Following the conclusion of the FATF’s most recent plenary on 23 June 2023, the FATF has determined that the Cayman Islands has substantively fulfilled its action plan. Therefore, subject only to the completion of an on-site visit by the FATF later this year, which forms part of the FATF’s standard process for removing a jurisdiction from the Monitoring List, the Cayman Islands will be delisted. As the EU has previously confirmed that it does not require the Cayman Islands to take additional steps beyond those set out in the FATF’s action plan to facilitate removal from the EU AML List, it is widely expected that this will automatically follow. See more in our Article published in the Hong Kong Lawyer.

https://www.hk-lawyer.org/content/cayman-islands-satisfies-fatf-action-plan

For those persons who have been carrying on a virtual asset service prior to the coming into force of the VASP Act on 1 February 2023, the VASP Act allows a transitioning period of 6 months (ending therefore on 31 July 2023) within which they can either (1) submit an application to the BVI FSC to be registered as VASPs or (2) cease their VASP- related operations altogether.

Who is a Virtual Asset Service Provider?

By way of recap, the VASP Act defines a VASP as a virtual asset service provider who provides, as a business, a virtual assets service and is registered under the VASP Act to conduct one or more of the following activities or operations for or on behalf of another person:

1. exchange between virtual assets and fiat currencies;
2. exchange between one or more forms of virtual assets;
3. transfer of virtual assets, where the transfer relates to conducting a transaction on behalf of another person that moves a virtual asset from one virtual asset address or account to another;
4. safekeeping or administration of virtual assets or instruments enabling control over virtual assets;
5. participation in, and provision of, financial services related to an issuer’s offer or sale of a virtual asset; or
6. perform such other activity or operation as may be specified in the VASP Act or as may be prescribed by regulations made by the BVI FSC in connection with the VASP Act.

A virtual asset is a digital representation of value that can be digitally traded or transferred, and can be used for payment or investment purposes, but specifically does not include the following:

1. digital representations of fiat currencies and other assets or matters specified in the guidelines which have been, and may in the future be, published in conjunction with the VASP Act; or
2. a digital record of a credit against a financial institution of fiat currency, securities or other financial assets that can be transferred digitally.

Services Expressly Caught by the VASP Act

The following services have been included in a non-exhaustive list of virtual assets services and are, as such, regulated by the VASP Act when carried out on behalf of another person:

1. hosting wallets or maintaining custody or control over another person’s virtual asset, wallet or private key;
2. providing financial services relating to the issuance, offer or sale of a virtual asset;
3. providing kiosks (such as automatic teller machines, bitcoin teller machines or vending machines) for the purpose of facilitating virtual assets activities through electronic terminals to enable the owner or operator of the kiosk to actively facilitate the exchange of virtual assets for fiat currency or other virtual assets; or
4. engaging in any other activity that, under issued guidelines, constitutes the carrying on of the business of providing virtual asset service or issuing virtual assets or being involved in virtual asset activity.

Services Specifically Excluded from the Application of the VASP Act

Rather helpfully, the VASP Act also sets out a non-exhaustive list of some of the services which are specifically excluded from its remit and these are as follows:

1. providing ancillary infrastructure to allow another person to offer a service, such as cloud data storage provider or integrity service provider responsible for verifying the accuracy of signatures;
2. providing service as a software developer or provider of un-hosted wallets whose function is only to develop or sell software or hardware;
3. solely creating or selling a software application or virtual asset platform;
4. providing ancillary services or products to a virtual asset network, including the provision of services like hardware wallet manufacturer or provider of un-hosted wallets, to the extent that such services do not extend to engaging in or actively facilitating as a business any of those services for or on behalf of another person;
5. solely engaging in the operation of a virtual asset network without engaging or facilitating any of the activities or operations of a VASP on behalf of customers;
6. providing closed-loop items that are non-transferable, non-exchangeable and which cannot be used for payment or investment purposes; and
7. accepting virtual assets as payment for good or services (such as the acceptance of virtual assets by a merchant when effecting the purchase of goods).

Before the Amendment Act came into force, there were two distinct processes under the Companies Act which dealt with the restoration of companies that had been struck off and those which had been dissolved, respectively.

A company which was struck-off for a continuous period of 7 years was automatically dissolved with effect from the last day of that 7-year period¹. An application could be made to the Registry of Corporate Affairs prior to dissolution by the company or a creditor, member or liquidator of the company.

A similar (but less straight-forward) process was available for companies which had been dissolved. An application could be made to the BVI Court by a creditor, former director, former member or former liquidator of the company or indeed any person who was able to establish an interest in the company being restored². Any application to restore a dissolved company was required to be made within the period of 10 years after the date of dissolution of the company.³

Therefore, in some cases, it would be possible to restore a company as long as 17 years after it was initially struck-off (for example, where a company was struck off for a period of 7 years before being dissolved, it would then be a further 10 years before restoration of the dissolved company ceased to be available).

A company that was restored was deemed to have continued in existence as if it had not been struck off or (as applicable) dissolved and (in the case of a company that had been dissolved) any assets that had vested in Crown as a result of its dissolution was required to be returned to the company.

The amendments made to the Companies Act by the Amendment Act make significant changes to the circumstances in which companies that have been struck-off are dissolved and also to the permitted timescales within which an application to restore a struck-off or dissolved company can be made.

Under the Amended Companies Act, a company that is struck-off will be automatically dissolved on the date the Registry of Corporate Affairs publishes a notice of striking-off of the company, which will be done approximately 90 days after the company is struck-off. The previous 7-year gap between striking-off and dissolution has therefore all but vanished.

