03 November 2015
The British Virgin Islands has, for a long time, been a popular destination for the establishment and management of offshore vehicles, the majority of which have been established pursuant to, and continue to be operated in accordance with, the framework of the BVI Business Companies Act, 2004 (the "Act").
In accordance with the Act, the BVI registrar of corporate affairs (the "Registrar") maintains a register (the "Corporate Register") of all companies incorporated or continuing in the BVI.
The purpose of this briefing is to explain the procedures by which a BVI company may be struck off the Corporate Register, be dissolved and, if required, be restored to the Corporate Register.
In the BVI, the process of being "struck off" involves an administrative procedure whereby the name of a BVI company is removed from the Corporate Register by the Registrar. Only the Registrar may initiate a strike off.
In many respects the main use of the strike off procedure is simply to reduce the administrative burden on the Registrar from monitoring significant numbers of BVI companies which are no longer carrying out any business or serving any commercial purpose. A company retains its legal status after being struck off, but subject to limited exceptions is incapacitated and prohibited from dealing with its assets.
The Registrar may strike a company off the Corporate Register on any one of a number of different grounds, including:
- the failure of a company to appoint and maintain a registered agent;
- the failure of a company to file any document with the Registrar that it is required to file under the Act;
- the failure of a company to pay its annual fee or a late payment penalty; or
- where the Registrar is satisfied that the company has ceased to carry on business or is carrying on business without a required licence.
The most common reason for the Registrar to strike off a company is for non-payment of fees, a method often deliberately used by a company to achieve such result when a company is already dormant.
Regardless of the above, in circumstances where the Registrar has reason to believe that a company is trading or has any property, it is unlikely that it will look to strike off a company. In such circumstances, the Registrar has the power to refer the company to the BVI Financial Services Commission for further investigation.
Save in circumstances where the strike off is caused as a result of non-payment of fees (where no notice needs to be provided), a strike off procedure will commence when the Registrar sends a notice to the company warning that it will be struck from the Corporate Register on a specific date not less than 30 days after the date of such notice unless the company shows cause why it should not be struck off. At the same time, the Registrar will issue a notice of the Registrar's intention to strike off the company in the BVI Gazette. If the Registrar does not receive a response to the notice, the company's name will normally be struck from the Corporate Register. A further notice will be issued in the BVI Gazette confirming such strike off and the company's striking off will be effective from such date.
A company that is struck off is not immediately dissolved, but is incapacitated in a number of ways. In particular, a company which has been struck off is prevented from, amongst other things, commencing or defending any legal proceedings or carrying on any business or dealing with any of its assets (such as accessing its bank accounts or being able to sell or pass title to its assets). Furthermore, the directors, members, liquidator or receiver of such company are prohibited from acting in any way with respect to the affairs of the company. The limited exceptions to what a company may do after being struck off include applying for restoration and continuing to pursue or defend any proceedings that were commenced prior to the company being struck off.
Since a struck off company continues to have legal status, there are a number of practical problems which may still arise. Such problems include:
- the company being able to incur additional liabilities (including fees and late payment penalties which would need be to repaid in order to restore the company);
- the company potentially being the subject of a creditor's claim or judgement; and
- the members, directors, officers and agents of the company remaining responsible for any liabilities that existed before it was struck off.
If a company remains struck off for a continuous period of 7 years, it will automatically be dissolved on the last day of that period.
A company may also be dissolved following the conclusion of a liquidation process. It is generally preferable for a company to be dissolved following a liquidation process rather than as a result of being struck off, since the liquidation process allows the company to have its affairs wound up in an orderly manner. Despite some additional costs, liquidation under the Act may have one or more of the following advantages:
- liquidation will allow a voluntary liquidator to undertake an investigation aimed at identifying all of the property and liabilities of a company, which reduces the chance of anything being overlooked;
- liquidation will allow a voluntary liquidator to commence and defend legal proceedings in the company's name and to deal with the company's assets;
- liquidation should ensure that all of the assets of the company are distributed correctly (to the extent that any assets remain on a dissolution caused by a striking off, such assets would vest automatically in the Crown); and
- liquidation will provide a speedier solution, as the company will be dissolved immediately upon completion of the liquidation process.
Liquidation under the Act is a voluntary process requiring a resolution of members or, in certain circumstances, a resolution of directors. A company may only be liquidated under the Act if it has no liabilities or, where it does have liabilities, it is able to satisfy them in full as they become due for payment and the value of its assets equals or exceeds its liabilities.
For more details on the liquidation of BVI companies, please review our briefing entitled Procedure for Voluntary Liquidation under the BVI Business Companies Act, visit our website at www.bedellcristin.com or contact the Bedell Cristin BVI Partnership.
Restoration of companies that have been struck off
Any person who is aggrieved by a company's striking off may appeal to the BVI High Court within 90 days of the date on which the final striking off notice was published in the BVI Gazette.
In order to be restored, all outstanding fees and late payment penalties (including those incurred during the period when the company was struck off) together with a restoration fee must be paid to the Registrar.
If a company was struck off as a result of not having a registered agent, the Registrar must also be satisfied that a licenced person has agreed to act as, and the company will immediately appoint, a registered agent going forward.
Where a company is restored to the Corporate Register, it is deemed never to have been struck off.
Restoration of companies that have been dissolved
Once a company has been dissolved, it can only be restored to the Corporate Register by the BVI High Court, which must first declare the dissolution of the company to be void.
An application can be made by any creditor, former shareholder, director or liquidator of the company or by any person who can show an interest in doing so. Notice of the application must be given to the Registrar, the BVI financial secretary and, if the company was regulated prior to dissolution, the BVI Financial Services Commission.
An application to the BVI High Court must be made within the 10 year period following the dissolution of the company. After that, no restoration is possible under the Act. It is unclear whether the statutory restoration process was intended to prevent BVI courts from exercising their inherent jurisdiction to restore companies as they did prior to the statutory process.
Restoration is a discretionary remedy which allows the BVI High Court to impose conditions, or give directions, on the restoration if it considers it would be appropriate to do so. In exercising its discretion to restore a dissolved company, the BVI High Court will consider whether it is in the interests of justice to do so. Generally, it remains difficult to convince the BVI High Court to restore a dissolved company to the Corporate Register otherwise than for the purpose of enabling newly discovered assets to be distributed by the company or claims to be made against it which had not previously been made. Only in exceptional circumstances, would the BVI High Court consider restoring a dissolved company purely so that its owners could resume carrying on business as though nothing had happened.
Where a company was in liquidation immediately before its dissolution, the BVI High Court will only restore the company on condition that a liquidator is appointed to it on restoration to the Corporate Register.
If the BVI High Court makes an order to restore a dissolved company to the Corporate Register, such restoration will take effect from the date that the order is filed with the Registrar.
Where a dissolved company is restored to the Corporate Register, its existence is taken to have continued as though it had not been dissolved and any assets of the company which have been vested in the Crown (or the property's value if the property has been sold) will be returned to the company.
Restoration of IBC companies
Whilst increasingly rare as time passes, it is still possible for certain companies that were originally incorporated under the International Business Companies Act, Cap. 291 and which were struck off or dissolved prior to such companies' automatic re-registration on 1 January 2007 under the Act to be restored. In such instances, the company will be restored to the Corporate Register and treated as an automatically re-registered company under the Act.