BERMUDA BRITISH VIRGIN ISLANDS CAYMAN ISLANDS DUBAI HONG KONG LONDON MAURITIUS SINGAPORE cnyersdill.cm 31 July 2012 Refinements t the BVI Business Cmpanies Act The BVI Business Cmpanies (Amendment) Act, 2012 (the Amendment Act ) and the BVI Business Cmpanies Regulatins, 2012 (the Regulatins ) have recently been enacted in the British Virgin Islands (the BVI ). The new legislatin, which intrduces varius imprvements and refinements t the BVI Business Cmpanies Act, 2004 (the Act ), des nt make any dramatic changes t the crprate landscape in the BVI r require any psitive actin t be taken by BVI cmpanies. Rather, the Amendment Act and the Regulatins are designed t further enhance the flexibility and attractiveness f BVI cmpanies and t cnslidate the psitin f the Act as the pre eminent crprate statute amngst the ffshre jurisdictins. While the Amendment Act and the Regulatins are nt yet effective, it is expected they will be brught int frce ver the cming mnths. This bulletin prvides an verview f the principal changes which the new legislatin will intrduce. 1. Asset and Share Security In respect f security interests ver the assets f a BVI cmpany which are publicly filed with the Registrar f Crprate Affairs, the Amendment Act intrduces a new prvisin deeming third parties t have ntice f such security interests. Whereas it was always the case that a filing f a security interest guaranteed pririty against a subsequent security interest, this new rule will limit the circumstances in which a bna fide purchaser f an asset subject t a publicly filed security interest can claim the asset has been purchased free and clear f the security interest. As such, this is a welcme additin t the prtectin given t secured lenders under BVI law. A number f imprvements have als been intrduced in relatin t the security filing system at the Registrar f Crprate Affairs. Mst significantly, it is nw pssible t file a partial release f a security interest specifying that certain prperty has been remved frm the scpe f the security. Upn such a filing, the Registrar f Crprate Affairs will issue a certificate cnfirming the partial release. The Amendment Act als intrduces additinal rules in relatin t the prcedure fr releasing security filings. In particular, BVI legal
practitiners and registered agents acting n behalf f the chargee are nw permitted t directly file releases f filed security interests, whereas previusly nly the chargr cmpany culd d s. A chargee lcated utside the BVI is nw als required t prvide the Registrar with the name and address f a persn in the BVI authrised t receive dcuments n its behalf. In relatin t security ver the shares f a BVI cmpany, the Amendment Act permits a chargee s pwer f sale and the right t appint a receiver under a BVI law gverned share charge t arise immediately upn a default. It was previusly necessary t have a shrt grace perid (fr example, ne day) befre such pwers arse. 2. Cnversin f Shares The Amendment Act als cnfirms that shares issued by a BVI cmpany may be cnverted int anther class r series f shares in the manner set ut in the memrandum and articles f assciatin. Under the current regime, there is n statutry basis fr the cnversin f shares, with the result that cnversin rights in the BVI are frequently structured as a redemptin f existing shares and an issuance f new shares. This amendment prvides flexibility, particularly in relatin t venture capital and private equity transactins, where cnvertible shares ften feature, and in relatin t hedge funds where it is useful t cnvert a series f shares int anther series nce a high watermark value is reached. 3. Asset Purchase and Gdwill Of particular interest in the mergers and acquisitins cntext, the Amendment Act will permit a BVI cmpany which is purchasing the assets f anther BVI cmpany t take ver the name f the selling cmpany (in additin t purchasing its intellectual prperty and gdwill). 4. Written Bard Reslutins The Amendment Act cnfirms that written reslutins f the directrs f a BVI cmpany may be adpted by such majrity f directrs as is specified in the memrandum and articles f assciatin. While it was generally accepted that written reslutins f the directrs culd be adpted withut unanimity under the current regime, the new statutry fting prvides welcme clarificatin. Hwever, it is imprtant t nte that the memrandum and articles f assciatin must expressly empwer a majrity f directrs t adpt a written reslutin; therwise, unanimity is required. Page 2 f 6
