How to Liquidate Multiple Companies in a Quick and Cost-Effective Manner
05 Nov 2013
The traditional route to dissolution is through the voluntary liquidation process and, if the client has a large number of companies, this can result in significant amounts of paperwork and expense. Clients often find this an unattractive and cumbersome prospect and, as a result, opt for the less satisfactory alternative to liquidation, which is to stop paying annual registration fees and "let the companies lapse". The reason this alternative is less satisfactory is because it will take seven years from the date that a company is struck off the register for non-payment of fees for it to be dissolved. In that interim period, a company will usually need to be recorded on the ultimate parent company's audited accounts.
If you are looking to liquidate redundant BVI business companies "en-masse", another option might be to undertake a simple pre-liquidation restructuring by merging all the companies into one surviving company (the "Restructuring"). Once the Restructuring is complete, the surviving company can be liquidated in the usual manner under BVI law. The resultant effect of the Restructuring is a streamlined and efficient liquidation process and the benefits in terms of time and costs saved are potentially significant.
How do you effect the Restructuring under BVI law?
The BVI Business Companies Act, 2004 (the "Act") provides flexible and quick procedures to merge companies. The Act permits the merger of (i) two or more BVI companies; or (ii) subject to foreign law, the merger of one or more companies incorporated outside the BVI (each, a "foreign company") into a BVI company.
What is the procedure for implementing the Restructuring?
The procedure for implementing the Restructuring where it involves the merger of two or more BVI companies involves four main stages:
First, approval of a written plan of merger by the directors of each company participating in the merger (each a "constituent company") is required. A plan of merger must contain:
(a) the names of each constituent company and the company which will be the sole survivor of the merger (the "surviving company") and in relation to each: (i) the designation and number of outstanding shares of each class of shares, specifying each such class entitled to vote on the merger; and (ii) a specification of each such class, if any, entitled to vote as a class;
(b) the terms and conditions of the proposed merger, which must include the manner and basis of cancelling, reclassifying, or converting shares in each constituent company into shares, debt obligations or other securities in the surviving company, or money or other assets or a combination thereof; and other securities in the surviving company, or money or other assets, or a combination thereof; and
(c) a statement of any amendment to the memorandum or articles of association of the surviving company to be brought about by the merger.
Secondly, following approval by the directors, the plan of merger must be approved by a resolution of the members of each constituent company. In corporate group structures there will usually only be one member.
Thirdly, once the plan of merger has been approved by the directors and members of each constituent company, articles of merger must be executed by each constituent company. The articles of merger must contain:
(a) a copy of the plan of merger;
(b) the date the memorandum and articles of each constituent company were registered by the Registrar; and
(c) the manner by which the merger was authorised by each constituent company.
Fourthly, the executed articles of merger and (where applicable) any resolutions amending the memorandum and articles of association of the surviving company need to be filed with the BVI Registrar of Corporate Affairs (the "Registrar"). If the Registrar is satisfied that the requirements of the Act with regard to mergers are met, the Registrar will then register both the articles of merger (where applicable) and resolutions of the surviving company amending its memorandum or articles of association, and will issue a certificate of merger. In the case of a Restructuring, the surviving company would not usually need to amend its memorandum and articles of association.
Can the Restructuring be carried out between a parent and its subsidiary?
Yes, the Act also provides an alternative procedure for a merger of two or more BVI companies where the merger is between subsidiaries and a parent company. This procedure is generally similar to that outlined above but most notably, members' approval is not required.
Can foreign companies be included in the Restructuring?
Yes, foreign companies can participate in the Restructuring if the law of the foreign jurisdiction, where one or more of the constituent companies are incorporated, permits it. The BVI constituent companies must comply with the provisions of the Act with regard to mergers, while the foreign companies must comply with the law of the jurisdiction of their domicile. If the liquidation of multiple companies in multiple jurisdictions is required, one should consider whether the companies can be merged into the BVI surviving company as well.
When does the Restructuring become effective?
A merger takes effect on the date that the articles of merger are registered by the Registrar, or such a later date afterwards as is specified in the articles of merger, provided that such a date is not more than 30 days later. Any BVI company that is not the surviving company in the merger is struck off the register of companies in the BVI once the merger takes effect. In the case of a Restructuring, there would not usually be any benefit in delaying the effective date of the merger, which means that it can be completed within a matter of days after Maples and Calder has been instructed.
After the Restructuring, the surviving company is liquidated
Once the Restructuring is complete, the surviving BVI company can be liquidated. It is beyond the scope of this article to describe in any detail the process for liquidating a solvent BVI company. By way of summary, the liquidation is a straightforward procedure (when there is only one BVI company to liquidate), which involves the directors preparing and signing a declaration of solvency, producing a statement of assets and liabilities, appointing a liquidator, publishing announcements in newspapers in the BVI and (where applicable) in at least one issue of a newspaper circulating in the place outside the BVI in which the BVI company has or had a place of business, adopting several resolutions and making filings with the Registrar. Subject to certain exceptions, BVI law does not require that a BVI licensed insolvency practitioner must act as liquidator. Therefore, one can potentially benefit from the flexibility the Act permits in terms of who can act as liquidator, although there are some restrictions, including that an individual who is, or at any time in the previous two years has been, a director of the BVI company or an affiliated company, cannot act as liquidator. The end result of a voluntary liquidation is that the BVI company is dissolved and the Registrar will issue a certificate of dissolution.
It is often forgotten that one of the main reasons for using BVI business companies is to take advantage of the jurisdiction's flexible, user-friendly corporate legislation. This allows clients to undertake complex commercial transactions with corporate simplicity. The Restructuring is one of many examples of structures Maples and Calder employs for clients to make their corporate life much simpler.
Managing Partner British Virgin Islands
T: +1 284 852 3027
Partner British Virgin Islands
T: +1 284 852 3038