Bringing your BVI company to an end: strike off vs liquidation
A BVI company has no limit on its duration (unless provided otherwise in its memorandum or articles). Indeed, this firm continues to act for many companies incorporated in the very early days of the International Business Companies Act - now approaching 40 years ago. The majority of companies do, however, at some point reach the end of their useful life and directors and shareholders need to be aware of the options available.
The 2022 amendments to the BVI Business Companies Act, 2004 (the BCA) which come into force on 1 January 2023 (the BCA amendments) introduce significant changes to both the strike off regime and the requirements relating to those who wish to act as a voluntary liquidator of BVI companies. As such, it is more important than ever to be well informed.
At the point in time at which a company has served its purpose the question that directors and shareholders must ask is this:
What needs to be done to bring the company’s affairs to an orderly close?
The main choice is between liquidation and strike off/dissolution. Voluntary liquidation is a straight forward and inexpensive process that brings formal closure and much greater certainty as well as mitigating risk for directors, shareholders and other stakeholders. It can be completed in as little as 4 to 6 weeks. Allowing or applying for the company to be struck off the register of companies (the Register) is, on paper, a simpler and quicker process. However, crucially, the BCA Amendments will now result in the immediate dissolution of the company on strike off.
As a result if there is a requirement to restore the company (perhaps because assets that were not dealt with prior to strike-off/dissolution) have come to light), the Company will need to deal with a potentially lengthy and cumbersome restoration process which may need to involve the Court at considerable expense..
If the company is not able to pay its debts as they fall due or its liabilities exceed its assets then the company wishing to close down its affairs would need adopt a procedure under the Insolvency Act. This is outside the scope of this guide. Please contact us for further details if required.
The steps involved in a voluntary liquidation are simple; the first is for the company to prepare a plan of liquidation. This requires the company to identify one or more liquidators. A voluntary liquidator cannot be another company or other body corporate - it must be an individual, who holds the necessary educational qualifications, professional experience and at least one liquidator must be resident in the British Virgin Islands.
There are other restrictions on who may be appointed to act as a voluntary liquidator of a company.
In particular, an individual, or any person who is a close relative, or who is or at any time in the two years prior to commencement of the liquidation has been a director or acted in a senior management position and whose functions have included financial management of the company or any affiliate is disqualified from acting as a liquidator (although there is no restriction on an external auditor acting as liquidator) as long as the other requirements are met.
The company must then formally approve the liquidation plan and the appointment of the liquidator and the directors must be able to make a solvency declaration that the company can meet its debts as they fall due and that its assets exceed its liabilities.
Once appointed, the voluntary liquidator must advertise the commencement of the liquidation. Usually this requires advertising locally (in the BVI) and in the place of the company’s principal place of business (if that is outside of the BVI) or (if the company has no principal place of business) where the liquidator believes such advertising is most likely to come to the attention of the company’s creditors.
The liquidator’s duties are, broadly speaking, to take possession of and realise all of the company’s assets, pay and discharge
all of the company’s obligations and liabilities and to distribute surplus assets to the members. The liquidator should prepare statements of account, obtain all company’s records including financial records and, if required by the plan of liquidation, send a copy of the statements of accounts to all of the members.
Upon completion of the liquidation, the liquidator will make filings and publish a notice confirming that the liquidation is complete. The Registrar of Corporate Affairs in the BVI (the Registrar) will then strike the company off the Register and issue a Certificate of Dissolution. The date of dissolution is significant since after this date, the company no longer exists and the company can no longer incur liabilities or sue or be sued. All records obtained by the liquidator should also be handed over to the company’s registered agent and retained for five (5) years following dissolution.
Strike off and dissolution from the Register
There are a number of circumstances in which the Registrar may strike a company off the Register under section 213 of the BVI Business Companies Act. The most frequently used is the automatic strike off and dissolution for non-payment of the annual Registry fee. A company may also be struck off if the Registrar is satisfied that the company has ceased to carry on business. In practice, the Registrar will strike a company off on this ground upon application from the company. Strike off is sometimes used as an alternative to voluntary liquidation but this option does have significant risks which should be understood before taking such an approach.
All BVI companies must pay an annual fee to the Registry to keep in good standing. If the fee is not paid by the due date, a penalty will first apply. If the annual fee (and penalties) has not been paid by the expiration of the notice of strike off (notice) issued by the Registrar, giving the company no less than 90 days to pay its annual fee (and penalties), the Registrar will strike the company off the Register of Companies and immediately dissolve it with effect from the date specified in the notice published in the British Virgin Islands Gazette (Gazette).
This significantly reduced period does not give companies much time to remedy any possible omissions or errors. Furthermore, the immediate dissolution of the company on strike off may pose a costly and potentially lengthy Court process to restore the company (although in limited circumstances an application to Registrar to restore is possible).
A struck off and dissolved company is restricted under statute from acting in any way with respect to its affairs, the company, its directors, members and any liquidator or receiver thereof may not defend or commence legal proceedings, make a claim or claim any right for, or in the name of, the company.
A company struck off and dissolved may be restored by making an application to the Court (or the Registrar in limited circumstances). Such application should be made within five (5) years of the date of the notice published in the Gazette and can be made by the company, a creditor, former director, former member or former liquidator, the Attorney General or other competent authority. Where a company is restored either by the Registrar or the Court it is deemed never to have been struck off the register and dissolved.
Economic Substance obligations
Before the BCA amendments, the Economic Substance regime imposed ongoing annual reporting obligations to all companies - including struck off companies, which have ceased to carry on all business. Those reporting obligations will continue for existing struck off companies on 1 January 2023, during the transitional period until the company is dissolved.
Please contact with any queries relating to existing struck off entities and their reporting obligations or anything else contained in this guide.