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Technical Publications

Key BVI Legislative Updates and Proposals

08 Oct 2012

BVI Business Companies (Amendment) Act, 2012 and BVI Business Companies Regulations, 2012

The highly successful and innovative BVI Business Companies Act, 2004 (the "BVIBCA") is due to be enhanced on 15 October 2012, when the BVI Business Companies (Amendment) Act 2012 (the "Amendment Act") is brought into force.  The BVI Business Companies Regulations 2012 (the "Regulations") will likely also come into force on the same day.

The Amendment Act does not change any of the key concepts in the BVIBCA and it is unlikely that any current British Virgin Islands ("BVI") company will need to change any provision of its memorandum or articles of association, as a result of the Amendment Act or the Regulations, although existing companies may choose to take advantage of some of the changes in the law.  Some of the changes will impact on filings that the company will wish to make during the course of its operation.

Among the main changes are the following:

Company Name Regime

Companies may now have an additional name expressed in foreign characters which is expected to be of particular interest in the Far East and Middle East.  In addition, company names can be re-used in certain circumstances, which will be helpful for group restructurings and similar.  There is also a requirement that foreign language names be translated for the purposes of the application for an incorporation or name change.

Alternate Directors

Alternate directors can sign written resolutions in addition to attending board meetings in the stead of their appointer.  They must also consent, in writing, to their appointment.  The duties and responsibilities of the appointed directors have been clarified - they are the same as those of any other director at any time when the appointed director is exercising the powers or carrying out the responsibilities of the appointing director.

Convertible Shares

The Amendment Act brought in the express ability for a company to create and issue shares, which may be converted from one class or series to another, in the manner set out in the memorandum and articles of the company.  Previously, it was common to see conversions of shares operating as redemptions and re-subscriptions.

There are also a number of clarifications and expansions to existing concepts, including:

Segregated Portfolio Companies

The Amendment Act introduces a number of useful additions to the segregated portfolio company regime.  It clarifies that segregated portfolios may be closed once they are empty of assets and liabilities; closed segregated portfolios can be re-opened, subject to BVI Financial Services Commission ("FSC") approval; and directors may reassign assets and liabilities between segregated portfolios that had initially been wrongly assigned.

Registration of Charges

In addition to clarifying who can make filings on behalf of a company, the Regulations allow for further detail to be provided on the registration of a charge with the Registrar of Corporate Affairs (the "BVI Registrar").  These include details as to variations and partial releases; any prohibitions on creating charges that rank in priority to or equally with the charge; and the entitlement of the person making the filing on behalf of the company or the chargee.

Voluntary Liquidations

The voluntary (i.e. solvent) liquidation regime has been overhauled. Most of the changes have been to allow for a number of current practices to be clarified and codified in the legislation.  The chief substantive change is that directors and senior employees of a company and their close family members are not eligible to be appointed as a voluntary liquidator of that company.  

Electronic Certificates and Notices

The amendments also allow for the BVI Registrar to issue electronic certificates and notices, which will enhance the efficiency of the current registry practices.

Bearer Share Immobilization

Further steps have been taken by the BVI government to increase transparency in relation to the holding of bearer shares and to further tighten the immobilization of bearer shares.  Under the Amendment Act, the registered agent of a company authorized to issue bearer shares must keep a register of the number of bearer shares issued, the beneficial owners of and interest holders in bearer shares and details of the custodian physically holding the shares.

BVI looks to attract more start-up managers with its proposals to introduce an Approved Manager Regime

The BVI has long been regarded as a natural home for start-up investment funds.  Investors, service providers and financial institutions are very familiar with the BVI as a domicile for investment funds and are comfortable investing in and dealing with BVI vehicles.  

The BVI offers, with its private, professional and public funds, a broad range of regulated fund categories for open-ended funds, a flexible, modern corporate statute and a competitive cost structure.  In addition, closed ended funds are not regulated directly by the FSC.  

The BVI's strengths are that:

(a) it provides a tax neutral vehicle through which to collect profits and re-invest those profits without attracting capital gains, corporation or income tax in the vehicle itself;

(b) it is a stable common law jurisdiction with a well respected corporate statute and  commercial court;

(c) the corporate legislation is modern, clear and flexible and the scope of regulation of private and professional funds (the most popular types of BVI-regulated funds) is clear and well defined;

(d) it is a price competitive product, in particular in relation to ongoing maintenance costs and fees;

(e) funds are not required to have any of its service providers in the BVI, save for an authorised representative and a registered office in the BVI.  This means that the fund's manager, its directors, auditors, administrator and custodian can all be based outside the BVI and so provides a great deal of flexibility to the structure; and

(f) there are no restrictions on the investment strategy or leverage employed by a fund to achieve its investment objectives.

As a result, with around 2,500 hedge funds and 425,000 active companies, the BVI continues to be one of the leading domiciles for investment funds and it continues to see a steady stream of enquiries from managers regarding start-up investment funds.

Since the introduction of the Securities and Investment Business Act, 2010, all BVI entities that are managers of open and closed-ended funds have been required to obtain a full investment business license.  However, it has been recognised that the regulatory burden on start-up managers of open and closed ended funds could be reduced, in part because the systemic risk posed by these managers is lower than those managing large sums of investor money.  As a result, the FSC is currently finalising its Approved Manager Regulations, which will most likely involve a seven day fast track approval process for new managers raising assets of less than a defined threshold.  This should also take away much of the ongoing regulatory costs imposed on full license holders.  

With the Approved Manager Regulations and a number of other initiatives being pursued, the BVI funds product should reinforce its position as a genuine choice for existing and start-up managers and investment funds, due to its simplicity, flexibility and cost effectiveness.

Maples and Calder will be producing further details of the above changes in separate mailings in the near future.

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