INTERNATIONAL BUSINESS COMPANY (IBC) RESTORATION IN THE BAHAMAS

INTERNATIONAL BUSINESS COMPANY (IBC) RESTORATION IN THE BAHAMAS

The Bahamas has always been an attractive destination for offshore investment for the lovers of sun, sand, and sea since the days of Henry M. Flagler, a railway and shipping tycoon who became the country’s first major investor in the local tourism industry in 1898, having opened the Hotel Colonial in Fort Nassau and steamship business which transported both tourist and freight from Nassau to Florida. The budding tourism industry in the Bahamas were soon accompanied by the introduction of the nation’s financial service industry by renown financial institutions such as the Royal Bank of Canada who expanded its operations to the Bahamas in or around the year 1900. As the world became to know the Bahamas as an ideal destination for vacations and tax free wealth management, the country began to attract high net worth individuals who made the Bahamas their home, as the world’s distinguished and well-known names such as Sir Thomas Sean Connery and Sir John Templeton took residence in wealthy subdivisions of the capital while many of the world’s rich and famous made the water ways and isolated beaches of the archipelago’s cays their playground.

As the Bahamas’ financial service industry continued to develop, a new corporate entity known as the International Business Company (also known by the acronym ‘IBC’) was introduced to the Bahamas by the passage of the International Business Companies Act 1989, tailored aspiringly after the British Virgin Islands’ IBC legislation which had proven wildly successful in the BVI jurisdiction as hundreds of thousands of nonresidents were able to incorporate offshore companies expeditiously and without the bureaucratic confines of their homeland governments. This success followed the Bahamas soon after the 1989 Act was implemented as the country’s reputation of catering solely to high net worth individuals were soon overshadowed by the average income clientele who incorporated IBCs as a means to hold their savings confidentially and without being subjected to the tax regimes of their respective homelands. Clients were not only guaranteed incorporation of their IBCs within days, but also strict confidence regarding the identity of the IBC’s beneficial owner.  As long as IBC complied with the provisions of the IBC Act and pays its annual government fees on time, IBCs were free to conduct business worldwide with little government intervention. It is believed that when the IBC Act was introduced in 1989, some 8,000 IBCs were incorporated in 1990 alone which exploded into some 53,000 company formation following that period.

Historical Conundrum

According to the International Business Companies Act of 1989 if an IBC had failed to comply with the provisions of the IBC Act or had failed to pay its licensing fees, the Registrar had the power to strike out the IBC from the Register of Companies pursuant to s.97(4) and s.97(6) respectively. However, once the IBC was struck off certain persons were allowed to apply to the Supreme Court to have the IBC restored to the Company Register if the IBC were struck off for failing to comply with the provisions of the Act pursuant to s.97 (4) and could apply to the Registrar to restore the IBC if it were struck off for failing to pay its annual fees under s.98 (3). Such stipulations lasted until a decade later when the IBC Act 1989 was repealed by the International Business Companies Act 2000 however since coming into force the 2000 Act came with its own legislative dilemma, proving problematic as the new Act seemed to have limited the power of its own regulatory bodies to restore IBCs to the Register of Companies.

 In contrast with the 1989 Act, the sections 166(2) and 163(3) of the 2000 Act allowed the Court and the Registrar to restore an IBC who was struck off for non-compliance with the prescribed conditions, however the 2000 Act held no expressed authority for the Registrar to restore an IBC if it were struck off for non –payment of fees. IBCs soon discovered that the 2000 Act held no provisions for IBC who were struck off the Company Register for non – payment of fees to apply to the Supreme Court for restoration as s.167 of the 2000 Act had established that “….Where the name of a company has been struck-off the Register, the company and the director, members, liquidators and receivers thereof, may not legally commence legal proceedings, carry on any business or in any way deal with the assets of the company.” Such a circumstance was found in the matter of The Tenesheles Trust and others v. BDO MANN JUDD and others [2009] 2 BHS J No. 17 where Justice Adderley held that “since the repeal of the 1989 IBC Act the Registrar ceased to have the power to restore a company that had been struck-off the Register for non payment of prescribed fees and any such purported restorations by him are null and void”, as he determined that section  167(2) was simply an enabling section and did not contain language which permitted the Court to find that Parliament gave jurisdiction to the Registrar which was wider than the jurisdiction given under section 166 of the Act.

