COVID 19 and restrictions on physical meetings – how will it affect my business through a BVI company?
As we all adapt to the significant changes to our daily lives prompted by the international efforts to tackle the COVID-19 pandemic, businesses, including BVI companies, are adapting to new ways of working. Entire industries have rapidly imposed “working from home” policies and, at least in the immediate future, it is becoming clear that international travel will remain greatly restricted, and physical meetings (if they take place at all) will be limited accordingly.
Fortunately, most BVI companies will be able to continue to transact as normal, even as holding physical meetings of their board or shareholders becomes almost impossible in the current climate. The BVI has one of the most flexible corporate law regimes in the world and offers a number of alternatives to physical meetings. The BVI has also led the way in embracing technological solutions, including electronic signatures.
Under the BVI Business Companies Act 2004, there is no requirement for board meetings to take place in the BVI. The statutory position, which is repeated in the constitutional documents of most BVI companies (the memorandum and articles of association or Mem & Arts), is that the board may meet “at such times and in such manner and at such places within or outside the BVI as they may determine to be necessary or desirable”.
There is no requirement for board members to be in the same physical location; meetings by telephone or other electronic means (such as video conference) are acceptable, provided that all of the directors participating in the meeting can hear each other clearly. When holding a meeting remotely, it is good practice to have each attendee confirm at the end of the meeting that they could hear throughout and to have this noted in the minutes.
Similarly, shareholder meetings may generally be convened within or outside the BVI, at a time and place deemed appropriate by the person convening the meeting. Again, the default position is that if a meeting needs to be held it can be held by electronic means; a specific provision to allow this is not needed.
There is no requirement under BVI law for a Company to hold annual general meetings, and there are fewer matters requiring shareholder approval than many jurisdictions.
Resolutions of directors and shareholders
Unless there are any specific provisions to the contrary in a company’s Mem & Arts, any decision that could be taken at a meeting of directors or a meeting of shareholders may be taken by way of written resolutions of the directors or shareholders. This option also allows flexibility to pass decisions without observing requirements for notice periods that may be required when convening a meeting of the board or the shareholders.
It is worth noting that the requirements for passing board and shareholder resolutions in the BVI are lower than many other jurisdictions – there is no requirement for unanimity, and the default at both board and shareholder level is simple majority.
While such resolutions are required to be signed by the relevant majority, there is no issue with them being signed in counterpart (ie each signatory may sign a different copy, with the various signature pages then being collated to form a complete document). We have already seen in recent days signatories returning smartphone photos of signed pages. This allows for an efficient execution process, particularly where directors may be spread across the globe.
In addition to the flexible backdrop above, the BVI introduced legislation recognising and defining electronic signatures in 2001, well ahead of many other jurisdictions taking similar steps. The Business Companies Act generally permits the use of electronic signatures in both director and shareholder resolutions (provided that the use of the “e-signature” is consented to in writing or by other written communication, including email). It also permits the use of electronic signatures for the execution of most documents, although there are exceptions (including deeds).
Checking the Mem & Arts
While the above sets out the general position, it is important to bear in mind that due to the flexibility of BVI law the position can be significantly altered by the Mem & Arts. The majority of BVI companies will have ‘standard’ Mem & Arts that often just restate the statutory position, but care should always be taken to check for any bespoke provisions around meetings.
More restrictive provisions are particularly common with joint venture companies (which may well require unanimity, or supermajority, for certain decisions) and public companies (which sometimes require meetings, at least at shareholder level). There is no mechanism to temporarily "suspend" provisions in the Mem & Arts, but it should not be unduly difficult to amend the Mem & Arts if necessary.
Economic Substance and Tax
Some BVI companies will want to ensure that physical meetings are held in the BVI to ensure that the company is not considered to be tax resident in another jurisdiction. Equally, companies which undertake certain ‘relevant activities’ are required to ensure that decisions concerning those activities made in the BVI under The Economic Substance (Companies and Limited Partnerships) Act, 2018 (the Substance Rules).
The BVI International Tax Authority (the ITA) has issued recent guidance (summarised further in our recent client update here: https://www.harneys.com/insights/bvi-economic-substance-ita-issues-updates-regarding-compliance-and-reporting-following-covid-19-outbreak/), in which it emphasised that only board meetings relating to a BVI company’s “core income generating activities” are required to be physically held in the BVI, not all board meetings. The ITA also confirmed that, notwithstanding recent events, BVI companies are expected to comply with the Substance Rules, and suggested such measures as appointment of alternate directors based in the BVI to attend physical board meetings there for as long as regular travel is restricted. Finally, in the event that it is still not possible to have a board meeting in the BVI or to meet some other substance requirement due to restrictions (whether in the BVI or otherwise) resulting from the Covid-19 outbreak, then the ITA urges BVI entities to retain documentation evidencing this for the applicable periods of time affected. Specifically noting the reason for a meeting that should otherwise have been held in the BVI instead being held elsewhere (or electronically) in the minutes is strongly recommended in such a case to provide evidence of mitigation. It is to be hoped that in these extraordinary circumstances, global regulators or tax authorities will also take a reasonable view on these issues.
It is worth noting that Harneys Fiduciary offers directorship services and still has directors available within the BVI who can assist with ensuring that, even if a meeting is held electronically, a quorum of the board are physically present in the BVI, which will generally be sufficient for the purposes of the Substance Rules.
With the variety of options available above, we are confident that BVI companies are well placed to maintain “business as usual”, even in unusual times. We are already fielding numerous queries from clients on how they can adapt their business practices and transactions involving BVI companies are continuing despite the current circumstances. If you would like any advice on this topic please feel free to contact the authors or your usual Harneys contact.