Global - Comparison of Voluntary Liquidation Procedures in Bermuda, the BVI, Cayman, Guernsey and Jersey Introduction This note provides a comparative analysis of voluntary liquidation procedures under the laws of Bermuda, the BVI, Cayman, Guernsey and Jersey. Principal legislation Companies Act 1981 (as amended) (the "Companies Act") Companies (Winding Up) Rules 1982 BVI Business Companies Act, 2004 (as amended) (the "BC Act") BVI Business Companies Regulations, 2012 (as amended) (the "Regulation s") BVI Insolvency Act, 2003 (the "IA 2003") Note: The summary provided for the voluntary liquidation procedure in the BVI assumes that the company being liquidated is not a regulated entity. We have not considered the voluntary liquidation procedure available pursuant to section 159(2) of the Insolvency Act, 2003. Companies Law (2018 Revision) The Companies Winding Up Rules 2008 (as amended) Companies (Guernsey) Law, 2008 (as amended) ("Guernsey Companies Law"). Companies (Jersey) Law 1991, as amended (the "Companies Law"). A voluntary liquidation is referred to as a "summary winding up". The statutory process is simple and can often be done quickly and without the involvement of a liquidator.
Page 2 Status of the jurisdiction and court system Bermuda is a British Overseas Territory which is self-governing and part of the Commonwealth. The head of state is HM the Queen of England and the UK is responsible for the appointment of Bermuda's Governor, defence and foreign affairs. Bermuda has its own independent court system. The Judicial Committee of the Privy Council is the final court of appeal. The BVI is a British Overseas Territory which is self-governing and part of the Commonwealth. The head of state is HM the Queen of England and the UK is responsible for the appointment of the BVI's Governor, external affairs, internal security and the administration of the courts. The BVI is a member of the Eastern Caribbean Supreme Court system which was founded in 1967. The Judicial Committee of the Privy Council is the final court of appeal. The Cayman Islands is a British Overseas Territory which is self-governing and part of the Commonwealth. The head of state is HM the Queen of England and the UK is responsible for the appointment of the Cayman Islands' Governor, national security and the administration of the courts. The Cayman Islands has its own independent court system. The Judicial Committee of the Privy Council is the final court of appeal. Guernsey is a British Crown Dependency which is self-governing and part of the Commonwealth. The head of state is HM the Queen of England and she, after consultation with the island authorities and on the advice of the Privy Council, appoints Guernsey's Lieutenant- Governor, and the senior members of the judiciary such as the Bailiff and deputy Bailiff. Guernsey has its own independent court system. The Judicial Committee of the Privy Council is the final court of appeal. Jersey is a British Crown Dependency which is selfgoverning and part of the Commonwealth. The head of state is HM the Queen of England and she, after consultation with the island authorities and on the advice of the Privy Council, appoints Jersey's Lieutenant-Governor, and the senior members of the judiciary such as the Bailiff and deputy Bailiff. Jersey has its own independent court system. The Judicial Committee of the Privy Council is the final court of appeal. Board resolution Voluntary liquidations can proceed by way of a 'members voluntary wind up' ("MV") or a 'creditors' voluntary wind up' ("CV"), depending on whether declarations of solvency are made. Both are commenced by the passing of a board resolution to requisition a general meeting of the company (and in the case of a CV, of the creditors) to The directors may, by passing a resolution, appoint an eligible individual to act as voluntary liquidator: 1. upon the expiration of such time as may be specified in the Memorandum and Articles of the company (the "M&A") for its existence; A board resolution based on a simple majority is passed to requisition an extraordinary general meeting of the company to consider, and if thought fit, to pass a special resolution seeking the company's winding up and, thereafter, ordinary resolutions confirming the appointment of specific liquidators. A board resolution based on a simple majority of directors is passed to requisition an extraordinary general meeting ("EGM") of the company to consider (and if thought fit, to pass) a special resolution seeking the company's winding up and, thereafter, ordinary A resolution of the directors should be passed to approve the signing of a statutory solvency statement by each of the directors with respect to the company and to deal with obtaining the necessary shareholder approval that the company be wound up which,
Page 3 consider, and if thought fit, to pass a resolution that the company be wound up voluntarily and appointing a liquidator. 2. upon the happening of such event as may be specified in its M&A as an event that shall terminate the existence of the company; resolutions confirming the appointment of specific liquidator(s). The board can also choose to circulate a written resolution to similar effect to shareholders instead of calling an EGM. subject to the Memorandum and Articles of Association of the company (the "M&A"), may be by special resolution at a general meeting or by way of a unanimous written resolution. 3. in the case of a company limited by shares, if it has never issued any shares; or 4. in any other case if the M&A permit them to pass a resolution for the appointment of a voluntary liquidator, and the members have, by resolution, approved the liquidation plan. Shareholders resolution to sanction the process In both a MV and CV process, the company in general meeting: It is not required for an extraordinary general A special resolution approving: A special resolution approving: Within 28 days of the solvency statement being signed, the shareholders
