In Cyprus, companies that are struck off the official companies register maintained by the Department of Intellectual Property and Registrar of Companies in Cyprus (the Registerand the Registrar) can be restored, mainly, through two routes: (1) administrative restoration by the Registrar; or (2) Court-ordered restoration.

The appropriate route depends primarily on the reason for the strike-off and the time that has passed since the company was removed from the Register. This article outlines both processes and explains the key legal considerations involved.

Strike-off process

Under section 327(1) and (2A) of the Companies Law, Cap. 113 (the Law), a company that is not under a liquidation process may be struck off by the Registrar in the following scenarios where:

1. The Registrar believes the company is not carrying on business or is not .; or

2. The directors apply for strike-off to the Registrar, provided the company has fulfilled all legal obligations; or

3. Failure to pay the annual levy (which applied from 2011-2023, as now abolished) within one year from the due date; or

4. Failure by a variable capital investment company to file the required special resolution within the timeframe set by the Companies (Amendment) (No. 3) Law of 2021.

If the Registrar has reasonable cause to believe a company is inactive, as per scenario (1) above, then:

1. A first letter is sent requesting confirmation of the company's operational status.

2. If no response is received within one month, a second letter is issued within 14 days, warning that a strike-off notice will be published if the company does not reply within another month.

3. If there is still no response, a three-month notice is published in the Official Gazette.

4. During this period, the company, its members, or its creditors may file an objection showing that the company is active or compliant.

5. If no objection is made, the company is struck off the Register.

Administrative restoration

A company struck off by the Registrar may be restored administratively within 24 months of the strike-off date, following an application for restoration submitted to the Registrar

Who may apply?

The application for restoration may be filed by a director or a member of the company.

What must accompany the application?

For the purposes of the company meeting any outstanding requirements from before its strike-off date, the application must be accompanied by:

1. all outstanding filings including forms, reports, financial statements and documents due prior to the strike-off date;

2. any unpaid fees, charges, and/or fines for omissions that occurred and/or were imposed before the strike-off date;

3. a written consent from a competent representative of the Republic for the company's restoration, in the event that its assets and/or rights have been managed by the Republic; and

4. payment of a €20 fee, plus €20 if the procedure needs to be expedited.

If satisfied that at the time of the strike-off, the company was offering services or was in operation, and all legal requirements relevant to the circumstances have been met, the Registrar will restore the company by re-registering it on Register and issue the restoration certificate.

Following the restoration through the administrative route, the company is deemed to continue to exist as if it had not been struck off.

This option is undoubtedly faster, more cost-effective, and simpler than going through the Courts. However, it is only available within 24 months from the date that the company was struck off the Register.

Restoration by Court order

At any point between 2 - 20 years after the strike off, a company may be restored by Court order.

Who may apply to the Court?

The application for restoration may be filed before the Court of competent jurisdiction by:

1. the company itself; and

2. any member or a creditor of the company that feels dissatisfied with the strike-off, or has suffered damage as a result of the company's actions prior to the strike...

The enforcement toolkit available in the BVI is similar to many other common law jurisdictions. However, the BVI Courts have tailored their approach to meet the challenges a creditor may face when looking to enforce over a complex structure.

While it has its own legal system, the BVI is a British Overseas Territory. It is therefore heavily influenced by judicial decisions made in England and Wales - widely recognised as one of the fairest jurisdictions in the world. Parties also have the added benefit of being able to appeal to the Privy Council, where Supreme Court judges regularly hear appeals from the BVI.

This guide sets out a high-level overview of the areas in which we regularly assist our clients.

Subject to certain criteria being met, BVI Courts can recognise many foreign Judgments and have strong legal frameworks in place in this regard. Drawing from both common law and statute, the Courts offer well tested and flexible procedures that are adaptable to global developments.

