British Virgin Islands Treasury Shares Guide IBA Corporate and M&A Law Committee 2014

Transcription

1 British Virgin Islands Treasury Shares Guide IBA Corporate and M&A Law Committee 2014 Contact Jose Santos Karen Gilbert Forbes Hare, Road Town, British Virgin Islands

2 Contents Page INTRODUCTION REGULATORY FRAMEWORK ACQUISTION OF TREASURY SHARES UTILIZATION OF TREASURY SHARES SALE OF TREASURY SHARES TREASURY SHARES AND TAKEOVER LAW Page 1

3 INTRODUCTION The following guide provides an overview of the treasury share regime in the British Virgin Islands (the BVI) in relation to BVI Business Companies. This guide provides general information on treasury shares and on the legal requirements and restrictions of acquisitions and sales of such treasury shares. This legal guide is intended to be for the general information of the reader. It is not intended to be comprehensive, and should not be relied on as a substitute for independent legal advice in any circumstances. GENERAL OVERVIEW Is the buyback of shares permitted in your jurisdiction? Yes, pursuant to section 59 of the BVI Business Companies Act, 2004 (the Act) and subject to the Memorandum and Articles of Association, a company may purchase, redeem or otherwise acquire its own shares. Such an acquisition would usually be subject to the directors being satisfied that the company will pass a solvency test immediately after making such acquisition. A company would not need to pass the solvency test when shares are redeemed at the option of a shareholder, pursuant to (i) a right to redeem set out in the memorandum and articles of association of the company; (ii) the compulsory redemption provisions to squeeze out minority shareholders; or (iii) redemption in accordance with rights of dissenters under BIV law. What are the characteristics (maximum holdings, voting rights and other rights) of treasury shares? A company may hold shares that have been purchased, redeemed or otherwise acquired as treasury shares if the number of shares acquired when aggregated with shares of the same class already held by the company as treasury shares does not exceed 50% of the shares of that class previously issued by the company, excluding shares that have been cancelled. Shares that are held as treasury shares have all rights and obligations attaching to them suspended and those rights and obligations may not be exercised by or against the company while it holds the shares as treasury shares. What are the main reasons to acquire treasury shares? Since BVI Business Companies are used worldwide for a multitude of purposes, there may be any number of reasons to acquire treasury shares. These would include acquisitions relating to employee share schemes, stabilising the share price in a listed company, distributing funds to shareholders whilst still keeping the shares in issue and situations where a listed company believes that its share price is undervalued and wishes to repurchase some of its shares at a perceived discounted price. There are likely to be more reasons for a listed company to acquire its own shares than for a private company. Page 2

4 REGULATORY FRAMEWORK The Act sets out the regulatory framework for a company wishing to acquire treasury shares, although where a company operates or is listed in another jurisdiction local advice should be sought to ensure that there are no local laws or regulations that might impact the ability of a company to acquire treasury shares. The acquisition and holding of treasury shares is governed by sections 59 and 64 of the Act, although the statutory provisions are subject to any negation, modification or inconsistencies contained in the company s Memorandum and Articles of Association. ACQUISTION OF TREASURY SHARES How can a company acquire treasury shares? Subject to the company s Memorandum and Articles of Association, a company may acquire treasury shares in a number of different manners. As with distributions to the shareholders, the directors of the company need to be satisfied, on reasonable grounds, that the company will, immediately after the distribution, satisfy a solvency test. The directors must pass a resolution containing a statement to that effect, and if at any time before the distribution is made the directors cease to be satisfied on reasonable grounds that the company will, immediately after the distribution, satisfy the solvency test, any distribution made by the company is deemed not to have been authorised. For the purposes of section 57 of the Act, a company satisfies the solvency test if: (i) (ii) the value of the company s assets exceeds its liabilities; and the company is able to pay its debts as the fall due. A company may only hold shares that have been purchased, redeemed or otherwise acquired as treasury shares if the Memorandum and Articles of Association of the company do not prohibit it from holding treasury shares, the directors resolve that those shares to be purchased, redeemed or otherwise acquired shall be held as treasury shares, and the number of shares purchased, redeemed or otherwise acquired, when aggregated with shares of the same class already held by the company as treasury shares does not exceed 50% of the shares of that class previously issued by the company, excluding shares that have been cancelled. In general, a company may acquire shares as treasury shares by: 1) the directors making an offer to all of the shareholders of the company that: a) would, if accepted, leave the relative voting and distribution rights of the shareholders unaffected; and b) affords each shareholder a reasonable opportunity to accept the offer; or 2) the directors making an offer to acquire shares to one or more shareholders (i) (ii) to which all shareholders have consented in writing; or that is (i) permitted by the Memorandum and Articles of Association; and (ii) is both to the benefit of the remaining shareholders and whose terms Page 3