Page 4 1. shall approve the company's voluntary liquidation; 2. shall resolve to appoint one or more liquidators; and meeting to be convened, 1. the company's however the members of a 1. the company's voluntary company may, by voluntary liquidation; resolution, approve the liquidation; liquidation plan and appoint 2. the appointment an eligible individual as the 2. the appointment of voluntary voluntary liquidator of the of voluntary liquidators; company. liquidators; 3. their remuneration; and 3. may fix their remuneration. 4. the granting of an In a MV, upon the making of the resolutions, the company is in voluntary liquidation and all powers of the officers cease except in so far as the company in general meeting or the liquidator sanctions their continuance. In a CV, the company shall cause a meeting of creditors to be summoned for the same day or the day after the general meeting at which the voluntary winding up is to be proposed (in practice the meetings are held consecutively). The same resolutions are put to the creditors in addition to the appointment of a committee of inspection. On is passed. indemnity to the liquidators, From that moment on the company is under the control of the liquidators and unless any resolution of the company says otherwise the directors' powers and authority are terminated. 3. their remuneration; and 4. the granting of an indemnity to the liquidators, is passed. From that moment on the company is under the control of the liquidators and unless any resolution of the company says otherwise, or the liquidator sanctions their continuance, the directors' powers and authority are terminated. must pass a special resolution to wind up the company summarily. A copy of the special resolution must then be delivered to the Jersey Registrar of Companies (the "Registrar") together with the signed solvency statement. Note that in the case of limited life companies and companies of limited duration there is generally no need to obtain a shareholders' resolution. The corporate state and capacity of a company continues after the commencement of its winding up until it is dissolved. However, the company's powers should only be exercised so far as required to realise its assets, to discharge its liabilities, and thereafter to distribute its surplus assets (if any).
Page 5 appointment of the liquidator, all powers of the officers cease except in so far as the committee of inspection, or the creditors sanctions their continuance. Declaration of solvency In a MV, the majority of directors must make a The directors of the company must make a Unless the supervision of the Court is being sought, No declaration of solvency is required as a matter of All the directors of the company must sign a declaration that they have declaration of solvency in each director of the law. However, the solvency statement (the formed the opinion that the the approved form stating company is required to liquidator may insist (as a "Initial Statement") that, company will be able to pay that, in their opinion: execute a declaration of commercial matter) that having made full enquiry its debts in full within a solvency stating that the the directors supply into the company's affairs, period not exceeding twelve 1. the company is company will be able to pay confirmation that the each is satisfied that the months from the and will continue its debts in full, together company is solvent before company is in one of the commencement of the to be able to with interest at the taking on the role of following positions: winding up. discharge, pay or prescribed rate, in a period liquidator. provide for its not exceeding twelve 1. has no assets The declaration has no debts as they fall months. and no effect unless it is made on a due; and liabilities; date no more than five If the declaration of weeks preceding the 2. the value of the solvency is not signed by all 2. has assets and resolution for voluntary company's assets directors within 28 days of no liabilities; winding up. equals or exceeds the commencement of the its liabilities. liquidation there is a The declaration must 3. will be able to statutory requirement for the embody either a statement discharge its The declaration of solvency liquidators to apply to court of assets and liabilities as at liabilities in full has no effect unless it is for an order that the the latest practicable date liquidation be subject to before the declaration is Court supervision. made, or a statement that the opinion was based on an indemnity undertaking or pledge to the company in respect of its liabilities. made on a date no more than four weeks earlier than the date of the resolution to appoint the liquidator and it has attached to it a statement of the company's assets and liabilities as at the latest within the six months after the commencement of the winding up; 4. has liabilities that will fall due
Page 6 practical date before the making of the declaration. In addition to the declaration of solvency, the directors must also approve a liquidation plan which addresses each of the matters set out in Section 198 of the BC Act. more than six months after the commencement of the winding up that it will be able to discharge in full as they fall due; or 5. both (3) and (4) apply. Where the Initial Statement confirms any of (2) through (5), once registered with the shareholder resolution, the winding-up has commenced. It will be finished once the company's assets have been realised, any liabilities satisfied and any surplus assets distributed and a second statement is registered confirming (1) above (a "Final Statement"). However, where the Initial Statement confirms (1) above, the company is simply dissolved upon its registration along with a copy of the shareholders resolution.