Norwich Pharmacal Orders (NPOs)

In the BVI it is not compulsory to make publicly available all company records, such as minutes of meetings and the decisions behind the minutes. However, they are kept by a "registered agent" located on the island. Sometimes companies do make these records available and for a small fee we can check the record. Alternatively, if there has been wrongdoing, the BVI Courts have a powerful weapon in being able to compel the registered agents (and other entities such as banks and internet service providers) to release information to your client identifying wrongdoers, proving wrongdoing or identifying assets for enforcement. NPOs can be accompanied by "seal and gag" orders meaning that if successful, the registered agent cannot tell its client that such an order has been made.

Freezing injunctions

Where there is a risk that assets or proceeds may be dissipated, BVI Courts are frequently used to grant freezing injunctions. These are a powerful tool to prevent any steps being taken to dissipate assets pending the outcome of the wider proceedings (even if those proceedings are in other jurisdictions). The requirements to obtain a freezing injunction are similar to other common law jurisdictions but are flexible so as to recognise the way assets are held in offshore jurisdictions.

The BVI Courts have a statutory power to grant freezing injunctions in support of foreign proceedings which ensure that assets located in the BVI, including shares, are kept safe during the pendency of dispositive foreign litigation. This development is particularly helpful in the case of the BVI companies, as such companies typically conduct most or all of their business activities outside the BVI (such that the BVI may not be the most appropriate forum for asset recovery litigation).

Charging orders

BVI Courts have powers to grant charging orders over shares, property or other assets belonging to a debtor (to include beneficially ownership). If successful a charge will be imposed on a judgment debtor's assets. If the debt remains unsatisfied, further steps can be taken to enforce a sale of the charged asset to satisfy a judgment or other award.

Garnishee orders

Creditors can make an application to the BVI Courts for monies to be paid directly to them which are held by a third party. This method of enforcement is commonly used to take possession of funds held in a debtor's bank account.

Appointment of a receiver

One of the most powerful weapons in the BVI enforcement toolkit is the appointment of a receiver. Given offshore companies are often used as holding vehicles, receivership allows a receiver to take control of a corporate structure and move "downstream" to recover assets. In simple terms, a receiver can stand in the judgment debtor's shoes to gather in and realise property. This has the added advantage of immediately preventing a judgment debtor from dealing with that property.

Harneys successfully opposed a claimant's application seeking the Court's leave to testify via videoconference during civil proceedings, before the District Court of Limassol, due to alleged health issues that prevented the claimant from travelling to Cyprus to testify.

The claimant's request was based on section 36A of Evidence Law, Cap 9, which provides that, in criminal or civil proceedings, a Court in Cyprus may permit a witness located outside the country to testify via videoconference if it deems it to be in the interests of justice.

According to the same provision, videoconferencing refers to real-time audio and visual communication that enables the witness and courtroom participants (including the Court, the defendant, lawyers, interpreter, or assistants) to see and hear each other.

Where such request is approved, the Court may impose any conditions it considers necessary, provided that these do not conflict with Cyprus's obligations under any applicable bilateral or international conventions.

Therefore, for the Court to grant such leave, the following must be satisfied:

The witness shall be situated outside of Cyprus; andit is in the best interests of justice.

What constitutes the "interests of justice" is at the discretion of the Court, taking into account all the surrounding circumstances.

The Court held that the evidence submitted was insufficient to establish that granting leave to testify via videoconference would serve the interests of justice.

Although it was alleged that the claimant suffered from a "serious health problem," the medical certificate submitted failed to provide the Court with adequate detail or evidence regarding the claimant's actual state of health, that would justify a departure from the fundamental principle that trials should be conducted with witnesses physically present before the Court.

Accordingly, the Court dismissed the application.

This judgment is particularly noteworthy, as recent case law reflects a generally more permissive approach to such applications under the new Civil Procedure Rules, the overarching aim of which is to empower the Courts to resolve cases fairly, efficiently, and at a lower cost. Nevertheless, fairness demands solid evidence; without it, even modern conveniences such as videoconferencing cannot override fundamental trial principles.

Fraudsters sometimes choose offshore vehicles in their illegal schemes under the mistaken belief that the misappropriated assets will not be found or that the victims of fraud will not be able to identify the fraudsters.

