In particular, the BVI business company is a vehicle that is increasingly being used in Russia and throughout central and east Asia. There have long been ties between the BVI and Hong Kong in terms of the use of BVI companies for property and other investments and this relationship is now spreading towards investments in mainland China. Indeed, Chinese Government statistics show that the BVI is, somewhat remarkably, the second-largest investor into China. Determined not to be left out, investments in South America, Chile and Brazil in particular are increasingly turning towards the BVI as the provider of investment vehicles. As a result many of the large real estate developments and natural resource-focused projects around the world now use one or more BVI business companies within their corporate structures.
There are good reasons for this. Since coming into force on 1 January, 2005, the BVI Business Companies Act (BCA) 2004 has proved to be a versatile and innovative piece of legislation. This is particularly so when considered in the context of a joint venture vehicle. The statutory framework that the BCA provides, coupled with a robust body of common law, provides both majority and minority joint venture partners with much of the flexibility and certainty that players in the investment game consider de rigueur.
So what is so good about a BVI business company? The key feature has to be versatility.
Shareholders’ agreements
It is common for a foreign law governed shareholders’ agreement to be used in combination with an offshore vehicle such as the BVI business company, and it is this kind of structure which is being considered more closely in this article. Avoiding a conflict between the shareholders’ agreement and the memorandum and articles of association are key to avoiding disputes between investors and, for people who are in management positions, to avoiding breaching statutory duties imposed on the directors of a BVI business company. Therefore it is certainly advisable and, in relation to certain provisions, necessary to amend and restate the constitutional document of the joint venture vehicle, being the memorandum and articles of association in the case of the BVI business company, so as to ensure the two documents can operate in tandem both commercially and legally in the way that the investors have agreed.
Redemptions and dividends
The ability of a BVI business company to distribute profits to its shareholders by way of a dividend or to return growth to investors by way of a redemption of its shares is not strangled by the now outdated need to ‘maintain capital’, which still blights companies incorporated in the UK and many other jurisdictions. What was thought a good way to protect creditors in the days of the East India Company in the 19th century is just not necessary these days. What is key for a BVI business company, when considering making a return to its shareholders, is whether: (a) the company is able to pay its debts as they fall due (the cash flow test); and (b) the value of its assets exceeds its total liabilities (the balance sheet test). In coming to their determination, the directors are able to look at all of the assets of the company, including shareholder funds which traditionally had to be ring-fenced to protect the interests of creditors and to comply with the capital maintenance rules.
Directors’ interests
The BCA introduces quite radical changes to the approach taken in respect of conflicts of interest faced by directors of wholly- and non wholly-owned subsidiaries and, relevantly for this article, joint venture companies. A director of a company that is carrying out a joint venture between the shareholders may, when exercising or performing duties as a director in connection with the carrying out of the joint venture and if expressly permitted to do so by the memorandum and articles of association of the company, act in a manner which he believes is in the best interests of a member of the joint venture company, even though it may not be in the best interests of the joint venture company of which he is a director.
Shareholder remedies
Of major concern to any investor in a joint venture is whether they will have any recourse against the company itself or a director in circumstances where the director or the company is acting in a way which causes the investor concern. Helpfully, the BCA introduces into statute for the first time three specific shareholder remedies:
- compliance orders -the ability for a shareholder or director, where the company or a director is engaging or proposing to engage in conduct that contradicts the BCA or the memorandum and articles of association of the company, to apply to the court for an order restraining such conduct or an order directing compliance with the BCA or the memorandum and articles of association of the company.
- derivative actions -whereby the court may grant a shareholder leave to bring proceedings on behalf of the company or to intervene in proceedings to which the company is a party for the purpose of continuing, defending or discontinuing the proceedings.
- unfair prejudice remedies -whereby a shareholder, who considers that the affairs of the company have been, are being or are likely to be conducted in a manner that is oppressive, unfairly discriminatory or unfairly prejudicial may apply to the court for a wide range of potential remedies.
Exit strategies
The chameleon nature of any business company in the BVI is useful when it comes to joint venture partners wishing to realise their investment. With the aid of appropriately amended constitutional documents, the company is perfectly able to transform itself into a securities listing vehicle.
Due to the international nature of BVI business companies, the BVI has not sought to introduce any of its own securities laws. As such, apart from applicable onshore or local securities laws, there are no additional specific regulatory requirements that such a company has to satisfy or meet under BVI law prior to listing. For example, there is no need to submit the listing/admission documents to the Financial Services Commission or the registrar of corporate affairs for their approval prior to listing. This saves time and costs.
Historically, the choice of forum for a listing was either NASDAQ, the New York Stock Exchange or the Singapore Exchange, but more recently there has been an increase in listings of BVI companies on exchanges such as the Oslo Stock Exchange, the Toronto Stock Exchange and, in particular, on London’s Alternative Investment Market. The main board of the London Stock Exchange is also becoming a relatively popular forum for BVI companies to tout their securities to a wide range of potential investors. n
Rachel Graham is a senior associate in the corporate and commercial department at Harneys in the British Virgin Islands.