Page 7 Directors' Liability In a MV, the directors must have reasonable grounds for the opinion that the company will be able to pay its debts in full within the time specified in the declaration, or face imprisonment of six months and/or a fine of two thousand five hundred dollars. If the debts of the company are not paid in full within the time specified in the declaration, the directors will be presumed not to have reasonable grounds for their opinion, until the contrary is shown. A director that makes a declaration of solvency without having reasonable grounds for the opinion that the company is and will continue to be able to discharge, pay or provide for its debts in full as they fall due commits an offence and is liable on summary conviction to a fine of ten thousand dollars. The directors must have reasonable grounds to make such solvency statements or face a fine of ten thousand dollars and/or imprisonment of two years. Not applicable. A director must make full enquiry into the company s affairs before signing a solvency statement. If he has no reasonable grounds for making such statement then he is guilty of an offence punishable by up to two years' imprisonment or a fine or both following its registration. In a CV the directors must cause a statement of the company's affairs, a list of creditors and estimated amount of claims, to be laid before the creditors' meeting, and one of the directors must preside over the meeting, or face a fine of five hundred dollars. Duties of a liquidator The liquidator may, with the sanction of a resolution of the members in a MV, and with the sanction of the The BC Act sets out the principal duties of a voluntary liquidator, which are to: Each liquidator, as a fiduciary, is subject to the general fiduciary duties of acting honestly, exercising powers vested in him bona The Guernsey Companies Law sets out the principal duties of a voluntary liquidator, which are to: A company is not obliged to appoint a liquidator to carry out the summary winding up but may do so
Page 8 court or a committee of inspection in a CV, pay any classes of creditor in full, compromise any creditors' claims and compromise any calls. A liquidator may without the sanction of a resolution of the members, exercise any other power given to a liquidator in a winding up by the court, including, to take possession of and realise the assets of the company, raise security on assets and appoint agents. If the liquidator of a MV is at any time of the opinion that the company will not be able to pay its debts in full within the period prescribed in the directors' declaration, the liquidator must summon a meeting of creditors and lay before it a statement of the company's assets and liabilities, or face a fine of up to two hundred and fifty dollars. If a winding up continues for more than one year the liquidator must call general annual meetings commencing at the end of the first year from the 1. take possession of, protect and fide for proper purpose and ensuring that his personal 1. realise the company's realise the assets interest does not conflict assets and of the company; with his duty. discharge its liabilities; and Although the liquidator may 2. identify all call meetings of creditors creditors of and and contributories to 2. distribute the claimants against ascertain their wishes, the surplus assets of the company; liquidator is not bound to the company to follow those wishes because the members in 3. pay or provide for such meetings are designed accordance with the payment of, or for consultation rather than section 419 of to discharge, all direction. the Companies claims, debts, Law. liabilities and obligations of the company; 4. distribute the surplus assets of the company to the members in accordance with the memorandum and articles; 5. prepare or cause to be prepared a statement of account in respect of the actions and transactions of the liquidator; and The liquidator must act impartially and independently. A liquidator is a fiduciary and subject to the usual duties of a fiduciary. by way of special resolution. On the appointment of a liquidator the directors cease to be authorised to exercise their powers in respect of the company and those vest in the liquidator. It is relatively unusual to appoint a liquidator in a solvent winding up and so incur those additional costs, save where the affairs of the company are particularly complicated, or some other compelling reason suggests it would be appropriate.
