British Virgin Islands (BVI) corporate law has now reached the halfway point in the two-year transition from a dual statutory regime to a single statutory regime. It was possible in 2005 to incorporate a company under the International Business Companies Act (the IBC Act) or under the BVI Business Companies Act 2004 (the new Act), but in 2006 it will only be possible to incorporate companies under the new Act.
The BVI Business Companies (Amendment) Act 2005 was passed and became effective on January 1 2006.
The Amendment Act grandfathers attractive provisions from the IBC Act into the new Act for IBCs that are automatically re-registered on January 1 2007:
The concepts of authorized capital, capital and surplus have been retained and these terms are defined in the same way as in the IBC Act.
In place of the requirements specified in the new Act, the memorandum of an international business company (IBC) that is automatically re-registered under the new Act must include the statements required under the IBC Act.
In place of sections 56 to 65 of the new Act, most of the sections in Part III of the IBC Act, which deal with changes in authorized capital and capital, and the redemption of shares and declaration of dividends, have been incorporated into the new Act to apply to IBCs that are automatically re-registered.
The annual fee will continue to be based on the authorized capital of an IBC that is automatically re-registered under the new Act.
IBCs that were incorporated under the IBC Act before 2006 will remain incorporated under the IBC Act during 2006 unless they voluntarily elect to re-register under the new Act in 2006. If they do not elect to re-register under the new Act in 2006, on January 1 2007 they will automatically be re-registered under the new Act. From January 1 2007 the new Act will be the sole corporate statute for the BVI and will regulate all BVI companies. The provisions that are grandfathered into the new Act from the IBC Act apply only to IBCs that are automatically re-registered under the new Act. If an IBC voluntarily re-registers under the new Act in 2006, the grandfathered IBC provisions will not apply and the company will have to be reconstituted, and a number of amendments made to its memorandum and articles.
The Amendment Act tidies up a number of substantive and drafting issues in the new Act. Errors and oversights have been corrected, including the transitional problem with registration of security. The registration-based priority regime did not deal properly with security that was created by an IBC during the course of 2005. This has been corrected.
The Amendment Act has extended the remedies available to a member under BVI law. Under the IBC Act, the principal statutory remedy is to present a winding-up petition on the just and equitable ground. In most cases, however, a shareholder's ability to bring proceedings on behalf of a company of which they are a member is governed by common law.
The new Act now provides minority shareholders with statutory rights to take derivative actions if a company or a director of the company engages in, or proposes to engage in, conduct that contravenes the new Act or the memorandum or articles of the company. A member must obtain the leave of the court before commencing a derivative action. If leave is granted, the court may make an order directing the company or director to comply with, or restraining the company or director from engaging in, conduct that contravenes the Act or the memorandum or articles.
The new Act now also permits a member who feels the affairs of the company have been or are likely to be conducted in a manner that is likely to be oppressive, unfairly discriminatory or unfairly prejudicial to them as a member to apply to the court for an order. The court may, if it considers it just and equitable to do so, make one or more orders, including appointment of a liquidator or receiver, requiring the company or another person to acquire the applicant's shares, requiring the company or another person to pay compensation to the applicant, regulating the future conduct of the affairs of the company or setting aside any decision or action taken by the company or its directors in breach of the new Act or the memorandum or articles of the company.
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