Due to ongoing amendments in the international legal framework and tightening regulations worldwide, there is a progressive demand for the companies to strictly adhere to all legislative requirements and follow all corporate governance procedures in a proper manner.
It is important to note that the companies must not only fulfil their statutory obligations during their lifetime but also cease their activities in a proper manner in case they are no longer needed. The requirement applies to all jurisdictions but for the purposes of this letter, reference is made to the companies incorporated and existing under the laws of the British Virgin Islands (BVI).
In the past, the common practice for BVI companies, which were no longer required for the business purposes, was to be left to automatically strike off the Register of Companies through the non-payment of the annual registry fee. As a result such companies are legally restricted from conducting any affairs, they are not considered as dissolved and can be re-instated at any time within a seven year period. During this seven year period, such company continues to have certain reporting obligations, its shareholders and directors continue to be exposed for non-compliance as well as to various inherent risks (e.g. claims by creditors, third parties, foreign authorities or even the BVI authorities).
Moreover, due to the recent introduction of the BVI Economic Substance Law, even the BVI companies that are undergoing the strike-off method and do not conduct any business activities nor generating any income, are obliged to make a relevant reporting under the economic substance regime on an annual basis. Failure to do so could still bring significant penalties.
It is therefore obligatory that BVI companies that are no longer needed, to be closed by proper way, meaning by way of a members’ voluntary liquidation as opposed to the strike-off method.
For the companies undergoing the strike-off method, it is highly advisable to be restored and proceed with proper closure by way of voluntary liquidation which is, in most cases, relatively easy and straightforward procedure, resulting in a proper and formal closure by obtaining the relevant Certificate of Dissolution. Once officially dissolved, the company no longer has any reporting obligations, does not incur liabilities, and is not exposed to the risks of being sued.
The chances for the reinstatement of the properly dissolved company are very rare and limited.