At the start of 2023, various changes to BVI company law took effect. Taken together, the changes represent the most far reaching and significant updates in some time, perhaps since the BVI Business Companies Act itself came into force.
The amending legislation consists of the BVI Business Companies (Amendment) Act, 2022 and the BVI Business Companies (Amendment) Regulations, 2022, which were both published on 15 August 2022, and came into force on 1 January 2023.
The changes can be broadly grouped into the following areas:
- Transparency: For the first time, the names of current directors of BVI companies are available to the public. The legislation also includes a framework for a register of significant controllers to be introduced in the future.
- Striking off, dissolution and restoration: Companies which are struck off the Register of Companies (the Register) for any reason will now be dissolved immediately. There are major changes to the process by which a struck off and dissolved company may be restored.
- Financial returns: Subject to limited exceptions, for the first time BVI companies, will be required to provide some financial information to their registered agent on an annual basis. This is expected to consist of a simple balance sheet and profit and loss statement. This financial return will not be publicly available, nor publicly filed.
- Liquidations: There have been changes to the eligibility criteria for those who wish to act as a liquidator of a BVI company, and what documents and records they are required to obtain and retain.
- Continuations: The process by which a company may leave the jurisdiction has been amended, with additional protections for creditors and shareholders.
The amendments have been introduced to ensure the BVI keeps pace with international best practices and has regard to international standards established by standard-setting bodies such as the Global Forum on Transparency and Exchange of Information for Tax Purposes and the Financial Action Task Force. The jurisdiction remains committed to a place at the forefront of combatting financial crime in all its forms.
Publicly available director names
A list of names of the current directors of a BVI company is now available via a search of the online VIRRGIN system, or to persons who attend the offices of the Registry of Corporate Affairs (the Registry) in person. The Registry charges an additional fee for the provision of such list, and such information is not automatically provided as part of a “standard” search. Searches must be run against a specific company, rather than the name of a director.
The full register of directors, which companies have been required to file on a private basis since 2016, remains unavailable on a public search (unless the company has voluntarily elected for it to be disclosed, which is rare). That means personal information about a director such as their date of birth and residential or correspondence address is protected, as are the names of former directors. The Financial Services Commission (FSC) extracts the names available to the public from these previously filed registers, however, some entities which have not kept their register up to date or which are not otherwise in compliance with their existing obligations (which include filing an updated register of directors within 30 days of any change) should take care to rectify the position as soon as possible. As there may be a delay between a change taking place and the online record being updated, reliance on the list of directors carries obvious risks, and the company’s private register (which, by statute, is prima facie evidence of the information it contains) remains the more definitive document.
Registers of Persons with Significant Control
The amendments also include a primary legislative framework by which the BVI might in the future introduce a public register of persons with significant control, but does not bring such registers into being.
If introduced in the future, the Government may, by Regulations, specify the requirements for the keeping and format of such registers. It also provides that such Regulations may contain exemptions for listed companies or those with equivalent disclosure and transparency obligations. It further provides that the Regulations may restrict access to the register in relation to any person where such restrictions are in the public interest, required to comply with data protection laws, to protect the person from risks to be specified, or where a person is a child or otherwise lacks legal capacity.
The BVI government, along with the other British Overseas Territories and Crown Dependencies, had previously committed to introducing such a register by 2023, subject to certain reservations. Although the decision has no legal bearing on the BVI, nor the UK, it remains to be seen how the recent judgement of the European Court of Justice, which held that such registers contravene fundamental rights, will impact what had seemed an inexorable drift towards greater transparency.
Striking-Off and Dissolution
Under both the new system and the old, BVI companies may be struck off the Register in a number of different circumstances. In practice, a failure to pay annual government licence fees is the most common ground.