This is completely wrong. The BVI Courts apply a well-known legal maxim originally developed by the English Courts in Lazarus Estates v Beasley [1956] 1 QB 702: "No Court in this land will allow a person to keep an advantage which has been obtained by fraud ... fraud unravels everything."

When can fraud cases be brought in the BVI?

To secure assistance from the BVI Courts in tackling fraud, there must be a nexus to the BVI that engages the Court's jurisdiction. This will invariably involve one or more BVI companies participating in the fraud. The role of the entities located in the BVI, and the circumstances of the individual case, will dictate the extent to which the BVI Courts can assist.

Claims arising out of fraud might be pursued in the BVI in the following circumstances:

1. Where entities that participated in the fraud are located in the BVI

For example, where BVI entities paid or received bribes, where BVI entities are used as conduits through which proceeds of wrongdoing are passed, or where BVI entities enter into sham contractual agreements to conceal the diversion of assets to third parties.

2. Where property situated in the BVI has been transferred for the purpose of defrauding creditors

For example, where the shares of a valuable BVI company are transferred to a third party to put those shares out of the reach of the transferor's creditors.

3. Where the proceeds of fraud are held by an entity located in the BVI, regardless of whether that entity is directly involved in the wrongdoing

For example, where a BVI company used as the vehicle of a fraud holds a bank account in a different jurisdiction, through which it routes the proceeds of its scam.

4. Where fraudulent acts took place in the BVI

Such as the issuing of fake invoices by a BVI company or the issuing of deliberately misleading or untruthful statements by a BVI company to attract investment into a fund.

What are the claims that can be brought to tackle fraud in the BVI?

The term "fraud" can encompass a wide variety of actions that share the common theme of dishonesty, there are various causes of action that can be pursued in the BVI depending on the circumstances of the case. The most obvious ones are as follows:

1. Where fraudulent statements have persuaded people to part with their money or other assets then a tortious claim for deceit may accrue, which would allow the victim to seek compensatory damages. Where a statement has led to the victim entering into a contract then a claim in fraudulent misrepresentation may accrue which will allow the contract to be set aside and/or a claim in damages.

2. A claim in bribery will arise in circumstances where a person or entity pays secret commissions to the agent of a person or entity with whom they are dealing and where the principal has no knowledge of the payment. Such payments will often be made to induce the agent to act other than in the best interests of their principal and to favour the bribe payer in some way, although there is no requirement to prove such inducement (it will be presumed).

3. If the director(s) of a BVI company have misapplied company assets or otherwise acted for an improper purpose, not in the best interests of the company and/or dishonestly then they will be in breach of their fiduciary duties, which gives the company a cause of action against the director(s). In addition, the breach of fiduciary duties by the director(s) may give rise to ancillary claims against third parties that had knowledge of the breach of fiduciary duties (see below).

4. Where there has been a payment of money or transfer of assets in breach of trust or breach of fiduciary duties, then a person or entity receiving the money or assets with knowledge of the breach of duties can be liable in "k...

Fraudsters sometimes choose offshore vehicles in their illegal schemes under the mistaken belief that the misappropriated assets will not be found or that the victims of fraud will not be able to identify the fraudsters.

This is completely wrong. The BVI Courts apply a well-known legal maxim originally developed by the English Courts in Lazarus Estates v Beasley [1956] 1 QB 702: "No Court in this land will allow a person to keep an advantage which has been obtained by fraud ... fraud unravels everything."

When can fraud cases be brought in the BVI?

To secure assistance from the BVI Courts in tackling fraud, there must be a nexus to the BVI that engages the Court's jurisdiction. This will invariably involve one or more BVI companies participating in the fraud. The role of the entities located in the BVI, and the circumstances of the individual case, will dictate the extent to which the BVI Courts can assist.

Claims arising out of fraud might be pursued in the BVI in the following circumstances:

1. Where entities that participated in the fraud are located in the BVI

For example, where BVI entities paid or received bribes, where BVI entities are used as conduits through which proceeds of wrongdoing are passed, or where BVI entities enter into sham contractual agreements to conceal the diversion of assets to third parties.

