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International Business Companies (Amendment) Act 2003As far back as June 2000, the British Virgin Islands Chief Minister informed industry practitioners of the government’s intention to amend the IBC Act (International Business Companies Ordinance – Cap. 291) to restrict the mobility of Bearer Shares. The new law is designed to face current international pressure to make companies more transparent. This responds to the OECD and FATF criticisms that offshore financial centres are tax havens that offer illegal shelter to tax dodgers and those with dirty drug money to launder. We consider that it is imperative to accept regulation that permits reasonable transparency for law enforcement purposes, insofar as this regulation respects and protects legitimate privacy, in order to remain a legitimate financial centre. In November 2002, the Financial Services Commission issued an Aide Memoire to advise industry practitioners and other interested stakeholders of the principles, contents and purpose of the proposed bill to restrict bearer share mobility. Immobilisation was chosen over abolishment of bearer shares (done in the Bahamas) as it is seen as an effective way of keeping bearer shares while ensuring that Beneficial Ownership of an entity is known. The Aide Memoire presented by the Financial Services Commission states that: “This debate has culminated in a general understanding that the issuance of BVI related bearer shares should be controlled as part of the BVI’s overall risk and reputation management strategy, and that the BVI authorities should embrace within their regulatory regime the control of bearer shares.” During a consulting period with the industry, strong opposition was presented to the proposed bill, based substantially on the Bahamas experience, which demonstrated a steep loss of business upon abolishing bearer shares. The aim of the BVI Financial Services Commission is to do things correctly from the outset, to provide clients and practitioners with certainty and reliability, in a way that takes into shareholder interests and concerns. Immobilisation of bearer shares means that wherever and whenever bearer shares are issued, they must be held in custody of an approved custodian under special custodial arrangements specified by law. On the 17th of April, 2003, the British Virgin Islands Legislative Council passed the International Business Companies (Amendment) Act, 2003, which was signed by the Acting Governor on the 5th of May, 2003 BVI Bearer Shares and Custody of Bearer SharesThe term “bearer shares” was not previously defined in the IBC Act. The term is generally used to describe a negotiable share made out in the name of “the bearer” and not in the name of a particular person or organisation. The bearer share certificate confers ownership of the share on the person with physical possession of the certificate. These shares are transferred simply by handing the certificate to another person. Therefore, whoever has physical possession of the certificate can exercise the rights of a shareholder of the corporation. The IBC (Amendment) Act 2003 introduces a definition of bearer shares. “Bearer Share” means a share represented by a certificate which states that the bearer of the certificate is the owner of the share. Unlike registered shares, which are transferred by an instrument of transfer such as a stock power, the name of the holder is not registered in the books of the company. As such, bearer shares provide a high level of anonymity and flexibility, but because the ownership of the share is disguised, they also provide scope for abuse. Bearer shares may be used in ways that are of particular concern to law enforcement authorities and financial regulators. They are vulnerable to misuse by the ethically challenged. It is this concern that has resulted in calls from some quarters for bearer shares to be eradicated or at least converted to registered shares. The BVI authorities consider that eradication would be overkill and that elements of control can be introduced which will address the problem effectively. The IBC (Amendment) Act 2003 introduced to the 1984 Act sections 37B to 37O, which all deal with bearer share immobilisation. The Act now provides, principally, that Companies may continue to issue bearer shares, but that these must be placed in the safekeeping of an Authorised or Recognised Custodian. Existing companies which have authorised Bearer Shares in the Memorandum and Articles of Association will need to deposit the bearer shares with a Custodian or exchange the bearer shares for Registered Shares and modify the Memorandum and Articles of Association so that bearer shares are no longer allowed. At the moment, these actions will need to be taken by December 31, 2004, otherwise the bearer shares will be deemed “disabled”, meaning that the share is no longer entitled to vote, receive dividends or obtain a share of the assets on winding up or liquidation of the company. The Financial Services Commission can also apply for the winding up of a company which does not comply with the new bearer share rules. To date, the Financial Services Commission (FSC) has not issued the regulations establishing the requirements for Authorised or Recognised Custodians. The Financial Services Act must first be amended to cater for the Custodianship requirements. A bill to amend the FSC Act is expected in the BVI legislature shortly. Authorised Custodians: It is probable that BVI Trust Companies and Banks will be licensed as Authorised Custodians. Shirley Trust Company Limited will be applying for a license from the Financial Services Commission, as soon as the requirements are known. It will also be possible for a financial institution to apply to become a “Authorised Custodian”, where the institution can show that it is subject to recognised customer due diligence obligations and principles. These financial institutions must satisfy the FSC that necessary and sufficient safeguards are in place for the safekeeping of the bearer shares. It is likely that the requirements for becoming an Authorised Custodian will be reasonably onerous and may demand insurance and audit measures, in addition to special security measures. Recognised Custodians are likely to consist of investment or securities clearing organisations