Corporate Restructuring Involving BVI Companies

Over the last five years, the British Virgin Islands (BVI) has introduced new provisions that will be of particular interest to corporate groups worldwide that contain one or more of the hundreds of thousands of BVI companies in existence.

The BVI Business Companies Act 2004 (BCA) and Insolvency Act 2003 (IA) have strengthened the restructuring laws of the BVI by introducing new provisions in relation to schemes of arrangement and creditors' voluntary arrangements, as well as significantly improving existing legislation relating to mergers, squeeze-outs and capital restructurings.

This article will provide some restructuring options to consider and their potential benefits.

Mergers and Consolidations Mergers are where one of the merging companies survives, while consolidations are where the two constituent companies consolidate into a new company.

The BCA allows mergers and consolidations between two or more BVI companies and between BVI companies and foreign companies, the latter if the relevant foreign law permits. A merger between a parent and a subsidiary is also possible.

The provisions for effecting mergers and consolidations are very flexible. They allow shares to be cancelled, reclassified or converted into money or other assets, or into shares, debt obligations or other securities in the surviving company.

Usefully, shares of the same class can be treated differently; so, for example, some shareholders of one of the companies could receive shares in the surviving or consolidated company, while others holding shares of the same class could have their shares bought for cash. This enables dissenting or disaffected shareholders, or those who simply wish to exit as part of the restructuring, to easily sell their shares while retaining the shareholding structure for the continuing shareholders.

The position of creditors is not affected. The company that survives the merger, or the newly consolidated company, not only takes on the rights, powers, immunities and all the business and assets of all of the constituent companies, but also becomes liable for all of their debts and obligations including any judgment or cause of action against the constituent companies. Proceedings pending against the constituent companies at the time of the merger or consolidation are not discontinued, but may be enforced, prosecuted, settled or compromised by or against the surviving, or consolidated, company, and the surviving, or consolidated, company may be...

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