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One of the most significant pieces of legislation to shape the global offshore finance sector will reach its 30th anniversary this summer. The British Virgin Islands’ (BVI) landmark International Business Companies (IBC) Act, assented to in July 1984 and passed into law on 15 August 1984, gave rise to the BVI’s finance industry and created a successful model which was emulated in other jurisdictions.
The IBC Act was developed by three Harney Westwood & Riegels (Harneys) partners – Michael Riegels, Neville Westwood and Richard Peters -- along with then-BVI Attorney General Lewis Hunte and Paul Butler, a Wall Street lawyer from Shearman & Sterling.
To mark the anniversary, Harneys has produced a microsite that includes a 5-minute video featuring interviews with some of the Act's authors about its inception and impact. The microsite showcases a range of recollections and articles about the Act, and profiles of its authors.
The IBC Act was born after the United States cancelled its double taxation treaty with the BVI and other Caribbean nations in 1982. Mr Butler suggested to his Harneys colleagues that the best way to respond was to offer a tax-neutral company that could provide a user friendly, flexible corporate vehicle for multiple commercial purposes. The so-called “Gang of Five” mentioned above was tasked with developing legislation to create this new corporate product.The bulk of the work was done by Mr Peters, a tax barrister from London who was new to Harneys at the time, but later became the firm’s global managing partner for 21 years.
The draft was written, and reviewed with Mr Hunte in the Attorney General’s Chambers, to work it into suitable BVI legislative format. It was based on Delaware corporation law but incorporated additions from innovative company legislation elsewhere. The IBC Act was radical at the time – it streamlined the incorporation procedure, removed the requirement of corporate capacity, abolished the need for corporate benefit, recognised that companies could exist without members and permitted companies to provide financial assistance for the acquisition of their own shares. It provided for true statutory mergers and created new statutory tools for restructuring and reorganisation. (Most of these innovations would not appear in English company law until the Companies Act 1986, and some did not appear until the Companies Act 2006.)
“While Harneys is now an international firm with seven global offices, our heritage is in the BVI,” says Peter Tarn,Chairman of Harneys’ Executive Committee. “Our partners have played a key role in developing BVI commercial legislation for more than fifty years and this continues today. The IBC Act was ahead of its time in 1984, and its influence remains in the BVI and beyond.”
The IBC Act generated a booming finance industry and unimagined prosperity for the BVI. Incorporation numbers exploded in the decade following its enactment, with nearly 50 per cent growth year-on-year. Infrastructure was upgraded and construction flourished as new business arrived. In 1999, KPMG estimated that the BVI had amassed a 41 percent global market share for offshore vehicles. By 2004 the BVI would have the 12th highest GDP per head of population in the world.
The IBC Act was eventually repealed in 2006 and replaced by new legislation. In the meantime however, its core components had been copied (often verbatim) by other jurisdictions seeking to build finance industries. In 1990, the Bahamas and Belize created IBC legislation.The Bahamas today boasts one of the richest economies in the Americas in terms of GDP per capita, with financial services accounting for approximately 15 per cent of its GDP. The IBC Act was copied by Anguilla in 1994. Today, Anguilla’s economy relies on offshore incorporation and management, offshore banking and captive insurance alongside tourism. The BVI model was also followed in St Kitts, St Lucia and St Vincent and the Grenadines.