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Restoration of a BVI company following dissolution

Ian Mann

The BVI company has enjoyed immense popularity and success in Asia as the offshore company of choice and enjoys an unrivalled reputation for cost effectiveness, flexibility, investor familiarity, ease of incorporation and low costs of maintenance. Recent case law from the Commercial Court of the Eastern Caribbean Supreme Court concerns the test for restoring a dissolved company and should be noted by Asian businesses using BVI companies who will benefit from understanding the effect of these cases, managing their risk and developing their strategy accordingly.

Restoration of a company is a concept that will be familiar to common-law practitioners, but different jurisdictions apply different statutory regimes to the striking off, dissolution and restoration of a company. At its simplest, a restoration is a court process by which application is made seeking a declaration that a company, having been dissolved, be restored as a company. More precisely, under BVI law it is a declaration that the dissolution of the company is void and is restored to the Company Register.

Under section 218 of the BVI Business Companies Act 2004 (BCA) an application for such a declaration can be made by the company, creditor, member or liquidator of the company. This section is concerned with restoration following dissolution and there are separate provisions for restoration following mere administrative striking off.

By virtue of the fact that restoration is a statutory process, careful regard has to be given to the precise terms of the legislation. Inevitably English common law guidance on restoration (which is persuasive in the BVI) is likely to be of limited assistance in understanding the true meaning of the specific BVI provisions.

Why restore a company?

The traditional, and by far the most obvious, reason for an application for restoration is where a creditor wants the company restored so that it can sue the company on a debt. A company that has been dissolved has no capacity to be sued. Another reason to restore a company might be if, subsequent to its voluntary liquidation, further and undistributed company assets are discovered. A dissolved company, no longer a juristic person, would have no capacity to distribute these newly-discovered assets to shareholders. Occasionally, the company may wish to restore itself in order to tender performance for an obligation that crystallised when the company was in good standing, but which only fell due for performance following dissolution. In the normal course of events the counterparty to the obligation would likely move any application to restore the company and take action to enforce the obligation or sue for its breach. In YKM v Financial Services Commission BVIHCM/2011/02, however, the application to restore was made on the basis that the company felt obliged to tender performance to the obligee, and in turn to do everything possible, including restoring itself, to do so. This will be a rare occurrence because: (i) strictly speaking, a dissolved company is no longer an obligor pursuant to the contract because following dissolution its debts and obligations are totally extinguished; and (ii) there would in principle be nothing to stop a third party from tendering performance on behalf of the dissolved company to the obligee. The court in YKM did not grant restoration.

Some thorny questions

There has been substantial debate as to the effect of a section 218 restoration of a company which had previously been voluntarily liquidated. Does the company become restored to the position it was in immediately before dissolution (in a state of voluntary liquidation) or is it restored to good standing and in the hands of the directors? In a recent case, (Dedyson Enterprises Limited v Registrar of Corporate Affairs BVIHCM 2008/0011) it was held that a company that was in voluntary liquidation immediately before dissolution will not be in liquidation following restoration, but instead would be put back in good standing. The reasoning was that, unlike the provisions of the English Companies Act 1985, there was nothing in section 218 BCA to infer that the purpose of restoration was to enable a liquidation to be re-opened so that unfinished business which had been identified subsequent to dissolution could be completed.

The scope of restoration

In Dedyson it was held that a restoration application following a voluntary winding up is to be granted in only very limited circumstances. The judge held that where an application to restore is made by or in relation to a company whose liquidation had previously been reported to the Registrar as complete, it will generally be inappropriate for the application to be granted 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. There could, otherwise than in the most exceptional circumstances, be no good grounds for avoiding the dissolution of a company that had been wound up simply so that its owners could resume carrying on business through it as if nothing had happened.

Welcome clarification

It is of fundamental importance that the supervisory jurisdiction of the BVI court over the companies incorporated within its territory is properly exercised. The Commercial Court has substantially clarified the area of law relating to company restorations which will serve to give added confidence to users of BVI companies.

Ian Mann

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