2. Where property situated in the BVI has been transferred for the purpose of defrauding creditors

For example, where the shares of a valuable BVI company are transferred to a third party to put those shares out of the reach of the transferor's creditors.

3. Where the proceeds of fraud are held by an entity located in the BVI, regardless of whether that entity is directly involved in the wrongdoing

For example, where a BVI company used as the vehicle of a fraud holds a bank account in a different jurisdiction, through which it routes the proceeds of its scam.

4. Where fraudulent acts took place in the BVI

Such as the issuing of fake invoices by a BVI company or the issuing of deliberately misleading or untruthful statements by a BVI company to attract investment into a fund.

What are the claims that can be brought to tackle fraud in the BVI?

The term "fraud" can encompass a wide variety of actions that share the common theme of dishonesty, there are various causes of action that can be pursued in the BVI depending on the circumstances of the case. The most obvious ones are as follows:

1. Where fraudulent statements have persuaded people to part with their money or other assets then a tortious claim for deceit may accrue, which would allow the victim to seek compensatory damages. Where a statement has led to the victim entering into a contract then a claim in fraudulent misrepresentation may accrue which will allow the contract to be set aside and/or a claim in damages.

2. A claim in bribery will arise in circumstances where a person or entity pays secret commissions to the agent of a person or entity with whom they are dealing and where the principal has no knowledge of the payment. Such payments will often be made to induce the agent to act other than in the best interests of their principal and to favour the bribe payer in some way, although there is no requirement to prove such inducement (it will be presumed).

3. If the director(s) of a BVI company have misapplied company assets or otherwise acted for an improper purpose, not in the best interests of the company and/or dishonestly then they will be in breach of their fiduciary duties, which gives the company a cause of action against the director(s). In addition, the breach of fiduciary duties by the director(s) may give rise to ancillary claims against third parties that had knowledge of the breach of fiduciary duties (see below).

4. Where there has been a payment of money or transfer of assets in breach of trust or breach of fiduciary duties, then a person or entity receiving the money or assets with knowledge of the breach of duties can be liable in "k...

The rapid spread of the novel coronavirus (COVID-19) and the measures put in place by national governments to contain it are having profound and swift global economic impact.

Many businesses which appeared financially healthy just a few weeks ago now face severe stress and, while many will recover strongly, others will inevitably fail.

In that almost unprecedented context, it is critically important that directors of BVI companies understand their obligations under BVI law where a company is in financial difficulty, and are aware of the measures they can take to mitigate the risks.

One of the key lessons of past recessions has been that companies that make painful decisions decisively having taken expert advice sooner rather than later tend to have a greater range of options and a better chance at recovery.

Key takeaways

A BVI company may be insolvent on a cash flow or balance sheet basis.

Directors of an insolvent BVI company owe their duties to maximize value for the creditors, rather than the shareholders.

Insolvent trading concerns arise if a BVI company continues trading despite having no reasonable prospect of avoiding liquidation.

In some circumstances, directors could face personal liability.

There are sensible precautions and mitigating measures directors can take now to help protect themselves against future claims by creditors or liquidators.

There are a range of insolvency and restructuring tools under BVI law, but there is no "debtor in possession" procedure under BVI law equivalent to Chapter II in the US and no equivalent to the administration process under UK law.

Insolvency under BVI law

A BVI company is considered insolvent if it:

1. is unable to pay its debts as they fall due (cash flow insolvency); or

2. if the value of its liabilities exceeds the values of its assets (balance sheet insolvency); or

3. fails to comply with a valid statutory demand, or a judgement or order of a BVI court against the company is returned wholly or partly unsatisfied (technical or deemed insolvency).

Cash flow insolvency is likely to be a particular issue for many companies right now, as they may have a relatively healthy balance sheet but have seen a significant decrease in cash in, whilst their obligations to their creditors remain unchanged.

Director duties and misfeasance

Directors of a BVI company owe various statutory and fiduciary duties to the company (summarised more fully here). The court has broad powers to order a director (or other officer) of a company in liquidation to pay compensation to the company where the director "has been guilty of any misfeasance or breach of any fiduciary or other duty in relation to the company".

