Companies often consider “what if” they could transfer to another jurisdiction based on what is currently happening in their jurisdiction, or simply to take advantage of the regime and benefits offered by another jurisdiction. This era of COVID-19 is unprecedented in modern history, leaving many companies looking at restructuring their business and considering the potential benefits if they were incorporated elsewhere.
The BVI Business Companies Act, 2004 (the Act) permits just that. The Act allows companies incorporated outside of the British Virgin Islands (BVI) to continue into the BVI. It also allows companies incorporated in the BVI to continue to a jurisdiction outside of the BVI. From our experience, the former is usually the case, and therefore this article will focus on redomiciliations into the BVI.
First, we will look at some of the benefits which could arise from redomiciling your company to the BVI, then we will examine the process to effect the redomiciliation.
Reasons to redomicile to the BVI
Flexible constitutional documents
The Act provides tremendous flexibility as it relates to the constitutional documents of a BVI company. A primary benefit of this flexibility is that the company’s documents can be tailored to mirror a specific transaction, such as a joint venture, restructuring, or listing scenario. Most BVI companies will also have a wide objects clause that provides the power to conduct any type of activity, subject to any applicable licensing requirements.
Cross-border joint venture arrangements
Joint venture arrangements often involve investors from varying parts of the world, coming together to achieve certain goals with respect to a particular investment. The tax neutrality of the BVI allows each investor to have an objective playing field, notwithstanding their individual jurisdictional obligations. Further, it does not subject all other investors to typical issues that would arise if, for example, an onshore jurisdiction was used.
One special feature under BVI legislation is that the Act specifically provides the ability to include a provision in a company’s constitutional documents that allows a director of the BVI company to act in the best interests of one or more shareholders of the company, regardless of whether such actions are in the best interest of the BVI joint venture company itself. This concept is seen as a great practical benefit to joint venture transactions given the usual shareholder and board director alignment, and could be extremely useful in this COVID-19 era.
Dividends, distributions, and redemptions
Another advantage of a BVI company is the ease with which profits can be released. In order to make a distribution to shareholders, a BVI company only needs to satisfy a solvency test. The solvency test is satisfied if the company’s assets exceed its liabilities and the company is able to pay its debts as they fall due. There are no distributable profits tests or similar requirements, which is the case in some other jurisdictions, particularly onshore jurisdictions. Also, in order to effect a redemption of shares, a BVI company only needs to satisfy the solvency test in conjunction with approval of the shareholder, if required under its constitutional documents.
Meeting of directors and shareholders
Meetings of directors and shareholders may be held electronically if the parties are able to hear each other. Additionally, written resolutions may be passed and signed in counterparts. These options are extremely useful when physical meetings may not be possible.
Merger / Plan of Arrangement / Scheme of Arrangement
The Act permits a BVI company to merge with other BVI companies, and with foreign companies through a recognized and straightforward statutory process. The Act also permits a BVI company to effect certain corporate transactions through a court approved process called a “plan of arrangement.” This process has been used to effect demergers, to obtain exemption from US securities regulations, and to capitalize debt. Further, the Act provides for a “scheme of arrangement,” which is a court approved process used primarily to arrive at a structured compromise with creditors. The various arrangements available under the Act provide many options for a BVI company to restructure its business in the COVID-19 era.
No taxation, currency restriction, or residency requirements
The BVI has no income tax, corporate tax, capital gains tax, inheritance tax, gift tax, or wealth tax. Nor is there any other form of taxes applicable to a company conducting business outside of the BVI. Currency exchange control is not applicable to a BVI company, and there is no residency requirement for its directors. There are, however, rules relating to economic substance for companies which are tax resident in the BVI.
The BVI has a well-developed legal system based on English law, with its final court of appeal being the Privy Council in London. The jurisdiction has a dedicated Commercial Court in Road Town, Tortola, that is able to deal with highly complex commercial cases and which provides confidence to users of the jurisdiction that there is an efficient avenue when things go wrong. Also, the BVI has a state-of-the-art arbitration centre, which facilitates alternative dispute resolution options.
