Shares in BVI business companies: avoiding a succession problem

It is therefore very important that careful thought is given to succession planning in relation to BVI shares where they are or will be registered in the name of an individual. Succession planning may take the form of a BVI will dealing exclusively with their devolution or a BVI trust.

BVI wills – a solution for some cases
A BVI will may be the simplest and most appropriate form of succession planning where, at least, the individual is not subject to “forced heirship” rules. Indeed it may also be the most appropriate vehicle for individuals who are subject to such rules but where there is no desire to make provision inconsistent with them.

In either case, a BVI will is ordinarily advisable because a foreign representative of the deceased’s worldwide estate (or a person beneficially entitled to it under foreign law) will have no title under BVI law to deal with BVI situated assets. Shares in a BVI business company are, for this purpose, treated as BVI situated under BVI law. Accordingly, even a validly appointed foreign representative of a deceased person’s estate will have to make application to the BVI court for a grant of representation before there may be any lawful dealing with the shares. It is, however, significantly less costly and speedier for the executor of a BVI will which deals with devolution of the shares to obtain probate of that will and begin administration of the estate in accordance with applicable law.

BVI trusts – a solution in other cases
Where, however, the owner of BVI shares is subject to forced heirship rules (for example, in accordance with Shariah law) and wishes to make provision for the shares’ devolution which differs from that of the jurisdiction of domicile at death, a BVI will is likely to be an inappropriate succession planning tool. This is because, in respect of shares in a BVI business company (which are classified as movable rather than immovable property for succession purposes), BVI law treats the law of the jurisdiction of domicile at death as the law governing succession to movable property. If the provisions of a BVI will contravene applicable law, they will not have effect.

Accordingly, a more robust structure is needed and a BVI trust will, in many cases, meet that need since no transfer of property into a BVI trust may be set aside by the BVI court on the ground that the transfer defeats heirship rights – or rights conferred on a person by reason of a personal relationship, including marriage or former marriage – under foreign law. It may also be the case that a timely lifetime transfer into trust may have beneficial estate or inheritance tax consequences which are jurisdiction specific and on which separate onshore advice needs to be taken.

VISTA trusts – retaining a degree of control
For pure succession purposes, however, a transfer of BVI shares into trust would typically reserve a life interest to the settlor and make provision for the shares to be held in trust for those whom the settlor wanted to benefit upon death. The settlor’s life interest would afford entitlement (subject to the annual costs of running the trust) to receipt of income from the shares for life and, if the provisions of the Virgin Islands Special Trusts Act 2003 (“VISTA”) are applied to the trust of the shares, would also allow the settlor to retain control of or influence in the management of the company either directly as a lifetime board member or through control of the process of appointments to the board. Quite apart from leaving the settlor in control of running the company business, this would also allow retention of direct or indirect control over the declaration of dividends which, as income in the trustee’s hands, would be distributable to the settlor alone. Additionally, applying VISTA to the trust allows the settlor to prevent a sale or other disposition of the shares save with specified consents. Although the trustee of a VISTA trust must be the holder of a BVI trust licence and act alone, the features of the trust which have been highlighted here are likely to give comfort to settlors who put their shareholding into trust that a significant amount of control over the disposition may still lawfully be retained by them under BVI law.

One or the other
In the vast majority of cases, one or other of the succession planning tools discussed in this article will be appropriate where shares in a BVI business company are held by an individual. The sensible time to address such questions is at the point of incorporation but failure to address them during the lifetime of the shareholder may risk frustrating the very aims sought to be achieved by incorporating in the BVI to begin with.

raymond.davern@conyersdill.com
www.conyersdill.com