The year 2020 has been marked by COVID 19 and its legacy of unspeakable tragedy. Now in the second quarter of 2021, we continue to set records for daily death rates. We have lost family members, friends and coworkers young and old. Losing loved ones of any age is traumatic but in respect of the elderly, there is the additional incalculable loss of wisdom and oral histories.
But this great sorrow is tempered by hopefulness and many have found a way to rise to the occasion and be our best selves. There are now vaccines which the vast majority of the medical community have assured the public, are safe and offer protection from the worst ravages of the disease. Many of us have found we can rely on the aid of our neighbours and people who, at great personal risk, provide the necessary frontline services. Ordinary people are going the extra mile to bring cheer to the sick, shut-in and elderly. There are reports of dance routines in parking lots and outside bedroom windows of homes for the aged; delivery men and women leaving cheerful notes with their packages and groups organize to do free shopping runs for persons who are at greatest risk from the disease. We know that we are not yet out of the woods but even so, we are all asking ourselves what we can do for each other to support our communities.
It is in that spirit that we offer suggestions here to persons who hold legal title to shares in British Virgin Islands (BVI) companies (Shareholders). Even as we continue to hope for the best, we must prepare for the worst and that includes thoughtful succession planning. Persons who in the past, for personal or cultural reasons, have not been willing to address the subject of their mortality, have now, in the face of very real global risks, adopted a new attitude to matters of succession. Whilst this will not ease the pain of loss, it may at the very least help to circumvent some of the frustration which may come from dealing with the estate of a lost loved one.
The options that we propose here are not exhaustive. Mindful of the economic toll of COVID 19 and the urgency arising from its grim efficiency, we have selected the cheapest options and those which are the easiest and therefore quickest to implement.
Wills and Trusts
Before we make any recommendations, let us consider, briefly, BVI Wills and Trusts. These are very effective tools for succession planning in connection with shares in a BVI company (Shares), but they are not necessarily the cheapest of available options. For example, making a BVI Will is fairly inexpensive but upon death the Will must go through the Probate process and that can be costly.
Recommendations
Our recommendations involve sharing ownership of the BVI Company during the lifetime of the Shareholders. Given that we will not be addressing the subject of Wills or “inheritance” in its strict meaning we will use the term “proposed Recipients” instead of “heirs”.
Joint Tenancy With the Right of Survivorship
A Shareholder may, instead of waiting until death to have his/her Shares registered in the name of the proposed Recipients, consider converting his/her shareholding into a joint tenancy with the right of survivorship (Joint Tenancy). A Joint Tenancy allows the Shares to be registered in the names of the Shareholder and the proposed Recipients during the lifetime of the Shareholder.
Shares which are held in a Joint Tenancy do not become a part of the deceased’s estate; they cannot be passed by a Will. In addition to this, the rights of the other joint tenants “survive” the death of a joint tenant (i.e. the others continue to hold the Shares as joint tenants after the Shareholder’s death). In this way, the last surviving joint tenant takes everything.
The primary advantage of the Joint Tenancy from a cost perspective is the avoidance of legal fees and Court costs connected with the BVI grant of grant of representation process. This probate representation process (which includes a grant of probate or resealing of a Will or Letters of Administration) comes into play whether the person died testate; that is, having left leaving a Will (in which case Probate (or in some cases the resealing of a Will ) would be applicable) or died intestate; that is, without leaving a Will (in which case Letters of Administration would be applicable); as it which is necessary in order to secure the proper authorization in order to distribute the Shares legally..[1]
Concerns about which of the joint tenants will have the power to vote the Shares, collect dividends etc. can be addressed contractually.
It is worth noting that, when the joint tenants are reduced to one shareholder, the Joint Tenancy arrangement will have to revisited. The Shareholding can either be converted into a new Joint Tenancy, or different arrangements may be explored, including one of the other options recommended here.
Amending the Memorandum and Articles of Association
Another option which, like the Joint Tenancy, allows a shareholder to register Shares in the name of his proposed Recipients during the lifetime of the shareholder is to amend the BVI company’s memorandum and articles of association (M&AA) to create an additional class of Shares for the proposed Recipients. That new class will have dormant rights that are only triggered if the shareholder is declared dead.
Drafting an M&AA for this purpose is a nuanced process. It is helpful to have some prior experience in doing so. We would be pleased to advise in relation to that process.
Reserve Directors – if you are the sole director and also the sole shareholder
Whilst the appointment of a Reserve Director is not a succession planning tool in and of itself (i.e. it is not a direct means of changing or creating title to Shares) it is sufficiently adjacent to be worth mentioning.
BVI law allows an individual (not a corporate entity) who is both the sole director and the sole shareholder of a BVI company, to appoint a reserve director. The reserve director will only have power to act in respect of the affairs of the BVI company upon the death of the sole director/sole shareholder. At any time before the death of the sole director/sole shareholder, the appointment of a reserve director may be revoked, or the reserve director may resign.
The vast majority of BVI companies will have articles of association (Articles) which provide that the management of the BVI company is reserved for the directors. If a sole director/sole shareholder dies, the BVI company is left rudderless. There is no-one at the helm to make decisions for the BVI company, including but not limited to passing resolutions, approving share transfers, instructing registered agents, making claims, initiating suits, signing documents, appointing a new director etc. In some circumstances the only available means to resolve the situation is a Court Order to rectify the register of members; whereupon the members can appoint a director. That is a time consuming and expensive process.
The advantage of the reserve director is that, upon the death of the sole director/shareholder there will be someone immediately at the helm who can maintain the management of the BVI company. No further appointment process after death, will be required in order for the Reserve Director to act on behalf of the BVI company.
The Reserve Director can take on the task immediately of procuring a death certificate etc. and liaising with the registered agent of the BVI company for the purposes of updating the books and records of the BVI company. When those tasks are completed, the Shareholders can replace the reserve director or appoint additional directors.
Generally, What Not To Do
In an effort to save time and money (which is understandable in these times), there are some temptations which may seem reasonable, but which Shareholders should avoid, because they do not work.
Shareholders should avoid arrangements which, upon the death of the Shareholder, either, seek to deal with the Shares (including the exercise of rights conferred by the Shares) or, purport to circumvent the BVI grant of representation processes on death. They should await grants of representation by the Court and allow the Shares to go to the personal representative of the estate of the deceased until they are disposed of in accordance with the wishes of the deceased or as determined by applicable law.
Attempting to transfer shares by preparing undated instruments of transfer, signed by the Shareholder with instructions to date the instrument on his/her death; or preparing a power of attorney granted by the Shareholder with instructions for disposing of the Shares cease to have effect on death. Those arrangements create agency and agency in most cases terminate on death, thus rendering those instructions useless. Those arrangements can be found to constitute “intermeddling with the estate” and invalidated on that basis.
Conclusion
These are basic straightforward steps that are significantly cheaper than the cost of doing nothing. Please reach out to us and begin that discussion now. It is well worth the effort.
If you are a Shareholder, we recommend that you take some time to discuss with your family any of these options that appeal to you. It is important for you to be honest with yourself about your family dynamics. You should also have a talk with financial advisors in the jurisdiction in which you and your proposed Recipients are habitually resident or are subject to tax, so that you may ascertain and assess the ramifications of these succession planning tools.
We are happy to discuss these matters with you and can be reached at the email addresses below:
Sarahlou.rockhead@hunteandco.com
[1] The Beneficial Ownership Secure Search System will have to be updated but that information is not available to the general public.