 

Similarly in the matter of Arcadian Development Corporation Limited v. The Registrar General – [2010] 2 BHS J No. 1 where theApplicant argued that ‘an application’ in section 167(2) must mean an application to the Court, and therefore the Court must have the power to consider and accede to the application, Chief Justice Sir Michael Barnett however, did not agree with the submission and dismissed the application, stating that the 2000 IBC Act did not provide the Registrar nor the Court with the ability to restore IBCs that were struck off for non – payment of fees. The Chief Justice stated further that “…Like Adderley J, I sought to determine whether with the aid of established principles of statutory interpretation I could imply a power vested in the courts to restore a company to the Register which was struck off for non-payment of fees. I regret that I could find no such power. It is not for the Court to correct this oversight. It must be left to Parliament. A simple amendment to section 166 of the Act to include a reference to section 176 would cure this mistake. Counsel for the Company argued that there was an inherent jurisdiction vested in the Court to restore such a company which was struck off for non-payment of fees. A company is a creature of statute. All powers relating to its incorporation, registration and dissolution are created by statute. There is no inherent jurisdiction in the Court which gives it powers in relation to such matters.” Further, the Chief Justice stated obiter that a simple amendment to section 166 of the 2000 Act to include a reference to section 176 would cure this mistake.

As a result of the judicial ruling Parliament sought to remedy the deficiencies of the 2000 IBC Act, which resulted in the passage of the International Business Companies Act 2010, having amended sections 165, 169 and 176 and repeals and replaces section 166 of the 2000 Act.  Section 2 of the 2010 IBC Act amends s.165 of the previous 2000 Act and provides a particular course of action by the Registrar in which he is required to publish in the Gazette and serve a notice on an IBC that has failed to pay the increased licensing fees under s.176 (3) stating the amount of the license fee payable, and that the company will be struck off the register if it fails to pay the said fees on or before the 31st of December next ensuing. If an IBC failed to pay the increased license fees stated in the notice referred to in subsection (3A) by the 31st day of December, the Registrar shall strike the name of the company off the register from the 1st day of January next ensuing. Section 2 is not retroactive and the Registrar is required to publish and serve the said notice within 30 days following the date specified in the s.176 (3).

Section 3 of the 2010 IBC Act is considered retroactive by virtue of s.1(2) of the Act to the 29th of December 2000 when the 2000 Act came into force, repeals s.166 of the 2000 IBC Act and replaced this section with provisions similar to  the original 1989 Act which provide for restoration of an IBC which was struck off the company register for failing to meet prescribed conditions under section 165(2) of the 2000 Act, or for nonpayment of fees under section 176. The 2010 Act also provided for the ability of either the IBC or its members, creditors, or liquidators to apply for restoration to the Supreme Court to be restored to the company register after the expiration of 5 years. Section 3 provides that:

“3. Repeal and replacement of section 166 of the principal

“166. Restoration to Registrar.

(1) If the name of a company has been struck off the registrar under Section 165(2), the company, or a creditor, member or liquidator thereof, may within five years immediately following the date of the striking off, apply to the Registrar to have the name of the company restored to the Register.

(2) If upon an application under subsection (1) the Registrar is satisfied that it would be fair and reasonable for the name of the company to be restored to the Register, the Registrar shall restore the name of the company to the Register and upon restoration of the name of the company to the Register, the name of the company shall be deemed never to have been struck off the Register.

(3) If the name of the company has been struck off the Register under section 165(3B), the company, or a creditor, member or liquidator thereof, may within five years immediately following the date of the striking off, apply to the Registrar to have the name of the company restored to the Register, and upon payment to the Registrar of -(a) the restoration fee specified in the First Schedule; (b) the licence fee stated in the notice referred to in section 165(3A); and (c) the licence fee in the amount stated in the notice referred to in paragraph (b) for each year or part thereof during which the name of the company remained struck off the Register, The Registrar shall restore the name of the company to the Register and upon restoration of the name of the company to the Register, the name of the company shall be deemed never to have been struck off the Register.

(4) If the period of five years under subsection (1) or (3) has expired, the company or creditor, member or liquidator thereof, may apply to the Court to have the name of the company restored to the Register.

 (5) Where the company, or a creditor, member or liquidator thereof applies to the Court pursuant to subsection (4), to have the name of the company restored to the Register, the Court shall order the name of the company to be restored to the Register (a) where the company has been struck off the Register under section 165(2), if it is satisfied that it would be fair and reasonable for the name of the company to be restored to the Register; or (b) where the company has been struck off the Register under section165(3B) upon the payment of the fees required under subsection (3), and upon restoration of the name of the company to the Register, the name of the company shall be deemed never to have been struck off the Register.

