New IBC legislation
in BVI
Although
you may have heard rumours about these changes, the
actual amendment details only became available this
week from the government. We wanted to have these
‘in hand’ before commenting, in order to insure
accuracy. We felt this was especially important
since these changes have been the object of much
speculation over the past several weeks.
First and
foremost we wish to make clear that the amendments
are not yet law and they cannot be implemented until
they are passed into law. Further, there is no date
as yet for when the amendments may become law and
revisions to other laws (notably the Financial
Services Commission Act 2001) are likely required
before they can become law.
We will
further advise you when we know the precise date the
amended IBC Act will take effect. Therefore, nothing
has actually changed as of this date. Even when the
legislation becomes law, there is an extensive
transition period for all existing IBC'S before any
of the amendments have effect.
New
incorporations will be effected immediately upon the
passage into law however. We will have additional
information for you in the weeks to come on
revisions to our standard Memorandum and Articles of
Association (M&AA) to incorporate the changes for
new incorporations.
The main
features of the Amendments are :
I.
BEARER SHARES
A. Increase
in registration and annual fees
Once the
amended IBC Act takes effect, new IBCs formed with
M&AA that permit the issuance of bearer shares will
have to pay a registration fee of US$1,000. This is
an increase from the current fee of US$300 if
authorized capital did not exceed US$50,000.
Annual Fees
will also be US$1,000 for companies whose M&AA
permit bearer shares. However, for companies already
in existence when the Act comes into effect, this
fee provision will not come into effect until
December 31st, 2004. Existing companies will have
until that time to amend their M&AA to prohibit the
issuance of bearer shares, if they wish to avoid
paying this higher annual fee.
B.
Immobilisation
• After the
Act comes into effect, any newly incorporated
company that issues bearer shares will be required
to deliver those shares to an acceptable custodian.
• Companies
already in existence when the Act comes into effect
will have until December 31st, 2004 to either cancel
all existing bearer shares and replace them with
registered shares, or deliver any outstanding bearer
shares to an acceptable custodian.
• The
revisions to the Act refer to two types of
acceptable custodians. These are defined as being as
described in Sections 50(a) and 50(b) of the
Financial Services Commission Act 2001. However, at
this point Sections 50(a) and 50(b) of that Act do
not exist! This is one factor which will delay
passage of the revised IBC Act into law.
In the
absence of a definition in the new legislation, we
turn to the “Aide Memoire” released by the Financial
Services Commission (FSC) some time ago. This
suggests that there will be two types of acceptable
custodians.
“Authorised
Custodians” will be Trust Companies such as
ourselves, or Banks, duly licensed in the BVI by the
FSC. Current thinking is that only holders of
General Licenses would be eligible to act as
custodians, so Restricted Trust Licensees and
Management Companies are not likely to be eligible.
“Recognised
Custodians” will be of two types. Category I will be
existing investment or securities industry
participants who provide specialised custodial
services and who are specifically designated by the
FSC. This will include custodians in USA, Europe, UK
and Hong Kong, as well as others. Category II will
be regulated financial institutions from regulated
jurisdictions who are recognised by the FSC as
Recognised Custodians. For example, an IBC’s bank
might be ablke to act as custodian for its bearer
shares.
II.
REGISTER OF DIRECTORS
• All
companies will be required to maintain an updated
Register of Directors at the office of the
Registered Agent in the BVI. Existing companies will
have a period of twelve months to establish the
register, which must date back at least to the date
of the enactment of the new Act.
As noted,
the Directors Register, like the Share Register,
will be retained at the office of the Registered
Agent of the Company not at the Companies Registry.
Consequently, these Registers are obviously not
subject to public search, disclosure or other casual
examination.
• New
companies will be required to appoint a director
within 30 days of the date of incorporation.
We would
also take this moment to remind you that the
existing IBC Act already requires that a Share
Register be maintained at the office of the
Registered Agent in the BVI (Section 29(4) of the
existing IBC Act). Many clients have been somewhat
negligent to provide these Share Registers, but with
the passage of this new legislation it might be
reasonably assumed that this existing requirement
will be more closely monitored. If you have not
already filed Share Registers for your companies you
should begin the process of doing so.
SUGGESTED
ALTERNATIVES IN VIEW OF THE AMENDMENT TO THE IBC ACT
The new
$1,000 government fee for companies using Bearer
Shares will make such companies far more expensive
than they currently are. In addition, the
‘immobilisation’ requirements for Bearer Shares,
whereby they must be lodged with a custodian, will
make such shares somewhat less useful.
We believe
that clients should seriously consider incorporating
all new companies with M&AA that prohibit the
issuance of Bearer Shares. Where Bearer Shares are
permitted by the M&AA of existing companies, we
further believe that clients should consider
amending these over the next 12 to 18 months to
prohibit the issuance of Bearer Shares. This would
also require the re-issuance of all Bearer Shares by
the Company as Registered Shares, or some other
elimination of those Bearer Shares - e.g. returning
the shares to the company for some consideration.
The above
suggestion will not inconvenience many clients, who
already have only Registered Shares. However, some
clients have business requirements which make Bearer
Shares useful.
For such
clients we have some possible alterative that may
have appeal, depending on the reasons for utilising
Bearer Shares.
• Issue the
shares in your name or the name of a controlled
company, which may itself be an IBC from either the
BVI or elsewhere. This will still provide privacy,
since the identity of the shareholder will be kept
only at our offices and will not be accessible to
the public.
• Register
the shares in the name of a trustee, who will hold
them for you in a Bare Trust.
The shares
would then be distributed to you or your heirs as
per the terms of the trust.
You could
continue to manage and operate the company as its
manager.
We will be
able to provide an appropriate Bare Trust at a
nominal cost, although we are still working out the
details of this. Fortunately, a Bare Trust set up in
the BVI is specifically exempted from the normal $50
stamp duty on Trusts by Section 92 of the Trust Act.
A BVI Trust is also not required to be registered in
any way with the BVI government; it is a private
arrangement between the Parties to the Trust. As a
result, we believe this will make such a strategy a
viable alternative for many clients.
• Issue the
shares to a nominee shareholder provided by us.
• If Bearer
Shares are a requirement and you wish to avoid
payment of the US$1000 fee, continuing the current
company in a new jurisdiction is an alterative. We
are currently investigating alternate jurisdictions
and hope to provide you with a short list of
recommendations shortly and will be able to assist
with such re-domiciling of the company.
As stated
earlier, you will have until December 31st, 2004 to
make a decision about existing companies. However,
you will wish to begin considering this matter well
before then to insure that you have sufficient time
to make your final decision.
We will be
providing additional information in the next few
days, specifically on the Bare Trust option
described above and possible alternative
jurisdictions to the BVI. Please advise us if we can
be of further assistance. Back