Page 9 commencement of winding up. A liquidator is a fiduciary and is therefore subject to the general fiduciary duties of acting honestly, for a proper purpose and ensuring the duties do not conflict with any personal interest. 6. send a copy of the statement of account to all members if so required by the liquidation plan. A voluntary liquidator is a fiduciary and subject to the usual duties of a fiduciary. Liability of liquidator A liquidator must comply with certain filing, notice and advertising requirements, failing which the liquidator is liable to various default fines. A voluntary liquidator must comply with certain filing, notice and advertising requirements. A resolution to appoint a liquidator is void and of no effect unless the voluntary liquidator files notice of his appointment on or before the fourteenth day following his appointment. The liquidator must comply with certain filing and notice requirements. A liquidator who fails to comply with these requirements commits an offence and is liable to a fine of ten thousand dollars. As noted above, a liquidator is a fiduciary and subject to the usual duties of a fiduciary. There are, however, no specific statutory fines or offence provisions that apply specifically to liquidators. A liquidator has the same potential personal liability for statements that he signs in relation to a summary winding up as directors do (described above). A voluntary liquidator may be subject to a disqualification order in the same way as a director under Section 262 of the IA 2003 and in particular where a company is or becomes insolvent and where: 1. the voluntary liquidator has become guilty of fraud, misfeasance or breach of duty; or
Page 10 2. the voluntary liquidator's conduct, in the opinion of the Court, makes him unfit to be concerned in the liquidation or dissolution of companies. Importantly the liquidation of the company does not commence until the date upon which the voluntary liquidator files notice of his appointment with the Registrar of Corporate Affairs (the "Registrar") in accordance with the BC Act. Notice Notices of the meetings of members (and of creditors) are sent in accordance with the bye-laws of the company and where the process is a CV, the notices shall be sent simultaneously. Within 21 days of appointment the liquidator must deliver to the Registrar of Companies (the "Registrar") for registration, a notice of appointment. The directors or members must, as soon as practicable after a voluntary liquidator is appointed, give the liquidator notice of his/her appointment. A resolution to appoint a liquidator is void and of no effect unless the voluntary liquidator files notice of his appointment on or before the fourteenth day following his appointment. When appointed, the voluntary liquidator must, The liquidator must, within 28 days of the commencement of the winding up, file notice of the appointment of liquidators, the liquidators' consent to act and a declaration of solvency are filed with the Registrar of Companies (the "Registrar"). The special resolution commencing the windingup must be filed with the Registrar of Companies (the "Registrar") within 28 days of being passed. These resolutions are publicly available. Solvency statements and special resolutions, which are filed with the Registrar, will shortly thereafter be publicly available.
Page 11 within fourteen days of his appointment, file: 1. a notice of his appointment with the Registrar; 2. the declaration of solvency made by the director or an extract thereof complying with the Regulations; and 3. a copy of the liquidation plan. The statement of assets and liabilities need not be filed with the declaration of solvency, however a copy of the declaration of solvency with the statement of assets and liabilities attached must be kept at the office of the registered agent of the company. Advertisements The company must advertise the meeting of creditors in a CV process at least twice in the Bermuda Royal Gazette. Within 21 days after the passing of the resolution that Within 30 days of commencement of the liquidation, the liquidator must advertise notice of his appointment in the manner Within 28 days of the commencement of the liquidation, a statutory advertisement must be placed in the Cayman Islands Gazette advertising No advertisement is required. No advertisement is required.