Under the previous regime, once struck off a company existed in a sort of purgatory state. Its existence would not formally end for seven years, but the company (and its directors, members, and any liquidator or receiver) were broadly prohibited from taking any action with respect to the company, other than to take steps to restore it to the Register. A struck company could generally be restored at any time by paying any accrued fees and penalties, provided it also rectified any other defect in its compliance with law (such as appointing a new registered agent where the old one had resigned). If not brought back into life prior to the end of the seven year period, it was dissolved.
Under the new regime, any company which is struck off is dissolved immediately. Brief transitional arrangements apply to companies which were already in a struck off or dissolved state as of 1 January 2023.
Anybody with struck or dissolved companies with underlying assets or business operations should strongly consider taking action to bring the company back into good standing as soon as possible.
Restoration of Dissolved Companies
For companies that are in a dissolved state, the process of restoration has changed significantly.
There is still a process for restoration by the BVI court, but for the first time there is a framework for an out-of-court restoration as well. To go down this route, companies must apply to the Registrar of Corporate Affairs within five years of the date of dissolution1.
There are several mandatory conditions for utilising the out-of-court process:
the company must have been carrying on business or in operation at the date of its striking off and dissolution;
- licensed person must have agreed to act as registered agent of the company, and must make a declaration that the registered agent has updated and maintain all of the company’s information the registered agent is required to keep, including the company’s register of members, register of directors, and customer due diligence information required under the laws relating to money laundering, terrorist financing and proliferation financing;
- following the striking off and dissolution of the company, if any property of the company has vested in the Crown bona vacantia, the Financial Secretary has either signified the Crown’s consent to the restoration or has not responded within seven days to a request for such consent;
- the company has paid the restoration fee and any outstanding penalties in relation to the company; and
- the Registrar is satisfied that it would be fair and reasonable for the company to be restored to the Register.
The Court may order restoration in a wider set of circumstances. The Court may exercise its power in any:
- the company was struck off the Register and dissolved following the completion of a solvent or insolvent liquidation;
- on the date of dissolution, the company was not carrying on business or in operation;
- the purpose of 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 bona vacantia to be returned to the company (subject to a similar requirement for consent as discussed above); or
- in any other circumstance where the Court considers that, having regard to any particular circumstances, it is just and fair to restore the company to the Register.
The Court may (but is not obliged) order that the restoration be made subject to a licenced person making a declaration in the same format as for restoration by the Registrar.
Regardless of which route to restoration is taken a restored company is deemed never to have been struck off the Register or dissolved.
Financial Records and Accounts
BVI companies have, for some time, been required to keep such records and underlying documents which (a) are sufficient to show and explain the company’s transactions, and (b) will, at any time, enable the financial position of the company to be determined with reasonable accuracy. These requirements remain in place. These records may be kept at the registered office or at another place notified to the registered agent.
However, subject to narrow exceptions, BVI companies are now required to provide certain financial information, in the form of an annual return, to their registered agent on an annual basis (although, in practice, the first filings will not be due until 2024). Further details, including the form of return, are due to be set out in supplementary regulations have not been published in final form at the date of going to press, although they are expected imminently.
Based on public statements from the regulator and the draft regulations published during the consultation process, we expect the final annual return to consist of a relatively simple balance sheet and profit and loss statement. There is no requirement that the return be audited or based on audited financials, either locally or otherwise, and companies should be free to use whatever accounting policies they currently use.
The annual return will need to be filed within nine months of the end of an entity’s financial year (which we expect will not necessarily need to be a calendar year). The registered agent will have an obligation to inform the regulator if it has not received the annual return within 30 days of the due date. Companies which do not file in time will be subject to a fine of US$300 for the first month, and at a rate thereafter of US$200 per month, up to a maximum fine of US$5,000. Where a company has reached the maximum fine and has still not filed its return, it may be struck off.
The information filed with the registered agent will not be filed with any regulator or BVI government authority, and will not be publicly available. The registered agent will, of course, need to provide the information to a regulatory body if it receives a request which is within the scope of that body’s investigative powers and existing information exchange agreements.