specialised in the custody business, and who are specially designated by the FSC as “Recognised Custodians”. They will automatically be recognised, and the list is likely to include custodians in the UK, Europe, the United States of America and Hong Kong. This schedule of recognised custodians will be included in the bill. If shares are held in the custody of an Authorised or Recognised Custodian, then the owner of the Bearer Shares must provide the Custodian with the following information: a) the full name of the beneficial owner of the shares; b) the full name of any other person having an interest in the share(s) – or a declaration to the effect that no other person has an interest in the share(s). c) any other information which the FSC may prescribe in the regulations, when adopted. If the required information does not accompany the shares, the authorised or recognised custodian is required to refuse the shares. If the shares are delivered to a Recognised Custodian in another jurisdiction, the Registered Agent of the Company must receive, within 14 days, the prescribed form (not yet introduced) with proof of delivery to the Recognised Custodian and a notice containing the information required. Transfer of Bearer Shares:As mentioned before, an owner of bearer shares need simply deliver the bearer share certificate to another person in order to transfer ownership. Under the IBC (Amendment) Act 2003 and the custody arrangements introduced, where a client has bearer shares and wishes to sell these shares, the Authorised Custodian may deliver the bearer share certificates only to another Authorised/Recognised Custodian who has agreed to hold the certificates. In any case the Registered Agent of the company will have to be notified every time possession of the bearer share certificate is transferred to another Authorised Custodian. In the case of Recognised Custodians, the certificates would need to be sent back to the Registered Agent or to the company who would then forward the shares to the new Recognised Custodian. Financial Costs:A significant financial burden which the new legislation introduces is an increase in the government incorporation and the annual license fees for a company which has the right to issue bearer shares. These fees will be US$1,000.00, rather than the existing $300.00. A Company which wishes to avoid paying the higher fees for the right to issue bearer shares must include in its Memorandum and Articles of Association a prohibition against the issuance of bearer shares – or simply authorise only the issuance of Registered Shares. It is most probable that existing companies will need to modify their Memorandum and Articles of Association, in order to avoid this increased government fee for incorporation and annual license fees. Our response:Our policy at Shirley Trust Company Limited is to incorporate all new companies with Registered Shares only, to avoid any future costs when the new regime comes into force. These costs include: a) a change to the Memorandum and Articles of Association to prohibit bearer shares, and b) a cost of $1,000.00 in government fees for allowing the issuance of bearer shares. Other Important Amendments: DirectorsThe second most important amendment introduced by the International Business Companies (Amendment) Act 2003, is the requirement to maintain at the Registered Office of the company the Register of Directors. The information which is set forth in the Register of Directors is the following: a) Name of the Director; b) Address (that is, the contact information for the Director – how to contact them); c) Date Appointed; and d) Date Removed/Resigned. Until this amendment was introduced, it was optional to maintain this register, although as general practice, Shirley Trust Company Limited maintained such a register for all companies. This Register of Directors will NOT be available to the public nor will it be filed at the Companies Registry or any other governmental office. The information on directors will remain subject to the strict confidentiality safeguards which the law has in place. The original proposal presented in 2000 was for the register to be kept at the Companies Registry, but thankfully this was discarded. The change to Registered Office accommodates the industry’s concerns that this information should not be readily accessible to the general public. The information, when maintained by the Registered Agent, will only be accessible by BVI law enforcement and regulatory officials in the exercise of compulsory powers under relevant legislation or by court order. You will hopefully be aware that, under compulsory powers legislation, the requesting party must satisfy threshold criteria before the BVI Authorities seek discovery under the relevant Act, and that the BVI Authorities meticulously and scrupulously screen all requests for fishing expeditions. This facilitates only genuine requests with legitimate grounds. This 2003 amendment also imposes on the Registered Agent (Shirley Trust Company Limited) the obligation of appointing a director within 30 days of incorporation. The purpose of this requirement is to eliminate any practice which service providers may have had of leaving shelf companies without directors for many years. It also ensures that the company records are maintained up to date. The purpose for Shirley Trust Company Limited maintaining the register of directors is two-fold:
Special Panel & ReviewOn August 29, 2003, a special panel was appointed by the FSC to recommend the way forward for the new regulatory regime. The main recommendations made by the panel are welcomed by practitioners, which is a proposal for a 7-year transition period for the full effect of the bearer shares legislation (rather than the full effect being December 31, 2004). For the first four years, the situation would remain pretty much the same as its current situation. In the following three years, those companies which retain the power to issue bearer shares would pay a small increase in their license fee. Alternatives to Bearer SharesWe are very aware that your privacy and confidentiality is important to you. A number of alternative ownership structures exist for shareholders owning bearer shares. You may consider:
Prepared by Beth Anne Gray, LL.B. (Hons.) |
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