Walkers is interested to note that businesses have been increasingly taking advantage of the statutory provisions relating to mergers in the British Virgin Islands ("BVI"). These provisions are set out in the BVI Business Companies Act, 2004 (as amended) (the "BCA"). The merger provisions in the BCA are proving popular given that they afford a simple, relatively quick and low cost way of merging companies that does not require the involvement of the courts. This article seeks to summarise the statutory merger process under the BCA and highlights some of the key points that clients should keep in mind when embarking on the merger process.

The key steps involved in effecting a merger under the BCA are explained below.

EFFECTING A MERGER - KEY STEPS

Plan of Merger

The directors of each company that proposes to participate in a merger (a "Constituent Company") must approve a written Plan of Merger (the "Plan"). The Plan is required to contain the following information:

  1. the name of each Constituent Company and the name of the company that will be the surviving company in the merger (the "Surviving Company");
  2. with respect to each Constituent Company:

    1. the designation and number of outstanding shares of each class of shares, specifying each such class entitled to vote on the merger; and
    2. a specification of each such class, if any, entitled to vote as a class;
  3. the terms and conditions of the proposed merger, including the manner and basis of cancelling, reclassifying, or converting shares in each Constituent Company into shares, debt obligations or other securities in the Surviving Company, or money or other assets, or a combination thereof; and
  4. a statement of any amendment to the memorandum or articles of the Surviving Company to be brought about by the merger.

Some or all shares of the same class of shares in each Constituent Company may be converted into a particular or mixed kind of assets and other shares of the class, or all shares of other classes of shares, may be converted into other assets.

Process and Documentation

The Plan must be authorised by a resolution of members and the outstanding shares of every class of shares that are entitled to vote on the merger as a class if the memorandum or articles so provide or if the Plan contains any provisions that, if contained in a proposed amendment to the memorandum or articles, would entitle the class to vote on the proposed amendment as a class.

If (for the purposes of the above-referred resolution of members) a meeting of members is to be held, notice of the meeting, accompanied by a copy of the Plan, is to be given to each member, whether or not entitled to vote on the merger. If (for the purposes of the above-referred resolution of members) it is proposed to obtain the written consent of members, a copy of the Plan is to be given to each member whether or not entitled to consent to the Plan.

Filings with the Public Registry and Registration Fees

After approval of the Plan by the directors and members of each Constituent Company, Articles of Merger (the "Articles") must be executed by each Constituent Company.

The Articles must contain:

  1. the Plan;
  2. the date on which the memorandum and articles of each Constituent Company were registered by the Registrar of Corporate Affairs (the "Registrar"); and
  3. the manner in which the merger was authorised with respect to each Constituent Company.

The following are then filed with the Registrar:

  1. the Articles; and
  2. any resolution to amend the memorandum and articles of the Surviving Company.

The Registrar has to generally satisfy himself that the requirements of the BCA in respect of the merger have been complied with, including that the name of the Surviving Company complies with any statutory restrictions under the BCA.

Upon satisfying himself that the BCA has been complied with, the Registrar will register the following:

  1. the Articles; and
  2. any amendment to the memorandum or articles of the Surviving Company.

The Registrar will thereafter issue a Certificate of Merger. A Certificate of Merger is conclusive evidence of compliance with all the requirements of the BCA in respect of the merger.

Effect of Merger

The merger is effective on the date of registration of the Articles (or some other date, not later than 30 days thereafter, as may be stated in the Articles).

As soon as the merger becomes effective, the Act provides for several consequential effects that flow from the merger. These include provisions to the effect that:

  1. assets of every description, including choses in action and the business of each of the constituent companies, immediately vests in the Surviving Company; and
  2. the Surviving Company is liable for all claims, debts, liabilities and obligations of each of the constituent companies.

Striking Off

The Registrar strikes off the register of companies a Constituent Company that is not the Surviving Company in the merger.

Merger with a Subsidiary

A parent company may merge with one or more subsidiary companies without authorisation from the members of any company if the procedure set out in the BCA is complied with.

Procedures similar to those set out above are followed, with small variations where necessary to suit as follows.

Only the directors of the parent company are to approve the Plan. The Plan contains all the items listed above for an ordinary merger, except that paragraph 2 under "Plan of Merger", above, is modified so that the following is included with respect to each Constituent Company:

  1. the designation and number of outstanding shares of each class of shares; and
  2. the number of shares of each class of shares in each subsidiary company owned by the parent company.

Some or all shares of the same class of shares in each company to be merged may be converted into assets of a particular or mixed kind and other shares of the class, or all shares of other classes of shares, may be converted into other assets; but, if the parent company is not the Surviving Company, shares of each class of shares in the parent company may only be converted into similar shares of the Surviving Company.

A copy of the Plan or an outline thereof is to be given to every member of each subsidiary company to be merged unless the giving of that copy or outline has been waived by that member.

Articles are to be executed by the parent company only and are similar to the Articles of Merger described above. If the parent company does not own all the shares in each subsidiary company to be merged, the Articles must include the date on which a copy of the Plan or outline was made available to, or waived by, the members of each subsidiary company to be merged.

Filings with the Registrar are as set out above.

Merger with a Foreign Company

One or more BVI companies may merge with one or more foreign companies, provided the merger is permitted by the laws of the jurisdictions in which the foreign company or companies are incorporated.

Procedures similar to those set out above are followed, with small variations where necessary to suit as follows.

The BVI company must comply with the provisions of the BCA with respect to the merger, and the foreign company must comply with the laws of its home jurisdiction.

If the Surviving Company to the merger is a foreign company, it must file with the Registrar, in addition to the documents listed above, the following:

  1. an agreement that a service of process may be effected on it in the British Virgin Islands in respect of proceedings for the enforcement of any claim, debt, liability or obligation of a Constituent Company that is a BVI company, or in respect of proceedings, against the Surviving Company, for the enforcement of the rights of a dissenting member of a Constituent Company that is a BVI company;
  2. an irrevocable appointment of its registered agent as its agent to accept service of process in proceedings referred to in 1 above;
  3. an agreement that it will promptly pay to the dissenting members of a Constituent Company that is a BVI company, the amount, if any, to which they are entitled under the BCA with respect to the rights of dissenting members; and
  4. a certificate of merger issued by the appropriate authority of the foreign jurisdiction where the Surviving Company to the merger is incorporated, or, if no such certificate is issued, such other evidence of the merger as the Registrar considers acceptable.

If the Surviving Company is a BVI company, the merger is effective on the date of registration of the Articles (or some other date, not later than 30 days thereafter, as may be stated in the Articles). However, if the Surviving Company is a foreign company, the merger is effective as provided by the laws of that other jurisdiction.

In the case of a merger where the Surviving Company is a foreign company, the effects of the merger under the BCA as described above are applicable except in so far as the laws of the jurisdiction under which that foreign company is incorporated otherwise provide.

CONCLUSION

The increasing popularity of the BVI statutory merger regime is characteristic of a jurisdiction whose corporate laws are permissive, flexible and user-friendly. Walkers expects that the merger provisions in the BCA will continue to prove popular given they afford a simple, relatively quick and low cost way of merging companies that does not require the involvement of the courts.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.