When a company is insolvent, or close to it, the directors must act in the best interests of the creditors of the company (rather than the company itself). Case law has suggested different triggers for the point at which directors should start to consider the best interests of creditors, varying from (i) when the company is near to, or in the vicinity of, insolvency, (ii) when there is doubtful solvency, or a risk of insolvency, or (iii) wherever there is financial instability.

Regardless of the exact point at which a director is strictly required to specifically consider the interests of creditors, a prudent director (taking into account their general duty to exercise reasonable care and skill) who faces financial difficulty should probably begin to consider at an early stage what actions can be taken to resolve or mitigate the issue, whether there is a prospect of recovery, whether there is a need to take legal advice, and whether or not formal insolvency proceedings are warranted.

Insolvent trading

Insolvent trading is, in essence, a means for allowing the courts to force directors to contribute to the company where their decision to try and keep the company running caused creditors a greater loss than if they had proceeded immediately with insolvency proceedings. In the current extraordin...

The rapid spread of the novel coronavirus (COVID-19) and the measures put in place by national governments to contain it are having profound and swift global economic impact.

Many businesses which appeared financially healthy just a few weeks ago now face severe stress and, while many will recover strongly, others will inevitably fail.

In that almost unprecedented context, it is critically important that directors of BVI companies understand their obligations under BVI law where a company is in financial difficulty, and are aware of the measures they can take to mitigate the risks.

One of the key lessons of past recessions has been that companies that make painful decisions decisively having taken expert advice sooner rather than later tend to have a greater range of options and a better chance at recovery.

Key takeaways

A BVI company may be insolvent on a cash flow or balance sheet basis.

Directors of an insolvent BVI company owe their duties to maximize value for the creditors, rather than the shareholders.

Insolvent trading concerns arise if a BVI company continues trading despite having no reasonable prospect of avoiding liquidation.

In some circumstances, directors could face personal liability.

There are sensible precautions and mitigating measures directors can take now to help protect themselves against future claims by creditors or liquidators.

There are a range of insolvency and restructuring tools under BVI law, but there is no "debtor in possession" procedure under BVI law equivalent to Chapter II in the US and no equivalent to the administration process under UK law.

Insolvency under BVI law

A BVI company is considered insolvent if it:

1. is unable to pay its debts as they fall due (cash flow insolvency); or

2. if the value of its liabilities exceeds the values of its assets (balance sheet insolvency); or

3. fails to comply with a valid statutory demand, or a judgement or order of a BVI court against the company is returned wholly or partly unsatisfied (technical or deemed insolvency).

Cash flow insolvency is likely to be a particular issue for many companies right now, as they may have a relatively healthy balance sheet but have seen a significant decrease in cash in, whilst their obligations to their creditors remain unchanged.

Director duties and misfeasance

Directors of a BVI company owe various statutory and fiduciary duties to the company (summarised more fully here). The court has broad powers to order a director (or other officer) of a company in liquidation to pay compensation to the company where the director "has been guilty of any misfeasance or breach of any fiduciary or other duty in relation to the company".

When a company is insolvent, or close to it, the directors must act in the best interests of the creditors of the company (rather than the company itself). Case law has suggested different triggers for the point at which directors should start to consider the best interests of creditors, varying from (i) when the company is near to, or in the vicinity of, insolvency, (ii) when there is doubtful solvency, or a risk of insolvency, or (iii) wherever there is financial instability.

Regardless of the exact point at which a director is strictly required to specifically consider the interests of creditors, a prudent director (taking into account their general duty to exercise reasonable care and skill) who faces financial difficulty should probably begin to consider at an early stage what actions can be taken to resolve or mitigate the issue, whether there is a prospect of recovery, whether there is a need to take legal advice, and whether or not formal insolvency proceedings are warranted.

Insolvent trading

Insolvent trading is, in essence, a means for allowing the courts to force directors to contribute to the company where their decision to try and keep the company running caused creditors a greater loss than if they had proceeded immediately with insolvency proceedings. In the current extraordin...

