In this article, Shaun Reardon-John provides a bird’s-eye view on how BVI regulation of the financial service sector has improved within the BVI over the past 20 years. He also shares how this has impacted BVI shareholder disputes. He looks at:
Despite the Financial Action Task Force adding the BVI to its “Grey List1” (and ignoring countries such as the USA), on the ground, practitioners are seeing increasing evidence that the BVI’s efforts to combat money laundering have been successful.
Some recent statistics confirmed that in 20232:
These figures need to be considered in the context of the number of companies that existed 20 years ago when, in 2005, the total number was 707,392.3 In 2024 there were 358,592.4
Since 2005, the BVI has either introduced, or substantially strengthened, its multi-strand AML legislation which now is a library of legislation. Of note is the Beneficial Ownership Secure Search System Act (BOSS Act) and Business Companies Act that requires beneficial ownership information to be held by a company’s registered agent and uploaded onto a confidential and secure database. This information is available to law enforcement both domestically and internationally. There has also been a move toward non-law enforcement access if a legitimate interest in the information can be established.5
The BVI’s efforts to combat money laundering have played a significant role in the decrease in incorporation numbers and the increase in BVI companies continuing out of the jurisdiction. Anyone not complying with legislation will see their registered agent resign. By law, a BVI company must have a registered agent, or it will ultimately be dissolved. This has also led to the average lifespan of BVI companies increasing from circa 7.8 years in 2011 to 19 years in 2020.6
The first instance Judge found that Ms Yao has been prejudiced by the actions of her business partner, Ms Kwok. The Court of Appeal substantially reversed the decisions at first instance. The Privy Council affirmed the first instance decisions, confirming that it was open to the trial Judge to determine the appropriate remedy. In this case the Judge placed the BVI parent company into liquidation, even though it was not the remedy sought by the prejudiced party.
At first instance, the trial Judge considered making an order that Ms Kwok purchase Ms Yao’s shares but Ms Kwok’s Counsel vigorously protested this remedy. Before the Privy Counsel, Ms Kwok’s Counsel was noted to have made a “volte face” and complained to the Board that the Judge had not made an order that Ms Kwok purchase Ms Yao’s shares.
The circumstances of the case are not uncommon. The business partners had fallen out over the alleged actions of one party which, it appears, continued even after the initial trial occurred. It is a cautionary tale that the Judge dismissed lesser remedies and went to the deemed remedy of last resort, liquidation. This is because of the Court’s difficulty in policing lesser remedies in circumstances where the “holding companies were both in the BVI, whereas the day to day operation and management of the business was going on in the PRC. It would be well-nigh impossible for Madam Yao to find out if Madam Kwok was taking major decisions behind her back before it was too late to undo them. In any event the Judge rightly considered that the relationship of trust and confidence had broken down completely and was beyond repair.8”
The first instance Judge’s reasoning, supported by the Board, was swayed by the most time and cost-effective route to remediating the prejudice given the lack of trust between the parties. The lesson is that those who seek to cause problems for fellow shareholders and refuse to assist the Court may find themselves facing more severe consequences.
BVI companies are often parent companies. This played into the reasoning of the Judge as the Liquidator’s appointment would not interfere with the day to day operations of the subsidiaries. The Board noted that because of the extent of the falling out between the parties the decision to place the parent company into liquidation was the “only option which would go some way toward remediating the serious prejudice…In commercial terms, there was little difference between the order the Judge made, and the buy-out order that would have been a more common remedy in a case such as this, but which Madam Kwok so vigorously resisted. In this case liquidation had certain advantages, including expedition. It avoided the expense of experts valuing the shares for the purposes of a buy-out by Madam Kwok, and the spectre of further litigation concerning the appropriate figure (particularly bearing in mind the complexities caused by the serial dilutions of Madam Yao’s interest in the Project).”
The result was that Madam Kwok lost control of the BVI company to the Court appointed Liquidator. The Liquidator, with the powers bestowed on them, would be able to investigate the affairs of the company and come to a Court approved valuation of Ms Yao’s shareholding.
While there is no evidence of further wrongdoing in the Kwok matter, it should be noted that liquidators have the ability to bring claims against former directors and officers if wrongdoing is uncovered. By resisting lesser orders, parties may open themselves up to further claims if a liquidation order is made.
Relevant to all shareholder disputes is the recent Privy Council decision in Jardine Strategic Holdings Ltd v Oasis Investments [2025] UKPC 34 which overturned the already shaky “Shareholder Rule.”
The shareholder rule was the principle that a company could not assert privilege against its shareholders in respect of advice the company had received.
In the matter before the Board, certain shareholders were not satisfied with the valuation placed by the company on their shares. The shareholders sought disclosure of the valuation advice received by the company when it was considering the level of the offer for their shares.
The Board held that no such right existed and, to the extent it did, it ought not to be recognised. This is recognition that a company is a separate legal entity and the advice belongs to it alone. Shareholders also had no common interest with the company since as between shareholders themselves, their interests will rarely align, especially in larger companies. This decision may have an impact on certain BVI minority shareholder disputes going forward as we expect the BVI Court to follow the decision which was extended to England and Wales. Directors will no doubt welcome the decision as they will now be able to seek legal advice in confidence.
No system is perfect otherwise there would be an agreed international framework. However, as the number of companies decreases and the lifespan of those remaining increases, the BVI government should be applauded for its continuing efforts to prevent fraud and money laundering via BVI companies which has been comparatively successful over the past 20 years.
The government’s efforts are also supported by a Court system that will ensure BVI companies are run appropriately and, where there is evidence they are not, will step in to ensure legal protections are enforced.
Footnotes
Shaun Reardon-John is a solicitor-advocate and experienced BVI dispute resolution lawyer who was admitted to practice in the BVI in 2012.
Prior to joining Baker & Partners in July 2023 he worked for another BVI law firm for over a decade.