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.
What is strike off?
Strike off is a procedure by which the Registrar removes the name of a company from the Register of Companies even though it has not been liquidated or dissolved. A company continues to exist after it has been struck off, but it becomes incapacitated and, subject to limited exceptions, is unable to deal with its assets. It will not be dissolved until it has been struck off for a continuous period of seven years.
As you are aware, all BVI companies must pay an annual licence fee to the Registry to remain in good standing. If this fee is not paid on time, penalties will be applied and, if the fee plus penalties remain outstanding for a period of five months, the Registrar will strike the company off the Register. In the past, the common practice for BVI companies was to be left to automatically strike off the Register through the non-payment of the annual registry fee. Whilst strike off may be used as an alternative to voluntary liquidation, this option comes with certain risks.
What is liquidation?
Liquidation is the formal closing of a company when it has fulfilled its purpose or is no longer required. Where a company is not a regulated entity and has no liabilities and is able to pay its debts as they come due, a voluntary winding up and dissolution may be commenced by a resolution of directors.
Liquidation creates greater certainty for the companies and its directors and members. When a company has been formally liquidated it ceases to exist, and the statutory duties and liabilities of the directors and members come to an end.
Why voluntary liquidation is preferable than the strike off method?
It is generally preferable for a company to be placed into voluntary liquidation and to have its affairs wound up in an orderly manner rather than allowing it to be struck off. The disadvantages associated with strike off are set out below:
- The company becomes incapacitated and is restricted by law from acting in any way in relation to its affairs unless it is restored.
- The company’s directors and shareholders remain responsible for any liability that existed before it was dissolved.
- The directors of a struck off company remain in office and must continue to fulfil their duties and can be held liable for the actions/inactions of the company.
- The company remains liable to pay, and continues to accrue, annual fees and penalties until it is dissolved.
- The company will not be dissolved until it has been struck off for a continuous period of seven years.
- The Economic Substance (“ES”) regime imposes ongoing annual obligations on all companies. 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 ES reporting on an annual basis for seven years, until they are dissolved. Failure to make the annual filing without reasonable excuse is an offence which could extend to the directors of the company. Potential penalties
are severe. Enforcement action would be taken through the Courts and a criminal burden of proof will apply. On the contrary, companies which have been voluntarily liquidated and dissolved have no such ongoing obligations.
It is therefore obligatory that BVI companies that are no longer needed to be closed by way of voluntary liquidation as opposed to the strike off method.
What would be the suggested actions for the struck-off companies?
For those companies which have been struck off, it is highly advisable to be restored and proceed with proper closure by way of voluntary liquidation, resulting in a proper and formal closure by obtaining the relevant Certificate of Dissolution. Once officially dissolved, the companies no longer have any reporting obligations, do not incur liabilities, and are not exposed to the risks of being sued.
How can Sertus assist if the strike off route is still preferred?
Should you still prefer the strike off route, there are two further steps with which Sertus can assist:
- Voluntary strike off: It can only be initiated if the company remains in good standing. The directors of company who do not wish to go to the expense of a formal liquidation may wish to apply to the Registry for voluntary strike off. Sertus can assist with the preparation and filing of the required documents.
- ES reporting for struck off entities: Sertus can facilitate the annual ES nil-reporting until it is dissolved.
How can Sertus assist with liquidation?
Should you wish to proceed with liquidation, Sertus can provide you with the details and requirements, prepare the liquidation documents (including local adverts in the newspaper if applicable) and file all required documents with the Registry, to effect and finalise the liquidation.
If you have any questions regarding the above, please feel free to contact your Sertus Client Services Representative or contact us at info@sertus-inc.com.
Disclaimer
Kindly note that this e-news is not exhaustive but just intended to provide a general reference. This is not a legal advice and should not be regarded as a substitute for a specific legal advice that meet your circumstances. Sertus does not accept any responsibility for any errors or omissions of the contents of this e-news.