As regards the process of restoring a struck-off / dissolved company, section 217 of the Amended Companies Act states that an application in the approved form may be made and that if the conditions in section 217(2) of the Amended Companies Act are met, the company will be restored. The conditions in section 217(2) are:

• the company was carrying on business or in operation as at the date it was struck-off and dissolved;
• a licensed person is willing to be the company’s registered agent on restoration and that registered agent has updated the company’s records;
• in circumstances where any of the company’s assets have, following its striking-off and dissolution, vested in the Crown bona vacantia, the Financial Secretary has expressly or impliedly consented to the restoration of the company;
• the company has paid the applicable restoration fee and other outstanding amounts; and
• the Registry is otherwise satisfied that it would be “fair and reasonable” for the company to be restored.

The timescale within which an application for restoration of a company has also been shortened from 7 years to 5 years, with such 5-year period commencing on the date on which the notice of striking-off is published in the BVI Gazette.

Importantly, however, it should be noted from the above that dissolved companies can now be restored by way of an application to the Registry, whereas this would (as noted in the previous section) have previously required an application to the BVI Court. Whilst there may be some justified concern around the significantly altered time periods noted above, this streamlined process for restoring dissolved companies is a welcome development.

For the avoidance of doubt, an application to the BVI Court is still required in circumstances where the company that is to be restored was dissolved following the conclusion of its liquidation⁴.

One immediate question that arises from the provisions of the Amended Companies Act relating to the restoration of companies, is what do these changes mean for companies who, as at the time the Amendment Act came into force, were struck-off but not dissolved and whose striking-off was published in the BVI Gazette? Does this mean that the former provisions apply to such companies or has their date of dissolution been back-dated to tie in with the provisions of the Amended Companies Act?
Fortunately, clarity on this issue is provided by the “Transitional Provisions Applying to Struck Off And Dissolved Companies” in sections 60A to 60G (inclusive) of the Amendment Act:

• For companies who, as of 1 January 2023 (the Effective Date), were struck-off and not restored, they have until 30 June 2023 to apply to the Registrar to be restored to the register unless (A) the previously applicable 7-year period⁵ ends prior to such date, in which case that earlier date shall be the deadline for applying for restoration; or (B) the previously applicable 7-year period ends after 30 June 2023, in which case 30 June 2023 shall be the deadline. If a struck-off company is not restored on or by such dates (whichever is applicable), that company will be dissolved on the day thereafter; and
• For companies who, as of the Effective Date, were dissolved, they have until 1 January 2028 to apply for restoration unless (A) the previously applicable 10-year period ends prior to such date, in which case that earlier date shall be the deadline; or (B) the previously applicable 10-year period ends after 1 January 2028, in which case 1 January 2028 shall be the deadline

Restoring companies that have either been struck-off or dissolved has always (necessarily) been a process-driven matter. Notwithstanding some welcome changes that have been brought about by the Amendment Act this very much remains the case.

We have advised on a significant number of BVI company restorations, and we are well placed to do so in light of these developments. Please contact a member of our team, who will be able to discuss the options available to you under the law as it now stands and to guide you through the restoration process.

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1 Section 216 of the Companies Act.
2 Section 218 of the Companies Act.
3 Section 218(2) of the Companies Act
4 Section 218 of the Amended Companies Act.
5 Per Section 216 of the Companies Act

This publication is not intended to be a substitute for specific legal advice or a legal opinion. For specific advice on restoration of struck-off and dissolved companies in the British Virgin Islands, please contact your usual Loeb Smith attorney or any of the following:

E: gary.smith@loebsmith.com
E: robert.farrell@loebsmith.com
E: elizabeth.kenny@loebsmith.com
E. peter.vas@loebsmith.com
E: vivian.huang@loebsmith.com
E: yun.sheng@loebsmith.com
E: faye.huang@loebsmith.com

Loeb Smith is pleased to announce that Robert Farrell has been promoted to Partner in Loeb Smith’s Cayman Islands Corporate and Investment Funds team.

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Robert joined Loeb Smith’s Cayman Islands office in 2021 and advises clients in respect of both Cayman Islands and British Virgin Islands matters. He brings a wealth of experience in complex, high value, cross-border transactions, specialising in (1) investment funds advising on formation and launch, portfolio investments and financing, (2) corporate – cross-border M&A, joint ventures, acquisitions, reorganizations, private equity and merger take privates; (3) banking and finance – acting for both borrowers and lenders with transactions ranging from international real estate finance and VC, private equity and general corporate and commercial lending; and (4) commercial – offering strategic advice on economic substance compliance, consignment agreements, services agreements, IP licensing, and general commercial advisory work.

Robert also has over 12 years’ prior experience as a finance lawyer in the UK, representing senior business leaders and financial institutions, often on high-profile, high-value transactions.

Considered “Very impressive on the commercial finance side of transactions” Robert is also praised by clients “for his ability to handle complex mandates” (Legal500).

Gary Smith, Head of Loeb Smith’s Corporate Group in the Cayman Islands commented, “Congratulations, Robert for joining the Partnership! I feel blessed to be working with our fantastic team and clients. Robert brings a wealth of international experience to the firm and is highly regarded by clients. Our commitment to deliver efficient legal solutions at competitive rates to our clients globally remains as strong as ever.”

“I am delighted to be joining the Partnership at Loeb Smith. I am very grateful for all of the guidance and support that I have been shown by colleagues since joining the firm in 2021 and I am very much looking forward to using the platform of partnership to provide a first-class service to our new and existing clients.”, said Robert.

Well done, Robert!

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Tap the link to check Robert Farrell’s profile in Legal500:

https://www.legal500.com/firms/235334-loeb-smith-attorneys/234779-george-town-cayman-islands/lawyers/2323210-robert-farrell/

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