There continues to be an upward trend in the use of schemes of arrangement, with or without the relevant company being in provisional liquidations, as a restructuring tool, particularly in relation to China-related debt. The Chinese property market continues to suffer significant challenges and points to further use of schemes of arrangement in the jurisdictions of incorporation. There continue to be coordinated approaches across offshore jurisdictions.

Discussion points include:

Recent schemes of arrangement that have been approvedThe increased willingness of the judiciary to assist struggling companies that have a realistic prospect of trading their way out of difficulty

Download the PDF to read more.

This article is an extract from GRR's Americas Restructuring Review 2022. The whole publication is available at https://globalrestructuringreview.com/review/restructuring-review-of-the-americas/2024.

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An introduction to arbitration in the British Virgin Islands

In the British Virgin Islands, arbitration is principally regulated by the Arbitration Act 2013 (the Act), which came into force in 2014.

The Act is modelled upon the UNCITRAL Model Law on International Commercial Arbitration (the Model Law), subject to a number of local modifications. The Act is supplemented by the BVI IAC Arbitration Rules (the BVI Rules), which were brought into force in 2016.

BVI International Arbitration Centre

The BVI International Arbitration Centre (the IAC) also opened in 2016. The IAC was the first centre of its kind in the Caribbean to provide a forum for dispute resolution by way of arbitration. The IAC's Board of Directors is chaired by Mr John Beechey CBE, the former President of the International Court of Arbitration of the International Chamber of Commerce.

The BVI's central location between North and South America means that parties with business and other interests in those locations are able to choose a neutral territory in which to resolve their disputes. The IAC also provides a perfect venue for arbitrations involving BVI incorporated companies.

The centre itself provides a modern hi-tech facility in which parties from around the globe can expect international high-class standards in a politically neutral environment. Amongst the facilities provided at the centre are simultaneous language interpretation services, audio and video conferencing facilities and a concierge service.

BVI Arbitration Act 2013

The Act has three main features which are of interest:

1. It incorporates the UNCITRAL Model Law on International Commercial Arbitration (the Model Law) as adopted by the UN Commission which is recognised internationally.

2. The BVI is signatory to the UN Convention on Recognition and Enforcement of Foreign Arbitral Awards, commonly referred to as the New York Convention.

3. The option to opt-in to a right of appeal to Court on a question of law arising from the arbitral award.

In addition, other useful matters to note about the Act are the arbitral tribunal's power to consolidate two or more arbitrations in certain circumstances and a party's ability to apply to Court challenging the arbitral award on the ground of serious irregularity.

UNCITRAL Model Law

The incorporation of the Model Law into the Act enshrines well-established international principles. The same may be said of the BVI Rules as they are based on 2010 the UNCITRAL Arbitration Rules (the UNCITRAL Rules). The Act and UNCITRAL Rules recognise firstly, that the parties are free to choose the terms of the arbitration clause subject to the usual common law rules on validity; and secondly, the parties are able to appoint their preferred number of arbitrators.

The effect of the incorporation of the Model Law is that a number of matters codified in the Model Law apply to the Act. These are: (1) the arbitral tribunal's ability to rule on jurisdiction further to section 32; (2) the doctrine of severance or separability under section 32; (3) the ability to challenge the appointment of or to remove an arbitrator further to section 23; and (4) the power of the tribunal to grant interim measures under section 33. These provisions closely follow the Model Law.

Jurisdiction

Jurisdiction challenges are common in arbitration so it is important that the arbitral tribunal retains the power to rule on its own jurisdiction in order to avoid unnecessary delay. The tribunal can hear any objections with respect to its jurisdiction including in relation to the existence or validity of the arbitration agreement without needing to take the dispute to Court. The jurisdictional power of the arbitral tribunal includes the power to decide whether the tribunal is properly constituted and to decide what matters have been submitted for resolution in accordance with the arbitration agreement.

Severance

The doctrine of severance or separability further to section 32 of the Act gives the arbitral tribunal the power to sever the arbitration clause as a contract ...