Page 12 the company be wound up voluntarily, the company shall advertise same in the Bermuda Royal Gazette. Within 21 days of appointment the liquidator must advertise the same in the Bermuda Royal Gazette. prescribed by the Regulations. the appointment of the liquidators. The liquidators will then advertise in appropriate newspapers for all creditors and contributories to submit proofs of debt in the liquidation. It is usual for the advertisement to require such creditors and contributories to submit their proofs of debt within a specified time period. However, this deadline is not binding on the creditors and is not a bar to the submission of claims. Interim dividend Notice is usually sent to last known address of creditors with a date for which proofs of debt are to be lodged, such date being no earlier than fourteen days from the date of the notice. The Companies Act makes no distinction between interim and final dividends. The liquidator of a MV or CV has power to distribute the property of the company in satisfaction of its liabilities pari passu, subject to any preferential payments, and subject to the bye-laws, to The BC Act does not distinguish between the making of interim or final distributions. In order to perform the duties imposed on him/her under the BC Act, a voluntary liquidator has all the powers of the company that are not reserved to the members under the BC Act or the M&A, including but not limited to, the power to make any distribution in money or in other property or partly in each, and if in other property, to allot the Should the liquidators believe it appropriate to pay an interim dividend they must, prior to declaring this dividend, give notice of their intention to do so to all creditors whose addresses are known and who have not proved their debts. It is usual in this notice for the liquidators to set a date within which proofs may be lodged. This date must not be less than 21 days from that of the notice. Should a creditor fail to submit his proof of debt within that The Guernsey Companies Law does not distinguish between the making of interim or final distributions. The provisions relating generally to distributions contained in the Guernsey Companies Law do not apply during the course of a winding up. If the company has only assets, these may be realised and distributed among the members according to their rights or otherwise as provided for in its M&A. Where the company has liabilities which will be satisfied within six months, the directors may pay interim dividends after the registration of the solvency statement, if they reasonably believe that the company will continue to
Page 13 the members in accordance with their rights and interests in the company. property, or an undivided interest therein, in equal or unequal proportions. time period, at the discretion of the liquidators, they may or may not deal with that proof in the payment of any interim dividend. However, that creditor still is entitled to have his proof of debt processed and, on the assumption that the company is solvent, paid in full by the end of the liquidation. be able to pay any remaining liabilities as they fall due. The provisions relating generally to distributions contained in the Companies Law do not apply during the course of a summary winding up. Final dividend The liquidator is required to lay before the final meetings of members and creditors an account of how the winding up has been conducted and the property disposed of. The liquidation plan must state whether the liquidator is required to send to all members of the company a statement of account prepared or caused to be prepared by the liquidator in respect of his actions or transactions. As soon as the company's affairs are fully wound-up, the liquidator must prepare an account of the winding- up, and then call a general meeting of the company at which the account is presented. The liquidators must give notice of their intention to pay a final dividend to the creditors and (if solvent) contributories of the company. They also send creditors the final account of the affairs of the liquidation along with a notice of the final meeting with proxy forms seeking their approval and the liquidators' release. The liquidator then gives notice to the Registrar of the holding of the meeting and the date. The Registrar gives notice of the fact of the final meeting, and the company is dissolved after three months from the date of the notice. As soon as a company has completed the distribution of its assets, a Final Statement should be signed by each of the directors or the liquidator (if one has been appointed) stating that they are satisfied having made full enquiries into the companies affairs that the Company has no assets and no liabilities. Once the Final Statement is registered by the Registrar, the company is dissolved.
Page 14 Expedited distribution of assets The liquidator of a MV or CV has power to distribute the property of the company in satisfaction of its liabilities pari passu, subject to any preferential payments, and subject to the bye-laws, to the members in accordance with their rights and interests in the company. In order to perform the duties imposed on him/her under the BC Act, a voluntary liquidator has all the powers of the company that are not reserved to the members under the BC Act or the M&A, including but not limited to the power to make any distribution in money or in other property or partly in each, and if in other property, to allot the property, or an undivided interest therein, in equal or unequal proportions. It is possible to make a distribution of assets shortly after the liquidators are appointed. This would include in specie distributions of property. The liquidators would usually request that they be provided with an indemnity in such circumstances. It is possible to make a distribution of assets shortly after the liquidators are appointed. This would include in specie distributions of property. The liquidators would usually request that they be provided with an indemnity in such circumstances. See above for interim and final. Completion of liquidation Once the affairs of the company are fully wound up a general meeting of the company (and in a CV a meeting of the creditors) is called by the liquidator for the purposes of laying the accounts. The meetings are called by advertisement in the Bermuda Royal Gazette at least one month before the meeting. The liquidation plan must state whether the liquidator is required to send to all members of the company a statement of account prepared or caused to be prepared by the liquidator in respect of his actions or transactions. Once the liquidation has been completed, the liquidator must file a statement of completion with the Registrar. There is no statutory requirement for the liquidator to convene a meeting of members prior As soon as the company's affairs are fully wound-up, the liquidator must prepare an account of the winding- up, and then call a general meeting of the company at which the account is presented. The final meeting is held at least one month after the publication of the notice of the final meeting and the liquidators accounts are approved. The liquidators make their final return to the Registrar informing the Registrar that the liquidation has been completed. The liquidator then gives notice to the Registrar of the holding of the meeting and the date. The Registrar gives notice of the fact of the final meeting, and the company is dissolved after three Winding-up is complete when all assets have been realised, liabilities settled and any remaining assets distributed, at which time a Final Statement should be signed by each of the directors or the liquidator as set out above and registered.
