BVI Legal Eye - December 2020
In our new series of Legal Eye blogs, our BVI Legal Director Shelly Bend explores the issues and regulations that matter most to our clients, explaining the opportunities and pitfalls, as well as giving an expert opinion.
Director - Legal, BVI
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What Do You Do if You Are Struck Off in the BVI?
The ‘struck off’ regime in the BVI can cause a lot of problems for those who don’t fully understand its implications. There are ways in which this unique feature of the BVI Companies Act could be improved, but navigating the current system is easy if you understand it.
What exactly does ‘struck off’ mean in the BVI? An active company can become ‘struck off’ the register of companies for various reasons. It could run afoul of the regulatory requirements: perhaps it hasn’t paid its annual fees, or its last registered agent had resigned and the company hasn’t appointed a new registered agent. Or, it could simply no longer be engaged in business. Whatever the reason, once the company is struck off, it can’t operate, or at least, it’s not supposed to.
Sounds simple? Sadly, it’s not. Because being struck off doesn’t mean that your company is dead. It’s more like being in a coma. Your struck off company may not be walking around, doing anything or engaging with anyone. But it’s still very much alive. In fact, it only finally dies if you don’t do anything at all with it for the next seven years, at which point it dissolves.
Down but not out
Of course, being struck off isn’t a fatal blow. You can restore your company to the register and awaken it from its coma if you make good whatever caused it to be struck in the first place – by paying those annual fees, or appointing that new registered agent. At that point, your company is revived and those intervening years are wiped. It’s as if you were never struck off in the first place.
Your company shouldn’t carry out activities while it’s struck off, such as engaging in business or selling an asset. If it does, it’s a breach of the BVI Companies Act, and you’re breaking the law. But once you restore your company, any wrongdoing which was solely on the basis of the company being struck off is wiped. Even the fact that you were struck off in the first place is wiped. It’s as if the whole thing had never happened.
If you think this sounds strange, you’re right. The struck off regime is so peculiar that many people and even standard makers – such as the OECD – don’t fully understand the concept. And it’s easy to make a mistake if you’re used to a different regime, such as Companies House in the UK, where you pay a small sum to register your company but no annual fee to keep it going. In the BVI, you must pay $450 to the government every year. If you don’t, your company is struck off – and you might not even be aware of it.
Bringing it back
And restoring a company isn’t cheap. Let’s say you have inherited the shares in a BVI company which owns a property. Someone forgot to pay the fees six years ago, and the company was struck off. To restore it, you’ll need to pay a restoration fee to the BVI Corporate Registry, plus six years’ worth of government annual fees, back fees for the registered agent and any other fees and penalties that apply. You could be facing costs of over $12,000.
Now you must decide: to pay or not to pay? Most likely your property is worth more than $12,000, so it probably makes sense to pay. If you don’t want to pay, then your struck-off company will eventually be dissolved once it stays struck for more than 7 years. Any assets held by a dissolved company can then become property of the State. The government of the BVI can make a claim on it. To get the property back, you would have to make an application to the BVI court to restore the dissolved company and the costs for that can of course be even higher!
So, what’s the future for this unique regime? It’s unlikely to be done away with altogether: financial services make up around 60 per cent of the government’s revenue. On the other hand, it’s a burden for the registered agent, which still has to maintain files for struck-off companies.
Recent legislation has made it necessary to detail who owns a company in the BVI. In fact, the information we have to hold these days is more accurate and up to date than requirements for the UK’s Companies House. But thanks to the struck-off regime, some registered agents may not have all of the required information for a company struck off before the tighter regulations came into force. This may make it seem like the BVI is less compliant with international standards than it actually is.
The Trident view
Perhaps the way forward is to tweak the regime, rather than get rid of it altogether. At Trident, we would like to see the struck-off period shortened to two years, with the company dissolved after a further year. And we would need to draw a line: any company that was struck off as of 31st December 2015, say, and hasn’t been restored to date should be deemed to be dissolved and removed from the register.
Removing struck-off entities that have been abandoned for years would enable both registered agents and the BVI authorities to focus their attention only on active companies and be better able to track, trace, monitor and supervise them.
Most importantly, it would also help the many thousands of businesses and individuals worldwide who use BVI companies for a wide range of commercial and personal purposes, from investing in power-generating projects in growing economies to structuring their family wealth for the next generation. Clarity and certainty enable clients to make more informed decisions about their affairs – plus, if the company gets struck off, it would be far cheaper to bring them back from the brink!