Pursuing a claim beyond the corporate grave
Abandoned offshore companies can harbor assets or claims worth many millions of dollars. This article takes a detailed look at how these companies can be brought back from the dead and their value realised.
A problem that often arises in offshore practice is the need to take action against, or in the name of, a company that has been struck off or dissolved. Investors encounter this problem when management has been delinquent in maintaining the company in good standing. Bankruptcy trustees – particularly those taking over a company that has been mismanaged or whose affairs have been dormant for a long time – may also find that their estate includes shares in an offshore company which has not been properly maintained.
Strike off means that the company’s name has been struck off the register of companies maintained by the registrar of companies in the relevant jurisdiction, typically because it has not paid its annual fees. Dissolution brings the company’s legal personality to an end, and vests its property in third-party liquidators or the Government. Dissolution can take place either as a result of the company being struck off, or following its liquidation.
The fact of strike off or dissolution complicates matters, but a number of options are still available to creditors and shareholders of BVI, Bermuda and Cayman companies that have been struck off or dissolved, including applying to have the company restored to good standing, or applying for an assignment of any assets vested in the Government.
Companies that are struck off but not dissolved (BVI only)
In BVI, when a company is struck off, it is not deemed to be dissolved. Rather, it remains in existence, albeit not in good standing and subject to a number of legal restrictions, for a period of seven years. Only after seven years of being struck off will the company be dissolved. This is significant as it means that during the first seven years of being struck off, the company continues to exist and own its property, and is capable of being sued.
Section 215 of the BVI Business Companies Act provides that:
- A company that has been struck off may not bring or defend legal proceedings; but
- Striking off does not prevent a creditor from “making a claim against the company and pursuing the claim through to judgement or execution”.
The position is different in Bermuda and Cayman where, when a company is struck off, it is simultaneously dissolved.
Restoration after strike off
A creditor or shareholder may, in certain circumstances, apply to restore a struck off company or unwind a dissolution. If such application is successful, the company will be restored to the register of companies and will be deemed to have continued in existence as if it had not been struck off or dissolved. Its legal personality will be restored and any property that was vested in liquidators or the Government will vest back in the company.
Restoration is a relatively straight-forward and cost effective statutory process by which a creditor or shareholder that feels aggrieved by the fact a company has been struck off can apply to have the company restored. In BVI, the application is made to the Registrar of Companies. In Cayman and Bermuda, it is made to the Court (but the applicant must first obtain consent from the Registrar of Companies). An application will invariably require payment of all outstanding fees and penalties. There must be a registered office or registered agent willing to act, and in some instances, the applicant may be required to apply for a winding-up order and the appointment of liquidators at the same time.
Restoration applications must be brought within strict limitation periods. Bermuda and BVI are the most generous: Bermuda allows a company to be restored up to 20 years after it was struck off. BVI, as discussed below, allows a company to be restored up to 10 years from the date of dissolution (which in itself is seven years from the date of strike off). Cayman is more restrictive as it only allows a company to be restored up to 10 years after it was struck off, and requires Cabinet approval (which is typically granted) if it has been struck off for more than two years.
Restoration after dissolution/unwinding of dissolution
In BVI, a company that has been dissolved (whether following liquidation or as a consequence of being struck off for seven years) can be restored by order of the Court within 10 years from the date of dissolution, meaning that it is possible to restore a company up to 17 years after it is first struck off.
Bermuda companies that have been dissolved following liquidation can only be restored by applying to the Court to have the dissolution declared void. An application to void a dissolution is typically more onerous than a restoration application and must be brought within shorter limitation periods: 10 years for dissolution following a members’ voluntary liquidation; five years for dissolution following any other form of liquidation.
The Cayman Companies Act does not provide a statutory basis to void a dissolution.
Comparative table: Restoration provisions in Cayman, BVI and Bermuda
Dissolution following strike off
Time limit for restoration (from date of strike off)
10 years (Cabinet consent required after two years)
Time limit for application to void dissolution/restore, following liquidation
10 years following dissolution
10 years following members’ voluntary liquidation
Five years for dissolution after any other form of liquidation
Assignment of bona vacantia assets
When a company is dissolved, any property that it owns at the time of dissolution either vests automatically in the Government as bona vacantia (ownerless property) or, in the case of a Cayman company that is dissolved following liquidation, is held on trust by the company’s liquidators for one year before vesting in the Government.
Bermuda and Cayman have statutory procedures by which persons claiming an interest in such property can apply to the Government (or the liquidators if within the one-year period in Cayman) to take an assignment of those assets. If the application is approved, the assignment will operate as a valid transfer of legal ownership of the property to the creditor.
There is no statutory provision for an assignment of bona vacantia property in BVI, but the ability to restore a company up to 10 years after dissolution (regardless of reason) will provide a solution to the problem in most cases.
Assignment applications are generally more complicated and less certain than restoration applications, and, for that reason, tend to be less common. They are however a welcome addition to the creditor’s arsenal and can be an effective tool in the appropriate circumstances.
This article was original published by LexLatin.