British Virgin Islands: The Importance of BVI Legal Opinions – A Practical Perspective
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Over the past few weeks, I have provided legal advice to leading banks in Hong Kong; one of the largest banks in the United States; the HM Land Registry in the UK; the Office of Corporate Affairs and Intellectual Property in Barbados; and other institutions, companies, businesses and individuals around the world. In each case, the legal opinion was an important part of the documentation required to conclude or make a decision regarding the transaction in question. In some cases, the notice was legally more important than others. However, in each case, the opinion played a vital role in giving the recipient peace of mind regarding BVI law issues related to the BVI entity involved in the transaction.
Most financing transactions require legal advice where the BVI entity is a borrower, provides some type of security or guarantee, or is involved in other complex financing arrangements. In these cases, the opinion is generally required to cover proper incorporation, good standing, proper execution of relevant documents, enforceability and security registration, if applicable.
Otherwise, notices are required for a host of other types of corporate transactions, including sale and purchase transactions involving real estate and other asset classes, bank account openings, mergers , continuations, plans of arrangement, private placements and stock exchange listings, among others. . Some opinions will cover factual situations involving stock issues, directors’ duties, stock redemption, payment of dividends, rights of dissenters, changes to constitutional documents, interpretation of joint venture agreements, and the applicability of licensing requirements, to name a few.
Accordingly, the nature of the legal advice will vary, but for all types of advice, certain crucial documents or information must be reviewed. These include: (i) relevant transaction documents or legal issues to be resolved; (ii) results of searches of the BVI Registry of Corporate Affairs and the BVI High Court Registry; (iii) the entity’s governing documents; (iv) information provided by the registered agent to the entity’s BVI regarding its directors, members, officers and register of offices; (v) relevant legislation to be considered; and, if applicable, (vi) the resolutions that authorized the recording in the transaction documents or approved a particular type of transaction, for example, an issue of shares or a merger.
No Opinion Required – Potential Dangers
In some cases, persons entering into transactions with BVI entities choose not to obtain legal advice and simply rely on representations made by another party. Sometimes it works just fine, but other times it can cause significant issues. There are times when, without seeking legal advice, it would not have been recognized that the company was struck off the BVI Companies Registry or deemed dissolved for non-payment of license fees for many years, this which affects the ability of the BVI company to validly enter into the transaction. The legal opinion process may reveal other serious issues. For example, that the directors are not properly appointed or are not properly authorized to enter into the transaction; that the shareholding is incorrect or poorly documented; or that the transaction documents contain a charge that should be registered in the BVI to maintain priority for the charge holder.
On transactional matters, a legal opinion often clarifies the procedures and sets out the likely results or consequences of the transaction. For example, in a merger situation, the notice would highlight the fact that all assets and liabilities of the merging entities follow the surviving entity. With respect to internal company matters, without advice or guidance, clients are often unaware that a solvency test must be satisfied for a dividend to be paid or a buyout to be made or for a particular company is not authorized to issue more than a certain number of shares. Therefore, seeking legal advice will help avoid some of the possible dangers and allow for a more transparent and comfortable transaction.
What does a legal opinion cover?
A legal opinion will typically cover the following issues:
- context – an explanation of the transaction or issue concerned, as well as details of the documents examined and the research carried out to prepare the opinion.
- Hypotheses – a number of assumptions will be made in the opinion, mainly on factual elements which cannot reasonably be verified, in particular in cross-border transactions (such as the authenticity of signatures), or for which the information is not entirely simply not available.
- Qualifications – these will limit the opinion when absolute assurance cannot be given on certain matters. They often relate to points of law, such as limitations on enforcement or results in an insolvency scenario.
- Opinions – this is the key element of the legal opinion. Opinions are statements relating to specific points of law and will generally cover matters such as proper constitution, good character, the ability of the entity to enter into transaction documents and the enforceability of such documents. . In a business scenario, these statements will express an opinion about the particular transaction taking place, such as a stock buyback, merger, continuation or otherwise.
A legal opinion is a useful tool in any transaction involving a BVI entity, helping to highlight issues that might otherwise go unnoticed. Searching the register and obtaining information from the registered agent, reviewing constitutional documents and resolutions, and analyzing applicable legislation all play an important role in ensuring that the recipient has a complete view of the situation. Legal advice will help them make the best possible decision when closing a deal or undertaking a business process.
The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.
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