British Virgin Islands: I Am A Director of A BVI Company: Now What?

Last Updated: 2 December 2014
Article by Jason Jagessar

Given the share volume of British Virgin Islands Business Companies (BCs) in existence, there is at any given time in some part of the world a transaction involving a BC. Pursuant to the British Virgin Islands Business Companies Act (the Act), the business and affairs of that BC shall be managed by or under the direction or supervision of an individual or corporate entity that consented to and was appointed to act as a director. The purpose of this note is to provide an overview of some of the salient points that should be borne in mind by a director of a BC (which is restricted herein to mean a non-regulated company limited by shares) when undertaking the decision making process.

The basics

In order to become a director of a BC, the Act states that you cannot be:

(a)an individual under 18 years;

(b) a disqualified person under section 260(4) of the Insolvency Act 2003 (meaning a person subject to a disqualification order under the Insolvency Act);

(c) a restricted person under section 409 of the Insolvency Act (meaning a person subject to a bankruptcy restriction order or undertaking); and

(d) an undischarged bankrupt.

The memorandum or articles (M&A) of the BC can go further and disqualify other categories of persons from being directors in relation to that BC. However there is a proviso in the Act which deems a person to be a director where a person who is disqualified acts as a director in relation to any provision of the Act and imposes a duty or obligation on such a deemed director.

There are a couple of tangentially interesting features that directors have under the Act that are worth mentioning here: -

(i) Under the Act there is no requirement for any of the directors of a BC to be residents of the BVI. One has to, however, be very careful with this option as there has been a recent up-trend by cash strapped Inland Revenue departments in certain countries to make the determination that corporate tax residency is based on where its mind and management are located rather than the jurisdiction where that company it is registered. The Laerstate case (Laerstate BV v Revenue and Customs Commissioners [2009]UKFTT 209 (TC)) is a recent example of this. In a nutshell a Netherlands incorporated company was held by the HMRC to be UK tax resident and liable for taxes during a certain period of time on the basis that central management and control was exercised by an individual who himself was a UK resident.

(ii) A director of a BC may (and as always, subject to its M&A), appoint someone to act as her alternate. The alternate may be another director or any other person of that director's choosing once they are not disqualified as set out above. Once appointed and in the absence of the appointing director, the alternate is entitled to attend meetings and to vote in place of the director who appointed him.

(iii) It is usual (but not a good idea) for a BC to have only one shareholder who is an individual and that shareholder is also the sole director of the BC. This structure creates a significant problem when the sole shareholder/director dies as there is no one left who can deal with the day to day affairs of the business. The Act has a unique option which can avoid this outcome by allowing the sole director/shareholder, during the course of her life time to nominate another person as a "reserve director" of the BC. This reserve director is only able to act in the place of the sole shareholder/director in the event of her death as it allows for the smooth continuation of the business until probate and the share transfer issues are resolved.

In or out? Appointment, resignation and removal

Appointment

The registered agent of the BC must within six months of its incorporation appoint its first directors. It should be noted that a person shall not be appointed as a director or an alternate director or nominated as a reserve director unless that person has consent to do so in writing prior to her appointment. After this initial phase any additional directors would be appointed by resolution of members or resolution of directors as per the requirements of that BC's M&A.

Resignation

A director can resign by giving written notice to the BC of her resignation, which takes effect from the date the notice is received by the BC or a later date if set out in the notice. If at any time during her appointment the director falls within one of more of the categories of disqualification set out above or contained in the BC's M&A, then that director must resign immediately.

Removal

A director may be removed with or without cause by way of a resolution of members passed at a meeting for the sole or one of the purposes being removal of that director. Any notice for such a meeting of members must state that the removal is the purpose (or one of the purposes) of the meeting. Alternatively a director can be removed by a written resolution of members approved by at least 75 per cent of members who are entitled to vote. Additionally and again subject to the M&A's of a BC, the other directors may also be able to remove one of their own at a meeting of directors specifically called to remove that director, or is effected by way of a written resolution of directors approved by a majority of 75 per cent or more.

*In terms of a reserve director, their appointment, resignation and removal are slightly different in that the nomination of the reserve director would cease to have effect where, before the death of the sole member/director who nominated the reserve director; that person resigns as the reserve director; the sole member/director revokes the nomination in writing; or the sole member/director who nominated the reserve director ceases to be the sole member/director for any reason other than his death.

Decisions, decisions....

In making decisions relating to the business and affairs of the BC, the directors are bound not only by the codified duties contained in the Act, but also by common law and equitable duties.

Duties under the Act

The main duty of a director under the Act is to act honestly and in good faith and in what the director believes to be in the best interests of the BC. The first element of this duty, to act honestly and in good faith, is an objective test. This objective test is then extended to include a subjective element of what the director believes to be in the best interests of the BC. Following on from this, directors have a duty to act for a proper purpose and not act or agree to the BC acting in a manner that contravenes either the Act or the BC's M&A.