Page 15 to completion of the liquidation. months from the date of the notice. Dissolution Within one week of holding the final general meeting of the company (or the meeting of creditors, whichever is the latter if not held on the same day) the liquidator shall: MV - notify the Registrar that the company has been dissolved and the Registrar will record that fact and the date of the dissolution in the register. Upon receiving the statement of completion from the voluntary liquidator, the Registrar must strike the company off the Register and issue a certificate of dissolution certifying that the company has been dissolved. The dissolution of the company is effective from the date of the issue of the certificate. Three months after the liquidators have submitted their final return the company is deemed to be dissolved and, from that point on, ceases to exist. Dissolution occurs three months after the date of the notice of fact of the final meeting is published by the Registrar. As soon as the Final Statement is registered by the Registrar the company is dissolved. CV - send the Registrar a copy of the accounts, and shall make a return to the Registrar of the holding of the meetings and their dates. The company will be deemed to be dissolved on the expiration of three months from the registration of the returns by the Registrar. Timing The minimum time within which a company can be wound up and dissolved is approximately six weeks from the date of The minimum time within which a company can be wound up and dissolved is approximately six weeks from the date of The minimum time within which a company can be wound up and dissolved is approximately four and a half months. The minimum time within which a company can be wound up and dissolved is approximately four and a half months (allowing the liquidator six weeks to complete their work, and A summary winding up in Jersey is often a simple procedure and there is no minimum time set down in law within which it can occur.
Page 16 appointment of the liquidator. appointment of the liquidator. A voluntary liquidator may not carry on the business of the company in voluntary liquidation for a period of more than two years, without the permission of the BVI Court. In the case of a voluntary liquidation that continues for more than a year, the liquidators must summon a general meeting of the company at the end of the first and each subsequent year of the liquidation and lay before such meeting an account showing the liquidators' acts and dealings and the manner in which the liquidation has been carried out in the preceding year. three months' notice as described above). In the case of a voluntary liquidation that continues for more than a year, the liquidators must summon a general meeting of the company at the end of the first and each subsequent year of the liquidation and lay before such meeting an account showing the liquidators' acts and dealings and the manner in which the liquidation has been carried out in the preceding year. Updated: 12 June 2017
Page 17 For further information please refer to your usual contact or: Bermuda - Nicole Tovey, Partner nicole.tovey@walkersglobal.com +1 441 242 1512 British Virgin Islands - Rosalind Nicholson, Partner rosalind.nicholson@walkersglobal.com +1 284 852 2237 Cayman Islands - Neil Lupton, Partner neil.lupton@walkersglobal.com +1 345 914 4286 Guernsey - Matt Sanders, Group Partner matt.sanders@walkersglobal.com +44 (0) 1481 748914 Guernsey - Sam Shires, Partner sam.shires@walkersglobal.com +44 (0) 1481 748916 Hong Kong - Fraser Hern, Partner fraser.hern@walkersglobal.com +852 2596 3348 Jersey - Damian Evans, Partner damian.evans@walkersglobal.com +44 (0) 1534 700 714 London - John O'Driscoll, Partner john.o'driscoll@walkersglobal.com +44 (0)20 7220 4987 The information contained in this memorandum is necessarily brief and general in nature and does not constitute legal or taxation advice. Appropriate legal or other professional advice should be sought for any specific matter. Walkers works in exclusive association with Taylors in Bermuda, a full service commercial law firm providing advice on all aspects of Bermuda law.