BVI companies are used as listing vehicles on the worlds’ most renowned exchanges, including the New York Stock Exchange, Nasdaq, London Stock Exchange (Main Board and AIM), Toronto Stock Exchange, Singapore Stock Exchange, and the Hong Kong Stock Exchange. These listings demonstrate the ability of companies set up in the BVI to compete effectively on the world stage. It is likely that after Covid-19 there will be new businesses and products that will spur the need for listings to raise capital.
Statutory basis for redomiciliation to the BVI
Section 180 of the Act provides that a foreign company may continue as a company incorporated under the Act, in accordance with the Act, if the laws of the jurisdiction in which it is registered permit it to continue to another jurisdiction.
Pursuant to that section of the Act, many companies from various jurisdictions have, over the years, continued into the BVI. The reasons for their continuation vary, but typically include: to reduce maintenance costs; to avoid complex restructuring procedures and court application processes in their current jurisdiction; to standardize company domiciles across a group and simplify their audit process, adding cost saving elements; and to access a more user friendly jurisdiction for corporate transactions, generally.
A company will not be permitted to continue into the BVI if:
(i) the laws of the jurisdiction where the company is registered do not expressly allow it to continue to a foreign jurisdiction;
(ii) the company is in liquidation, or subject to equivalent insolvency proceedings, in another jurisdiction;
(iii) a receiver or manager has been appointed in relation to any of the company’s assets;
(iv) the company has entered into an arrangement with creditors that has not been concluded; or
(v) an application made to a court in another jurisdiction for the liquidation of the company, or for the company to be subject to equivalent insolvency proceedings, has not been determined.
Having resolved that a company can continue into the BVI, the next step is to comply with the continuation process under the Act, which is a fairly straightforward.
First, the application to continue must be submitted by the company’s proposed registered agent in the BVI to the Registrar of Corporate Affairs (the Registrar), and must include the following documents:
(i) a certified copy of the company’s certificate of incorporation or equivalent document which evidences its incorporation, registration, or formation;
(ii) the form of memorandum and articles of association to be adopted;
(iii) evidence that the application to continue and the proposed form of memorandum and articles of association have been approved by a majority of the directors (or other persons who exercise the power of the company), or in any manner as may be established by the company for exercising the powers of the company; and
(iv) evidence that the company is not disqualified from continuing into the BVI. If the Registrar is satisfied that the requirements for continuation have been met, the company can be registered, allocated a BVI company number, and issued a certificate of continuation. The certificate of continuation is conclusive evidence that the company is continued as a BVI business company under the Act on the date specified in the certificate.
Once the company is recognised as a company continued under the Act, that company is treated as a company incorporated under the Act and is capable of exercising all relevant powers applicable to BVI business companies under the Act.
Effect of continuation
It is important to note that the continuation of a foreign company under the Act does not affect the continuity of the company as a legal entity or the assets, rights, obligations, or liabilities of the company. In addition: (i) no conviction, judgment, ruling, order, claim, debt, liability, or obligation due or to become due, and no cause existing against the company or against any member, director, officer, or agent is released or impaired by its continuation as a company under the Act; and (ii) no proceedings, whether civil or criminal, pending at the time the Registrar of Corporate Affairs issues a certificate of continuation, by or against the company or against any member, director, officer, or agent, are abated or discontinued by its continuation as a BVI company under the Act, but the proceedings may be enforced, prosecuted, settled or compromised by or against the company or against the member, director, officer or agent thereof, as the case may be.
Also, all shares in the company that were outstanding prior to the issue of a certificate of continuation are deemed to have been issued in conformity with the Act.
In the era of COVID-19, companies across the world have much to consider. Many are restructuring under difficult and complex corporate regimes, which will only hinder their recovery. Redomiciling to the BVI may be an option given the benefits which can accrue, including increased flexibility and reduced complexity coupled with efficient and effective corporate and court systems. The process to redomicile is straightforward and can be accomplished in a few days in some cases. Many companies have already commenced the process, and likely many more will in the COVID-19 era.
We invite you to contact the author, Christopher Simpson, a partner in our corporate & commercial practice, to discuss your needs and explore your options in more detail. Mr. Simpson can be reached at firstname.lastname@example.org or by phone at +1 284-393-5800.