There is an exception to the requirement to file an annual return for listed companies on recognised exchanges (on the basis that such companies are already subject to comprehensive financial disclosure regimes). There are also exceptions for companies that already provide information to BVI authorities. This will benefit entities which have a regulated status in the BVI and which provide financial statements to the FSC in such capacity. Companies which file annual returns with the BVI’s Internal Revenue Department, likely to be only relevant to entities operating locally, also benefit from an exception.
A person wishing to act as a liquidator of a BVI company must now satisfy a residency requirement. To qualify, an individual must have physically lived in the BVI for at least 180 days, either continuously or in aggregate, prior to their appointment. The legislation is not entirely clear whether that 180 days is assessed by reference to a specific period.
In recognition of the fact that there may be foreign languageor time zone benefits in having liquidators where companies have their main operations or businesses, it will also be possible to appoint joint liquidators where only one meets the residency test.
Liquidators are now also be required to take additional steps to obtain accounting records before commencing a liquidation and to provide copies of all documentation they receive to the registered agent of the company being wound up.
Continuations and other minor changes
Companies wishing to continue their corporate existence outside the BVI must now advertise notice of their intention to depart in advance, by placing an advertisement in the BVI Gazette. They must also notify the shareholders and creditors in advance. In practice, many BVI companies have no creditors, and many continuations are approved unanimously by the sole shareholder. Although this will cause a small delay to some continuations, the additional protection for creditors and members is broadly welcome.
Bearer shares and bearer warrants issued by BVI companies, which were already effectively extinguished by the long-standing requirement that bearer shares be deposited with an authorised custodian and vanishingly rare in practice, have now been definitively abolished.
The BVI has also introduced changes to the incorporation requirements for companies wholly or partially pursuing charitable or non-commercial purposes. These are now required, at the time of incorporation, to file an application with the Registrar containing certain additional information. Broadly, they must now indicate whether the activities are being carried out wholly or partially for non-commercial purposes, how any commercial activities are segregated from non-commercial ones and where in the world the activities will be carried out. An exception to these requirements applies to commercial companies that undertake some non-commercial activity for CSR reasons. Entities carrying on charitable objects within the BVI itself remain additionally regulated by the Non-Profit Organisations Act 2012.
As with any major legislative change, legal and regulatory practice in response is likely to evolve over months and years (and perhaps in surprising ways), although early indications are that the implementation process has been fairly smooth, perhaps aided by a constructive period of prior consultation. While much of the new legislation may appear reasonably clear on its face, its interpretation has yet to be tested by the courts. We would also welcome and encourage the publication of official guidance in relation to some of the changes.
It is hoped that the supplementary regulations in relation to financial returns will be published soon, and the industry awaits those with great interest. Over a longer-term period, we also wait to see what the next steps in the BVI, the other Overseas Territories and the Crown Dependencies, will be in relation to publicly available information in relation to beneficial ownership and persons of significant control.
Some of the changes will undoubtedly require some adjustments by the owners and operators of BVI companies, and many will require advice from their professional advisors. However, we have every faith that the jurisdiction will demonstrate yet again its extraordinary adaptability. The BVI looks well positioned to remain at the forefront of the offshore industry.
About the Authors
George Weston is a partner in Harneys’ Corporate practice group and advises on all aspects of BVI corporate and commercial law, including M&A, takeovers, private equity investments, joint ventures, public and private share offerings, SPACs, and corporate reorganisations. George has particular expertise working with private equity investors on cross-border corporate acquisitions and joint ventures with a technology or real estate element.
Rachel Graham is the managing partner of Harneys’ London office and leads the firm’s BVI corporate transactional practice in the EMEA region. With 25 years of experience practising as a lawyer, Rachel advises corporations, high net worth individuals, entrepreneurs, financial institutions, and private equity funds, and is the client relationship partner for several of the firm’s key clients.
- Transitional arrangements will apply to companies which are currently in a struck off state so that unless the seven years since their strike-off date expires earlier, they will be able to apply to the Registrar until 1 July 2023.