Original Publisher: Loeb Smith Attorneys
Author: Peter Vas, Partner - Loeb Smith Attorneys, Hong Kong
Date: 22 January 2021
Coronavirus (“Covid-19”) is continuing its spread across the world, with more than 85 million confirmed cases in 220 countries and more than 1.8 million deaths. In response, governments worldwide have implemented far ranging containment measures, such as travel restrictions, mandatory quarantine and social distancing. Many of our clients have additionally activated their business continuity and contingency plans and put in place alternate workplace arrangements and/or heightened measures to ensure the health and safety of their employees. These policies have disrupted “business as usual” and our clients with British Virgin Islands (“BVI”) companies have faced a number of challenges accordingly.
In this brief guide, we address certain of the most frequently asked BVI law questions that our clients have posed in connection with the difficulties that Covid-19 presents in the context of corporate and finance transactions. We also offer some practical guidance and considerations with respect to these issues.
Having considered board and shareholder meetings in the context of Covid-19 in part I of this guide, in this part II we now briefly consider the impact of Covid-19 on demonstrating economic substance in the BVI, as well as the impact of Covid-19 on the execution of documents and practical workarounds to some of the challenges that our clients have encountered.
The BVI International Tax Authority (“BVI ITA”) has confirmed that only those board meetings relating to a BVI company’s “core income generating activities” are required to be held in the BVI.
If, owing to Covid-19, this is not achievable, BVI entities should retain documentary evidence with reasons. Please note that appointing alternate directors in the BVI and/or hosting virtual board meetings as detailed above may assist in achieving compliance. The BVI ITA has also confirmed that all directors do not have to attend board meetings in the BVI – only as many as are required to make the relevant meeting quorate.
Execution of Documents:
BVI law does not generally require documents to be signed with traditional wet-ink signatures by the parties at a signing meeting. Instead, parties entering into commercial contracts will most likely sign a hard copy document in wet ink, which is then converted into electronic form and sent by e-mail. In this regard, the parties should keep in mind the common law “Mercury” guidelines.
As an alternative, and subject to the conditions and exceptions discussed below, a document may also be signed electronically. This may take a number of forms. For example, a signatory may type his/her name into a soft copy of the relevant contract, or apply an electronic image of his/her handwritten signature into the relevant signature block. A web-based esigning platform, such as DocuSign, may also be used to a similar end. It is important to ensure that the M&A of the relevant company and the terms of the applicable commercial contract do not prohibit the use of electronic signatures.
It is worth noting that multiple forms of execution may be used by the parties to an agreement as a matter of BVI law. For example, one or more parties may use an electronic signature, while one or more of the other parties may sign by wet ink.
The Electronic Transactions Act 2001 of the BVI (the “ETA”) recognizes electronic signatures as legally valid, binding and enforceable so long as the relevant signatory intends to sign the applicable document and the signature is reliable in light of its purpose and the circumstances.
Broadly speaking, an electronic signature is deemed to be “reliable” if:
i. the means of creating the electronic signature is linked to, and under the control of, the relevant signatory and of no other person; and ii. any alteration to the electronic signature made after the time of signing is detectable.
It is worth noting that BVI law also requires the consent of the counterparty if the other party signs a document electronically.
Traditional wet-ink signatures are still required for certain documents with special execution formalities or for other reasons. For example, documents that need to be notarized or led with certain registries or authorities may need to be executed by hand. Wills and certain property related documents also need to be signed using wet-ink signatures.
Importantly, the ETA provides that anything required to be done by deed may not be executed by e-signature. Whilst this has not been tested in the courts to our knowledge, our view is that this exclusion does not apply to documents that are executed as a deed but are not required to be executed as such as a matter of law.
As a Practical Matter:
i. BVI companies transacting with banks or other financial institutions should establish whether wet-ink signatures will be required with respect to security documents or any other finance documents. This is fairly typical in cross-border financing transactions.
ii. To the extent that a legal opinion is required with respect to a document that is executed using an e-signature, it is important to check whether counsel will be able to issue a clean opinion, or whether certain assumptions and qualifications will be required.
iii. Directors of BVI companies should consider whether their internal signing policies (if any) need to be updated to cater for the use of e-signatures.
To the extent that any transaction documents need to be sealed as a matter of the governing law of that document, the board of directors of the applicable company should locate the common seal at the outset of the transaction, or authorize the creation of one in a timely fashion.
To the extent that the directors of a BVI company may not be available to sign documents using wet-ink signatures or electronically, the relevant company should consider whether a power of attorney ought to be put in place, or whether it is otherwise appropriate to authorize certain persons to sign documents on behalf of that company by way of a resolution of the board of directors. It may also be possible to appoint an alternate director as referenced above. These types of measures should be considered as part of a company’s overall business continuity and contingency planning.
In part III of this guide, we will consider the impact of Covid-19 on the BVI Registry of Corporate Affairs, as well as the issue of liquidity and financial distress with respect to BVI companies. Stay tuned.
(This publication is not intended to be a substitute for specific legal advice or a legal opinion. For specific advice, please contact: Peter Vas Partner, Loeb Smith Attorneys, Hong Kong, T: +852 5225 4920 E: email@example.com www.loebsmith.com)
About Loeb Smith Attorneys:
Loeb Smith Attorneys is an offshore law firm which delivers high quality Partner-led professional legal services at competitive rates. We are Cayman Islands Law and BVI Law specialists on international corporate, investment and finance transactions. We have an excellent track record of advising investment fund managers, in-house counsels, financial institutions, onshore counsels, banks, companies, and private clients to find successful outcomes and solutions to their day-to-day issues and complex, strategic matters.