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New BVI Bearer Share Regime Deadline Nearing

by Phillip Morton, Investors Offshore.com

05 November 2009


International tax law firm Conyers Dill & Pearman has urged those with bearer shares in companies in the British Virgin Islands should be pro-active to ensure a smooth transition to the territory’s new regime for such shares, which is scheduled to come into effect at the end of this year.

A significant amount of attention has recently been given to the new bearer share regime, as bearer shares not deposited with an authorized custodian as at December 31, 2009, will be “disabled”, freezing all rights of the owner - the right to vote, the right to receive dividends and the right to share in the assets of a company on a liquidation.

While many companies incorporated prior to January 1, 2005, already have bearer shares deposited with a custodian, the changes will affect a significant number of companies, particularly those incorporated before 2005 in the BVI.

“Given the looming deadline, holders of bearer shares should take the necessary steps to ensure their shares are not disabled,” Conyers Dill & Pearman urged in a statement, outlining options for those who have not yet organized for the transition.

According to the firm, those who have not yet established how the company in which they own bearer shares plans to make the transition into the new regime, should as a first point of call engage the company and establish whether it will: convert the bearer shares into, or exchange the bearer shares for, registered shares; or, make arrangements for the bearer shares to be deposited with a particular authorized custodian.

In some cases, the company may not have made any arrangements, in which case individuals are advised to consider whether to personally deposit the bearer shares with an authorized custodian.

Secondly, the firm noted a number of instances where bearer share certificates, necessary to make amendments to their custody, have been lost or have been difficult to obtain (for example, because they are deposited with a financial institution which has entered into liquidation or has been restructured as a result of the financial crisis).

To this end, the firm has advocated that the whereabouts of bearer share certificates should be ascertained as soon as possible. Subject to a company’s constitutional documents, it will normally be difficult to obtain a replacement bearer share certificate from the company.

Finally, bearer shares which have been pledged, mortgaged or charged can give rise to particularly difficult issues, the law firm observed.

To ensure a smooth transition to the new regime in this case, the firm has advised that individuals should contact both the secured lender and the company at the earliest opportunity to ascertain how such bearer shares will be treated. The terms of any agreement creating the security over the bearer shares will also need to be carefully reviewed, it noted.

Conyers Dill & Pearman has advised that the deadline for the transfer to authorized custodian can be extended for up to a year via an application to court. It may also be possible to obtain an order from the court that a missing bearer share certificate should be replaced by the company.

Concluding, the firm urged that those bearer share holders likely to require judicial intervention should act in a timely fashion, as the deadline is nearing, and applications will not be straightforward.

A comprehensive report in our Intelligence Report series, examining in depth the situation of offshore transparency and secrecy in a number of the most prominent jurisdictions, is available in the Lowtax Library at http://www.lowtaxlibrary.com/asp/subs_reports.asp and a description of the report can be seen at http://www.lowtaxlibrary.com/asp/description_report2.asp

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