The Act also deals with the potential for conflict that may face directors when performing their duties. A director of a BC is required, forthwith after becoming aware of the fact that he is interested in a transaction entered into or to be entered into by the BC to disclose her interest to the full board of the BC and/or to the shareholders of the BC. However, a director of a BC may not be required to comply with this duty where:

(i)the transaction or proposed transaction is directly between the director and the BC; and

(ii) the transaction or proposed transaction is or is to be entered into in the ordinary course of the BC's business and on usual terms and conditions.

The Act also provides guidance as to the standard of care which is expected of a director when exercising powers or performing duties as a director to the extent that she must exercise the care, diligence and skill that a reasonable director would exercise in the same circumstances taking into account, but without limitation (i) the nature of the BC; (ii) the nature of the decision; and (iii) the position of the director and the nature of the responsibilities undertaken.

In exercising this standard of care, the Act recognises that directors must be able to access information that would aid in their decision making processes. As such the Act expressly provides that directors, are entitled to rely upon the register of members and books, records, financial statements and other information supplied and/or professional or expert advice given by: (a) an employee of the BC, but only where the director believes on reasonable grounds that the employee is reliable and competent; (b) a professional adviser or expert, where the director believes on reasonable grounds that the matter is within their professional or expert competence; and (c) another director, or a committee of directors in which the director did not serve, in relation to matters within the director's or committee's designated authority.

Duties under common law

There are few decided cases from the Eastern Caribbean Supreme Court (of which the High Court of the British Virgin Islands is a member) which affect directors' duties and these taken along with applicable decisions from the English High Court may be condensed to the following duties:

(a) to act bona fide in what the director considers to be in the best interests of the BC as a whole and not for a collateral purpose;

(b)to act for a proper purpose and to exercise their powers for the purposes for which they are conferred;

(c)to avoid conflicts of interest (both actual or potential conflicts);

(d)to disclose personal interests in contracts involving the BC;

(e)not to make secret profits from the director's office; and

(f)to act with skill and care.

Under the common law the degree of skill and care required to satisfy the proper execution of these duties was looked at from a subjective stand point. Here a director only needed to show a degree of skill that would be reasonably expected from a person of like knowledge and experience. In recent times however, English case law seems to be moving towards a more objective test which is similar to that set out in the Act. The statutory conduct required of a director is that of a reasonably diligent person having general knowledge, skill and experience that may reasonably be expected of a person carrying out the same functions carried out by the relevant director with the general knowledge, skill and experience of that particular director. This means that the common law is drawing closer to an objective standard for directors which places a heavier burden on a director that has specialist knowledge, skill or experience or if she is being remunerated for providing specific professional services.

Breaches

It is important to note that the consequences of breaching the duties of directors are not specified in the Act in every case. Accordingly, the positions at common law, and in equity, need to be considered. In relation to duties derived from common law, compensation for damages resulting from the breach would usually be the remedy sought. In some instances under common law, a breach of a directors' duty could be ratified by the shareholders of the BC after full and frank disclosure, so long as this does not go beyond the general powers of the BC.

Liability

Generally speaking, no director of a BC may be liable for any debt, obligation or default of the company, unless such a liability is specifically provided for pursuant to the Act and except to the extent that she is liable for her own acts or conduct. However, a director who vacates office remains liable under any provision of the Act which imposes a liability on her in respect of any acts or omissions or decision made whilst she was a director. The fact that there is any defect in the appointment of a director would not absolve a director from this obligation. The acts of a director are valid even if there was a defect in her appointment or where she acted at a time when disqualified to act as a director under the Act.

Indemnity

A BC (subject to its M&A) may indemnify current directors, former directors or other persons who acted in such a capacity of the BC or who at the request of the BC, served in a similar capacity for another company or a partnership, joint venture, trust or other enterprise, against all expenses (including legal fees and all judgments, fines and amounts incurred). None of the persons may be indemnified by the BC unless they acted honestly and in good faith and in what they believed to be in the best interests of the BC (in the case of criminal proceedings, where the director had no reasonable cause to believe that her conduct was unlawful). A purported indemnity in breach of the honesty and good faith requirement is void. Furthermore, such a person must be indemnified by the company if he has been successful in the defence of any proceedings. Additionally, the BC may advance expenses (including legal fees) incurred by a director or former director in defending proceedings prior to the final determination of proceedings, provided that the director or former director provides an undertaking to repay the company if it is determined that she is not entitled to be indemnified.

One should exercise caution when considering availability of an indemnity as the M&A of the BC could be amended to remove the ability to indemnify or advance expenses to directors and/or former directors. A prudent director should therefore consider entering into a separate agreement with the BC dealing with the provision of an indemnity by the BC. This would allow the director to have to have some degree of control over the indemnification process and not subject to changing directives of the BC after she has left the BC.

Conclusion

Directors of BCs have significant levels of responsibility placed on them both by the Act and under the common law when they engage in the process of making decisions on behalf or that BC. In this light they need to be mindful of the circumstances under which they are asked to consider and their abilities before they come to a conclusion. As such directors need to understand and seek out all the protection the law can afford them and any additional guarantees that they can obtained from the BC as it would be a serious error for them not to weigh their position both before and after they cease to be a director.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Practice Guides
by Mondaq Advice Centres
Relevancy Powered by MondaqAI
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions