FAQs

These Frequently Asked Questions summarise the views of the Commission regarding the interpretation of the relevant provisions of the BVI Business Companies Act, 2004 in relation to bearer shares generally and specifically with respect to grandfathered bearer shares, and how the Commission expects to apply those provisions. They represent interpretations based on questions raised by the industry. The responses to the FAQs are therefore intended as general guidance to the industry. As it is not a part of the Commission’s remit to offer legal advice to third parties, persons are advised to take independent legal advice on all relevant matters should they so wish.

What is the effect of transitional provisions in an enactment? How do they relate to the other provisions in the same enactment?

Essentially, transitional provisions in an enactment (principal or subsidiary) outline precisely when and how specified operative parts in the enactment are to take effect. They are designed to facilitate a transition from an existing regime to a new regime.

As Thornton (in his book titled “Legislative Drafting”) outlines, “The function of a transitional provision is to make special provision for the application of legislation to the circumstances which exist at the time when that legislation comes into force”. Transitional provisions in an enactment therefore give effect to existing scenarios/matters by outlining how (and when) they should be treated and modify the application of the substantive provisions in the enactment. They must therefore not be read in isolation and, unless they are specifically excluded with respect to existing scenarios/matters, they must be given effect.

Section 248 of the BVI Business Companies Act, 2004, (“BVIBCA”) specifically provides that “the transitional provisions set out in Schedule 2 apply” and that Schedule has the heading “Transitional Provisions”. The effect of the Schedule is to outline how companies under the old regimes (CapCo and IBC) would be treated or transitioned into the BVIBCA and, unless otherwise specifically excluded, the transitional provisions apply to those companies and matters relative to them to the exclusion of any other provision in the Act. Division 5 of Part IV of Schedule 2 of the Act is headed “Bearer Shares in Grandfathered Bearer Share Companies” and thus all bearer shares within the scope of a company which qualifies as a grandfathered bearer share company would fall to be treated in accordance with the terms of that Division as opposed to any other provision of the Act (unless specifically stated otherwise).

Consequently, a grandfathered bearer share company whose memorandum is amended by virtue of the operation of law in accordance with the terms of paragraph 34A (1) of Division 5 of Part IV of Schedule 2 would effectively have its bearer shares disabled (unless “revived” by a court order under paragraph 35 (4)). Indeed paragraph 35 outlines how an existing bearer share of a grandfathered bearer share company is to be treated and the consequences flowing therefrom.

In this context, the provisions of sections 38 (2) and Division 5 of Part III of the Act relate only to bearer shares that are not the subject of transition; they cannot be read to override the transitional provisions relative to bearer shares in a grandfathered bearer share company. To read this subject differently would be negating the purpose and effect of the transitional provisions and the whole purpose and intent of a transitional provision in an enactment.

The Act provides a clear solution under paragraph 35(4) of Division 5 of Part IV of Schedule 2 (Schedule 2). The company or a person interested in the bearer share may apply to the Court to extend the transition date. The Court hearing the application may extend the transition date by such further period or periods not exceeding one year in total as it considers fit.

The option of converting or exchanging an existing bearer share of a grandfathered bearer share company to a registered share expired on the transition date. After the transition date the existing bearer shares became disabled and the rights attaching to them were extinguished. In the circumstances, a disabled bearer share may not be exchanged for or converted to a registered share.

Depositing a disabled bearer share in a grandfathered bearer share company with a custodian would not cure the disability. The available mechanism for doing so lies in paragraph 35(4) of Schedule 2 under which an application may be made to the Court for an extension of time to deposit shares with a custodian or to exchange them for or convert them to registered shares.

The Act does not prevent a grandfathered bearer share company whose memorandum was amended by operation of law under paragraph 34A(1) of Schedule 2 from amending its memorandum to allow for the issue of bearer shares and the conversion/exchange of bearer shares to registered shares. The provisions of section 13 of the Act would apply and the relevant application form is R204. The amendment would not, however, relate to the disabled bearer shares but to the issue of prospective bearer shares and the conversion/exchange of same to/for registered shares.

The amendment would NOT serve to revive any entitlements that were extinguished when the bearer shares were disabled. This would require an application to the Court for an extension of time to deposit the shares with a custodian or to convert the shares to registered shares. The amendment would relate to the issue of prospective bearer shares and the conversion/exchange of same to/for bearer shares.

This is not a requirement under the financial services legislation. However best practice requires that such a list should be maintained. The Commission may monitor compliance with the Act in the course of a compliance inspection or by a review of the prudential returns that are submitted by licensees.

Under paragraph 37 of Schedule 2, the Commission may apply to the Court for the appointment of a liquidator under the Insolvency Act where a company has not deposited its shares with a custodian after the transition date.

The bearer shares, by the operation of paragraph 35(5) of Schedule 2, would not be disabled by virtue of the fact that they were lodged with a custodian before the transition date. However, the company would not be able to issue bearer shares in the future or to convert/exchange bearer shares to/for registered shares without amending its memorandum to allow it to do so.

Under paragraph 10 of Schedule 8 to SIBA, all existing professional funds are deemed to be recognised under section 55. Existing professional funds must therefore satisfy the criteria for such recognition, including the requirements of section 55(2)(c) that their constitutional documents should specify that i) the fund interest of the fund shall be issued only to professional investors; and ii) the initial investment of each investor in the fund, other than exempted investors, shall be not less that $100,000 (as prescribed in the Mutual Funds Regulations). In order to comply with this requirement, existing professional funds should amend their constitutional documents and provide evidence of same to the Commission before the second transition date of 12 October 2010.

However, as a matter of policy, where the Commission has granted approval under the BVI Business Companies Act, 2004, to an existing fund to voluntarily liquidate or where a liquidator has been appointed under the Insolvency Act, 2003, the fund would not be required to amend its constitutional documents to comply with section 55(2)(c).

In addition, where an existing fund is closed to new investors, or is otherwise winding down its business, it need not immediately amend its constitutional documents to comply with the requirement. However, the fund would be required to provide written confirmation to the Commission from its directors (supported by a board resolution) that it is closed to new investors or is winding down its business. Where the fund subsequently proposes to make an offer to new or existing investors it must, prior to the offering, amend its constitutional documents to comply with the requirements of section 55(2)(c)and file a copy of same with the Commission.

Where the offering document of an existing private or professional fund does not contain an investment warning, the offering document must be amended to include same before the fund makes an offer or invitation to an investor or potential investor to purchase or subscribe for shares. This requirement is prescribed by Regulation 9 and takes effect on the first transition date of 3 August 2010.

The investment warning should be included in a prominent place in the fund’s offering document. Where no offering document is issued the investment warning should be provided to each investor as a separate document. The requirement to issue an investment warning is therefore a prerequisite to the making of an offer or invitation to purchase or subscribe for shares.

Existing funds that are not making an offer or invitation need not amend their offering documents unless and until they make an offer or invitation to investors or potential investors.

An existing private or professional fund that has not issued an offering document is required to provide investors and potential investors with an investment warning in all cases where an offer or invitation to purchase or subscribe for shares is made. In relation to existing investors an investment warning is required only where the fund continues to offer them its shares for purchase or subscription. The investment warning should be provided to each investor as a separate document.

Yes. All private and professional funds, including existing funds, are required to have a custodian and fund manager at all times, unless they are exempted from this requirement by the Commission. Where an existing private or professional fund has not appointed a custodian or a fund manager it should take steps to do so before the first transition date of August 3, 2010, or apply to the Commission for an exemption.

As regards the application process for exemptions, a single application may be made by or on behalf of two or more funds stating the names of the funds for which the exemption is sought and the reasons for the exemption.

Yes. Under Regulation 10(1) and (4) all private and professional funds, including existing funds, are required to prepare and provide a copy of their audited financial statements to the Commission within six months after the financial year end, unless they have been exempted from the requirement under Regulation 10(2). Existing funds are not required to prepare or submit financial statements in respect of the current financial year where the financial year began before, and ends after, the commencement date (May 17, 2010). However, audited financial statements would be required in respect of the subsequent financial year.