Mre significantly, alternate directrs are nw permitted t sign written reslutins in place f their appinting directrs, whereas previusly they were nly entitled t attend and vte at bard meetings. This develpment is als t be welcmed, nt least because it eases the practicalities f cllecting signatures fr the adptin f written reslutins. Hwever, as the articles f assciatin f sme BVI cmpanies expressly prhibit alternate directrs frm signing written reslutins, it may be necessary fr sme cmpanies t amend their articles in rder t take advantage f this new prvisin. 5. Alternate Directrs In additin t the new pwers f alternate directrs t sign written reslutins (discussed in sectin 4 abve), the Amendment Act als intrduces a number f new rules clarifying the appintment and remval mechanics f alternate directrs and their rights and respnsibilities. In particular, the Amendment Act prvides that alternate directrs must sign a written cnsent t act as an alternate directr and that the terminatin f an appintment f an alternate directr des nt take place until written ntice f the terminatin has been given t the cmpany. The Amendment Act als cnfirms that (a) an alternate directr des nt act as an agent f the appinting directr; (b) an alternate directr is subject t fiduciary duties and is liable fr this wn acts and missins as an alternate directr; and (c) the exercise f an alternate directr s pwer is as effective as if the pwers were exercised by the appinting directr. 6. Sharehlder Meetings, Electrnic Ntices and Additinal Sharehlder Prtectins Additinal flexibility has als been intrduced in relatin t cnvening sharehlder meetings n shrt ntice. Under the current regime, it is arguable that 90% f sharehlders can always waive shrt ntice f a sharehlders meeting, even if the memrandum and articles specify that a higher percentage is required. The Amendment Act will expressly permit the memrandum and articles f assciatin t require a higher majrity t waive shrt ntice (including 100% f sharehlders). There is als a new prvisin enabling ntices t sharehlders t be delivered electrnically if the member cnsents t such cmmunicatin, althugh further regulatins are required befre cmpanies may take advantage f this new prvisin. The Amendment Act als bradens the scpe f the remedies available t sharehlders by cnfirming sharehlders may seek a statutry cmpliance rder against a BVI cmpany and its directrs fr any histrical cnduct that has breached the memrandum and articles f assciatin r the Act. Page 3 f 6
7. Cmpany Names With ver ne millin cmpanies incrprated in the BVI t date, the pl f names available fr new cmpanies is becming mre limited. The Amendment Act and the Regulatins seek t alleviate this prblem by permitting the Registrar f Crprate Affairs t re use names previusly used by cmpanies that have changed their name, been struck ff r disslved r which have been discntinued frm the BVI. New prvisins have als been intrduced which expressly permit affiliated cmpanies t have similar names. The Regulatins als intrduce detailed new rules allwing BVI cmpanies t have a secnd freign character name. Given the widespread use f BVI cmpanies thrughut Asia, this is expected t be a particularly ppular develpment. The Regulatins als permit currency symbls, exclamatin and questin marks and the @ symbl t be included in cmpany names. 8. Segregated Prtfli Cmpanies The Amendment Act will als intrduce a number f helpful rules in relatin t segregated prtfli cmpanies. In particular, there is nw a new prcedure t terminate segregated prtflis which n lnger have any assets and liabilities and a prcedure t reinstate such prtflis. There are als new prcedures which allw directrs t crrect any failure t prperly attribute a cntract t a particular segregated prtfli. 9. Listed Cmpanies and Funds The Amendment Act als allws new regulatins t be adpted fr the purpse f mdifying the applicability f certain prvisins f the Act t listed cmpanies and funds. In this regard, it is expected that regulatins will be enacted t disapply the rule that an updated register f sharehlders must be sent t the registered agent within 15 days f any change t the register (which is clearly nt practicable in the case f listed cmpanies and funds where there are frequent changes t sharehlders). 10. New Certificates frm the Registrar f Crprate Affairs The Amendment Act als permits the Registrar t issue a wider range f certificates than currently available, including certificates cnfirming the status f a BVI cmpany and what infrmatin is recrded n the cmpanies register in relatin t a particular cmpany. Page 4 f 6
11. Vluntary Liquidatins A number f new rules will be intrduced in relatin t vluntary liquidatins f BVI cmpanies, including the fllwing: directrs, senir managers and ther individuals clsely cnnected t a BVI cmpany r its affiliates will be prhibited frm acting as its liquidatr and nly a licensed BVI inslvency practitiner may be appinted as a liquidatr t a BVI cmpany which is r has in the past been a regulated entity in the BVI (althugh this rule des nt apply t hedge funds r licensed investment managers); clarificatry rules cnfirming that a BVI cmpany can nly be liquidated n a vluntary basis if (a) it has n liabilities; r (b) it is able t pay its debts as they fall due and the value f its assets equals r exceeds its liabilities; a vluntary liquidatr will nw be appinted n the date the ntice f appintment is filed with the BVI Registrar f Crprate Affairs rather than the date f the reslutin apprving the appintment. Furthermre, any failure t file a ntice f appintment within 14 days f the date f reslutin will result in the reslutin being vid and f n effect; and new prcedures have been intrduced fr the appintment f jint liquidatrs, t remve vluntary liquidatrs and t permit creditrs t petitin fr the appintment f an inslvency practitiner if the relevant cmpany is in fact inslvent. 12. Strike-Off, Disslutin and Restratin Where a BVI cmpany has been struck ff, it will nw autmatically be disslved after seven years (instead f the ten years under the current regime). As is presently the case, it will still be pssible t restre a struck ff cmpany anytime befre its disslutin by payment f all utstanding fees and penalties. Once a cmpany is disslved, it will als still be pssible fr the BVI curt t rder that the cmpany be restred within 10 years f the date f disslutin. In this regard, the Amendment Act expands the pl f peple wh can apply t restre a disslved cmpany, including any persn wh can establish an interest in having the cmpany restred. In cnnectin with such a restratin, the BVI curt is als given additinal pwers t make rders fr the purpse f placing the cmpany and ther persns in as nearly as pssible in the same psitin as if the cmpany had nt been struck ff r disslved. The Amendment Act als prvides that where a cmpany in liquidatin was disslved, it can nly be restred int a state f liquidatin. Page 5 f 6
13. Miscellaneus Prvisins A number f new facilitative rules will als be intrduced in relatin t the appintment and remval f directrs and the appintment and resignatin f registered agents. Registered agents are als empwered t make a single filing t simultaneusly update the recrds f all its cmpanies when the registered agent changes its name r address. New prvisins will als be intrduced in relatin t freign cmpanies registered in the BVI and in relatin t BVI bearer share cmpanies, including a prvisin deeming authrised custdians that hld bearer shares nt t be sharehlders and a requirement fr the registered agent f a bearer share cmpany t maintain a separate register identifying the beneficial wners f such shares. Please d nt hesitate t cntact us if yu wuld like any further infrmatin in relatin t any f the abve. Rbert Briant Partner +1 284 852 1100 rbert.briant@cnyersdill.cm Antn Gldstein Assciate +1 284 852 1119 antn.gldstein@cnyersdill.cm This article is nt intended t be a substitute fr legal advice r a legal pinin. It deals in brad terms nly and is intended t merely prvide a brief verview and give general infrmatin. Abut Cnyers Dill & Pearman Cnyers Dill & Pearman advises n the laws f Bermuda, the British Virgin Islands, the Cayman Islands, Cyprus and Mauritius. Cnyers lawyers specialise in cmpany and cmmercial law, cmmercial litigatin and private client matters. Cnyers structure, culture and expertise enable respnsive, timely and thrugh service. Cnyers prvides clients with the highest quality legal advice frm strategic glbal lcatins including ffices in the wrld s leading financial centres in Eurpe, Asia, the Middle East and Suth America. Funded in 1928, Cnyers cmprises 600 staff including mre than 150 lawyers. Affiliated cmpanies (Cdan) prvide a range f trust, crprate secretarial, accunting and management services. Page 6 f 6