1 Relevant Authorities and Legislation
1.1 What regulates M&A?
M&A activity involving a British Virgin Islands company is principally regulated under Part IX of the BVI Business Companies Act, 2004 (as amended, the "Act").
The key sections of the Act contain rules relating to:
- mergers and consolidations (whether between BVI companies or between BVI companies and foreign companies);
- "squeeze-out" of minority shareholders;
- plans of arrangement and schemes of arrangement; and
- rights of dissenting shareholders.
1.2 Are there different rules for different types of company?
The Act generally applies to all BVI companies involved in M&A activity, whether private or public.
The BVI does not have its own stock exchange or any takeover code or rules applicable to public companies. However, BVI companies are listed on major exchanges, such as the New York Stock Exchange and the London Stock Exchange, and the rules of any relevant exchange would need to be considered.
1.3 Are there special rules for foreign buyers?
BVI companies are designed for use in international transactions and there are no foreign exchange controls or foreign exchange regulations under BVI law. There are generally no restrictions on a foreign buyer acquiring an interest in a BVI company. However, a foreign buyer acquiring real estate in the BVI or engaging in business in the BVI itself would have to obtain the appropriate local licences.
1.4 Are there any special sector-related rules?
Special rules may apply to BVI companies regulated under specific financial services legislation, such as the Securities and Investment Business Act, Banks and Trust Companies Act and Insurance Act. This may include entities such as banks, insurers, trust companies and those engaging in investment business. Typically, a change of control in a regulated entity requires the approval of the Financial Services Commission in the BVI.
1.5 What are the principal sources of liability?
Directors of BVI companies are subject to directors' duties under the Act and at common law and in equity. The principal duties of a director of a BVI company include:
- to act honestly and in good faith and in what the director believes to be the best interests of the company; and
- to exercise his or her powers as a director for a proper purpose.
The Act allows a company's constitutional documents to modify these duties to permit a director to act in the best interests of the company's parent or a shareholder in some circumstances, including where it is a wholly owned subsidiary and where it is carrying out a joint venture.
A director may be indemnified by a BVI company from liability, but only where the director acted honestly and in good faith and in what he or she believed to be in the best interests of the company (and, in the case of criminal proceedings, the person had no reasonable cause to believe that his or her conduct was unlawful).
Aside from a limited ability for a shareholder to bring a derivative claim against a director in the name of the company, generally only a company itself may claim against a director for breach of duty.
2 Mechanics of Acquisition
2.1 What alternative means of acquisition are there?
There are four principal takeover structures available in relation to a listed BVI company:
- a statutory merger or consolidation pursuant to sections 169–174 of the Act (a "Merger");
- a plan of arrangement under section 177 of the Act (a "Plan");
- a scheme of arrangement under section 179A of the Act (a "Scheme"); and
- a takeover/tender offer to shareholders of the target (a "Takeover Offer").
In addition to the above, it is also possible to enter into an asset sale/purchase transaction where the assets and business of the target are acquired by way of contractual arrangement.
Each of these methods could be used to acquire the target for cash or in exchange for an offer of securities, or a combination of both forms of consideration.
Only a Takeover Offer is generally available in the context of a hostile transaction.
The key advantages and disadvantages of each structure are discussed below.
Originally published by ICLG.
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