5 are fair and reasonable to the company and to the remaining shareholders. Such an acquisition must be approved by a resolution of directors stating that in their opinion the acquisition fulfils the criteria set out in (ii) and providing the reasons for that opinion. 3) in accordance with such other provisions for the purchase, redemption or acquisition of its own shares as may be specified in its memorandum and articles of association. Where the Memorandum and Articles of Association provide for redemption at the option of the shareholder, the company will be obliged to redeem/acquire those shares on the conditions set out in the Memorandum and Articles of Association. In addition to the statutory methods, the Memorandum and Articles of Association may set out other methods of acquisition of shares by the company which may result in the shares becoming treasury shares, however the unifying feature is that the directors must have resolved that the shares purchased, redeemed or acquired are to be held as treasury shares. Are there any restrictions in acquiring treasury shares? (e.g. purpose-wise; accountingwise?) Subject to any restrictions contained in a company s Memorandum and Articles of Association, the only restrictions are those set out above, being that the company may need to pass the solvency test, the directors must resolve that those shares to be purchased, redeemed or otherwise acquired shall be held as treasury shares, and that the number of shares purchased, redeemed or otherwise acquired, when aggregated with shares of the same class already held by the company as treasury shares may not exceed 50% of the shares of that class previously issued by the company, excluding shares that have been cancelled. Unless permitted by the Memorandum and Articles of Association or written consent of all shareholders, the shareholders must all be treated equally in terms of the offer and the acquisition. Which authorization is needed? Subject to any variation or provisions to the contrary in the Memorandum and Articles of Association, a company will only be able to acquire treasury shares after passing a resolution of directors (which in general would require a simple majority of directors voting in favour at a meeting, or a unanimous written resolution of directors). What are the publicity requirements in the event of acquisition of treasury shares? There are no BVI publicity requirements in the event of a company seeking to acquire treasury shares, but advice should always be sought in any relevant jurisdictions where the company may operate or be listed. Put and call options do they count as acquisition of own shares? Put Options This is not a common occurrence, but if a company were to grant put options to its shareholders this would have the same effect as a redemption at the option of a shareholder. Any such put options would therefore be subject to the same restrictions applicable to the repurchase of shares as described above. If the directors had resolved that the shares acquired as a result of any put options were to be treated as treasury shares, then they would be so (subject to the 50% restriction). Call Options Page 4

6 Again, this is not a common occurrence, but if a company were to hold and exercise call options over shares held by its shareholders, this would have the same effect as a redemption at the option of the company. The same restrictions applicable to the repurchase of shares as described above would apply. If the directors resolved that the shares acquired as a result of any put options were to be treated as treasury shares, then they would be so (subject to the 50% restriction). UTILIZATION OF TREASURY SHARES Are there any statutory obligations to resell or redeem treasury shares? Under BVI law there are no statutory obligations to resell or redeem treasury shares. How are treasury shares redeemed? Treasury shares may be cancelled/redeemed by the company and made available for reissue by a resolution of directors. SALE OF TREASURY SHARES How can the company sell treasury shares? A company may transfer treasury shares, and the transfer will be governed by the provisions of the Act and the company s Memorandum and Articles of Association that apply to the issue of shares. As such, in the absence of any provisions to the contrary of the Memorandum and Articles of Association of a company, there is no practical advantage to the directors in having treasury shares available for transfer or sale over having authorised shares available for issue. Are there any restrictions for selling treasury shares? Any transferred treasury shares must adhere to the provisions relating to issues of shares. As such, the company would not be permitted to sell the treasury shares for less than the par value of the shares, to the extent the shares in the company have par value. Which authorisation is needed for selling treasury shares? In general, and subject to the provisions of the company s Memorandum and Articles of Association, there will need to be a resolution of directors to approve the terms of sale of treasury shares. A transfer form and/or subscription letter will need to be completed by the transferee/subscriber. Can treasury shares be sold other than via the stock exchange or by public tender offer? Subject to the company complying with the provisions relevant to it relating to an issue of shares, treasury shares could be sold in a manner other than via the stock exchange or by public tender offer. Indeed, even shares sold via the stock exchange or public tender offer will need to comply with those provisions. Page 5

7 What are the publicity requirements in the event of a sale of treasury shares? There are no BVI publicity requirements in the event of a company seeking to sell treasury shares, but advice should always be sought in any relevant jurisdictions where the company may operate or be listed. What legal restrictions are there in order to avoid market abuse? In general terms under BVI law no person who has information as an insider should deal in or procure dealings in price-affected securities in relation to the information where the acquisition or disposal that constitutes the dealing takes place on a securities market. This would potentially cover the acquisition or disposal of treasury shares, and detailed local BVI advice should be sought if there is any doubt as to the status of potential dealings. Additional advice should always be sought in any relevant jurisdictions where the company may operate or be listed. TREASURY SHARES AND TAKEOVER LAW What are the general implications of treasury shares under the applicable takeover law regime? There is no takeover law regime in the British Virgin Islands as there is no stock exchange. Any implications should be determined by reference to the relevant laws and regulations of the operating/listing country or countries and any specific anti-takeover provisions contained in a company s Memorandum and Articles of Association. Treasury Shares as defense measures? There is no takeover law regime in the British Virgin Islands as there is no stock exchange. Any implications should be determined by reference to the relevant laws and regulations of the operating/listing country or countries. Page 6