BVI - Reading the Writing
   

E

arly in 2003, the British Virgin Islands financial authorities announced the introduction of amendments to the international business companies legislation aimed at immobilization of bearer shares and maintenance of a register of directors for the BVI companies. The bearer share amendment would have required all BVI companies with bearer shares to convert these within two years into registered shares, or deposit them with qualified depositories in the BVI or outside the jurisdiction.

Companies that continued with bearer shares without immobilization even after the two-year grace period would be subject to compulsory share redemption or judicial liquidation in the BVI. Also, new companies incorporated in the BVI after the new enactment would not be permitted to issue any bearer shares except in the immobilized form. It was the view of most observers that the amendments would have assisted in reinforcing the reputation of the jurisdiction and would eventually lead to the extinction of the bearer share feature.

However, by November 2003, the Government of the BVI, appointed through the Financial Services Commission, a special panel to make recommendations with respect to the implementation of the amendments relating to bearer shares. No change has been proposed to the amendment pertaining to the maintenance of a register of directors for the BVI companies.

In what some may be consider as a volte face, the panel recommended that the current status of the IBC remains unchanged for the next four years. In addition, the punitive annual fees of US$1,000 applicable to companies retaining the power to issue bearer shares have been reduced by 50%. In summary the panel recommends as follows:

Transition Period for Bearer Shares

• A seven-year transition period before the new provisions regarding bearer shares takes full effect. The new Act calls for the immobilization of bearer shares, which will be held by an authorized or recognized custodian.



• For the first four years, the status of existing IBCs will remain unchanged. For the following three years, IBCs that still have the power to issue bearer shares will pay a small increase in their annual license fee, which is expected to be US$500 instead of the US$1,000 originally proposed.

According to Mr. Robert Mathavious, Managing Director and/ CEO of the FSC,“The panel has dealt with this issue according to the BVI’s guiding principles of self-regulation, market discipline and official oversight. We also wanted to avoid undue burdens on the service providers, their clients and the Register. I believe that the recommendations are a sensible combination of balancing effective regulation with recognition of the commercial needs of the market”.

In the October issue of Pinnacle News, Nicholas John argues that ‘the bearer share concept has died and that these attempts only increase the cost of using an IBC and amount to life support for a terminal case.’ John raised two relevant concerns concerning the approach proposed in respect of bearer shares. John’s disquiet was expressively phrased in interrogatives as follows:

1. what is the point of bearer shares if they have to be held by a custodian, who has to know the beneficial owner(s)?


2. is the custodian not the owner?

It is challenging to escape the inference that the change of strategy by the BVI authorities appears to have emerged principally out of concern for loss of market share for IBC’s. The new approach seems certain to create uncertainty in the minds of existing and potential users of the BVI IBC, particularly when viewed against the questions raised by Nicholas John. In addition, the ‘life support’ provisions could only raise skepticism with pressure groups such as the FATF who may interpret such as obfuscation and lack of commitment on the part of BVI authorities to the OECD/FATF key principles.