with one or more other companies, provided that the surviving or consolidated company is incorporated under the BC Act
- The separation of two or more businesses carried on by a company
- Any sale, transfer, exchange or other disposition of any part of the assets or business of a company to any person in exchange for that person’s shares, debt obligations or other securities, money or other assets, or a combination thereof
- The sale, transfer, exchange or other disposition of shares, debt obligations or other securities in a company
- The dissolution of a company
- Any combination of the above
Plan of Arrangement Hearings, Notices and Approvals
The BC Act further provides that the application has to be made by the BVI company, and for a subsequent formal hearing (or hearings) at which the Court may make an interim or final order giving directions. The Court’s directions may require the company to obtain certain approvals (typically shareholder approval) and may also require the company to give certain notices or make advertisements, typically for the benefit of shareholders and other interested parties (e.g., creditors). If an interim order is granted, a further and final hearing will take place, at which interested parties may appear and be heard. At the hearing, the Court exercises its discretion either to reject or approve the plan of arrangement, with or without amendments. In this instance, the Court approved the plan of arrangement without amendment.
Confirmation and Execution of Articles of Arrangement
Once the Court grants an order for the approval of the plan of arrangement, the directors may confirm and execute the plan in accordance with the Court’s order. As part of this process, the BVI company must execute articles of arrangement and file them with the BVI Registrar of Corporate Affairs. Upon registration of the articles of arrangement, the Registrar issues a certificate of arrangement, certifying that the arrangement has been effected. The effective date of the arrangement may be either the date of the filing or a later date not exceeding 30 days after the filing of the articles of arrangement.
Plans of arrangement have been previously used to effect demergers, obtain exemption from US securities regulations, and other types of restructuring transactions. Plans of arrangement are, indeed, a viable option for companies with transactions that require court approval for one reason or another, or where court approval adds value and certainty for the BVI company and the parties involved. In a COVID-19 world, where multiple restructurings are anticipated, the reliefs and certainties afforded by section 177 are likely to increase their use, widely.