The BVI Business Companies Act 2004 created a statutory set of duties, which apply to any director of a BVI company. Greg Boyd from our friends at Harneys explains these duties and outlines the consequences and liabilities that can follow a breach of duty.
Prior to the BVI Business Companies Act 2004 (the Act) coming into force, the common law was the primary source for directors’ duties, which gave rise to a series of fiduciary obligations. Although there is considerable overlap with the Act, a conservative director should also abide by their common law fiduciary duties.
In a paper written by Harneys, these duties are explained and the consequences and liabilities that can follow a breach of duty are outlined.
What is a director?
All companies are required to have at least one director, although there is no requirement for directors to be a BVI resident or citizen. If a person has not been formally appointed a director (for example, because of a procedural defect in the appointment, or simply because no thought was given to the nature of his role) but acts as a director, they will not escape liability for breach of duty.
Statutory duties of a director
The principal statutory duties of a director can be summarised as:
- to act honestly and in good faith and in what the director believes to be in the best interests of the company when exercising his powers as a director (the “best interests duty”); and
- to exercise the reasonable care, diligence, and skill that a reasonable director would exercise in the same circumstances taking into account, but without limitation,
- the nature of the company;
- the nature of the decision; and
- the position of the director and thenature of his responsibilities (the “reasonable skill duty”);
- to exercise his duties for proper purpose and in accordance with the Act and the memorandum and association of the company (the “proper purpose duty”),
- to disclose any interest which he has in a transaction entered into or to be entered into by the company (the “disclosure duty”).
Click here to read a full description of the director’s duties.
Liability for breach of duty
The Act makes clear that a director is not generally personally liable for any debt, obligation or default of the company. However, there may be personal liability for the directors where they or the company have exceeded their powers or there has been a breach of duty or negligence by them.
With the exception of the failure to disclose an interested transaction (which carries a fine of US$10,000 on summary conviction) the consequences of a breach of duty have not been set out in the Act, but presumably follow the common law position, where damages have been calculated on a tortuous basis (i.e. based on putting the company in the position it would have been in had the breach not occurred). This could include paying compensation for losses, returning any property belonging to the company and paying the company over any profit improperly made by the director.
Click here to read about the use of indemnification and insurances to mitigate the risks.
Get support from local experts
The act of keeping compliant with regulations wherever you operate is essential to keeping your business going. Counting on a local expert is vital; our local experts in TMF Group BVI can help:
- Perform duties of local/nominee directors.
- Provide registered offices.
- Prepare formal minutes, decisions and resolutions taken by Directors and Shareholders on statutory matters.
- Prepare Memorandum and articles of association (or country equivalents).
- Co-ordinate approval of financial accounts by relevant Directors/Shareholders.
- Notify local authorities of changes to company Director or Officers, among other things.
Read the full publication “Duties of Directors of a British Virgin Islands Business Company” here.
This legal guide was prepared for TMF Group by Harneys, a law firm specialising in international offshore law including the law of the British Virgin Islands. For more information about Harneys or the author, Greg Boyd, please visit www.harneys.com.
Greg Boyd has significant experience in advising financial institutions, public and private businesses, high net worth individuals, and their onshore advisors on the corporate and commercial laws of the British Virgin Islands. He works with many of the world's leading lawyers, bankers, private equity firms and accountants on cross-border joint ventures, mergers and acquisitions, corporate reorganizations and stock exchange listings.