BVI: Distributions, share purchases and redemptions
British Virgin Islands This briefing examines the key aspects of distributions, share purchases and redemptions under the BVI Business Companies Act 2004 (the Act). Distributions A company’s articles of association will contain provisions dealing with the payment of distributions. The Act imposes additional obligations relating to the payment of distributions. What is a distribution? Under the Act, a distribution is any transfer by a company of any of its assets (other than its shares), or the incurring by it of a debt, to or for the benefit of, a shareholder, whether made by: the purchase of any asset; the purchase, redemption or other acquisition of any of its shares; the transfer of any debt; or any other means. A distribution includes a dividend but not an issue of bonus shares. No maintenance of capital rules There are no maintenance of capital rules under the Act so it is relatively simple for a company to make payments to its shareholders. Any asset of a company (including the consideration paid for its shares) can be distributed to its shareholders as long as its directors apply the solvency tests (see below). Directors’ duties The directors of a company should only make a distribution or purchase or redeem shares at the option of the company if they believe that it is in the best interests, and for a proper purpose, of the company to do so. Otherwise they will be in breach of their statutory and common law duties to the company. Solvency tests The Act only allows the directors of a company to authorise a distribution if they are satisfied on reasonable grounds that the company will, immediately after the distribution is made,