What should directors and fiduciary service providers be considering?
SOS Substance on Substance: Episode thirteen – What should directors and fiduciary service providers be considering?
In the thirteenth instalment of Harneys’ Substance on Substance series, Joshua Mangeot and special guest George Weston discuss BVI directors’ duties in the context of the Economic Substance (Companies and Limited Partnerships) Act 2018 (the ES Act) and provide an update on amendments to the Beneficial Ownership Secure Search System Act 2017 (the BOSS Act).
• We have received numerous queries from directors and officers of BVI companies and fiduciary and corporate services providers (CSPs) regarding their responsibilities in this area – the majority of questions relate to BVI companies
• Directors of BVI companies are subject to various common law and statutory duties – broadly, the main duties under the BVI Business Companies Act 2004 (the BC Act) are (i) to act bona fide in the best interests of the company; (ii) to exercise their powers for a proper purpose and in accordance with the BC Act; and (iii) to exercise reasonable care and skill
• Where a director allows or permits a company to incur fines or penalties for non-compliance with the economic substance requirements, this may give rise to potential liability to the company for breach of their general duties
•There are also some specific obligations to be aware of under the ES Act and the BOSS Act – broadly:
o as of 1 October 2019, every BVI company and other corporate and legal entity must identify whether it carries on one or more “relevant activities” under the ES Act (and if so, which activities) – failure to do so without “reasonable cause” is an offence and, in the case of a company, may be committed by directors, officers and other persons in certain limited circumstances by virtue of the BVI’s Interpretation Act (Cap. 136)
o the International Tax Authority (ITA) has broad investigation powers to service notice on any person requiring them to provide such documents and information as the ITA may reasonably require to exercise its functions under the ES Act – failure to provide information without “reasonable excuse” or intentionally providing false information is an offence
o conversely, the general financial penalties for non-compliance with the ES Act do not fall on directors or officers but on the company, subject to the point made regarding directors’ duties generally
• We therefore recommend directors and CSPs providing fiduciary services take appropriate legal and/or tax advice where they are uncertain regarding their companies’ compliance and reporting obligations under the ES Act – legal advice may benefit from legal privilege and, broadly, reliance which has been reasonably placed on such advice may discharge a director’s duties by virtue of specific provisions in the BC Act and may provide “reasonable cause” if the ITA investigates or challenges the basis of the classification
• Directors should ensure they have understood these new obligations and classified their company and may wish to pass resolutions or hold a meeting to record the basis of their determination of their company’s position under the ES Act and the BOSS Act and to record the fact that they took appropriate advice
• Expected amendments to the BOSS Act were published on 31 October 2019 – broadly, these bring the BOSS Act into line with the position anticipated by the ITA Rules of 9 October 2019
This episode was recorded on Monday 4 November 2019.