(6) For the purpose of this Part, the appointment of an official liquidator under section 168 operates as an order to restore the name of the company to the Register.”

The 2010 Act also made crucial amendments to s.169 and s.176 of the 2000 Act by introducing an additional fee of 10% of the annual fees owed in the IBC failed to pay its fees by the 31st of March of each year while maintaining the additional fee of 50% if its annual fees were not paid by the 31st of October. It also introduced a further penalty of B$100.00 for each year the IBC was struck off the company register. Ultimately the 2010 IBC Act had cured the shortfalls of the 2000 Act in providing the Registrar and the Court the power to restore an IBC that was struck off the company register for nonpayment of fees and by retroactively legitimized the restoration IBCs that were purportedly restored during the period of the years 2000 to 2011 under powers in which the Registrar had misbelieved to have held, as shown in the matter of the International Business Companies Act 2000 and Another v. The Registrar General [2012] BHS J No.11. Over the years, the IBC Act has demonstrated not only its importance in the financial service industry but also its ability as an organic legislation having undergone several amendments which involve the requirements for an IBC to register as a Segregated Account Company (SAC) and the mandatory requirement for all registered agents of IBCs to host accounting records.

IBC Restoration Methods

As previously mentioned, section 3 of the International Business Companies Act, 2010 allows for a company, a member of the company, creditor, or liquidator to apply to the Registrar to restore the name of the IBC to the Register of Companies within 5 years of receiving notice of being struck off the company register, and may apply to the Court after 5 years has lapsed. In turn the Registrar or the Court will restore the name of the IBC to the company register if satisfied that it would be fair and reasonable to do so, and once restored to the company register the name of the IBC shall be deemed to never to have been struck off the Register. For IBCs who have been struck off the company register due to noncompliance with the IBC Act it is expected that the applicant demonstrate that the IBC is compliant with the Act and provide payment for the penalty fees applied for each year after the IBC remained struck off the Register of Companies. Similarly for IBCs who have been struck off the company register due to nonpayment of annual fees, it is expected that the applicant provide all outstanding annual fees and penalty fees for each year the IBC has been struck off the company register at the time of the application.

In the event that the period of 5 years had lapsed after the IBC was struck off the company register the Applicant may apply to a Justice of the Supreme Court in order to restore the name of the IBC to the company register. This involves the filing of an Originating Summons and supporting Affidavit in the Supreme Court Registry and the service thereof to the Registrar General’s Department and Office of the Attorney General as the relevant responding parties. The supporting affidavit should provide the IBC’s vital information (i.e. the identity of all of the company’s officers, directors, and shareholders, incorporation date, company no., etc.), and the reason why it is seeking to be restored to the Register of Companies (i.e. for the purposes of dissolving the IBC, to legally engage in business activities, etc.) More importantly an explanation as to why the IBC was not compliant with the IBC legislation or why its annual fees were not paid should be included in the affidavit.

A common reason why an IBC may have been struck off the company register is due to the failure of its registered agent to pay the company’s annual fees within the required period which may have been the result of the registered agent being dissolved (such as a bank or trust company) or the dissolution of a partnership (i.e. a law or accounting firm). Under the circumstance the Affiant should include any supportive documents as evidence thereof. In circumstances where the IBC is struck off the company register due to its failure to pay annual fees, evidence of the outstanding amount should be included, which may derive from the IBC’s accounting records or from a written correspondence from the companies registry verifying the outstanding amount. In case of the company’s failure to comply with IBC legislation, evidence of the company’s ability to conform should be demonstrated. The Applicant should also expect to pay court cost to the Respondent and if the company is allowed to be restored to the company registry by the Court, the Applicant should expect to pay the amount prior to its restoration. Once the IBC is restored, a Certificate of Restoration is issued by the Companies Registry which is mostly required in the IBC’s business activities or dissolution actions.

Mario L. McCartney is the Founder and Principal of Lex Justis Chambers, a boutique law firm providing Corporate, Private Client, and Traditional legal services in the Commonwealth of The Bahamas. Mr. McCartney is also the present editor and main contributor of firm’s blog site and welcomes all opinions and comments to his articles.
For further information on all legal services provided by Mr. McCartney please visit the Lex Justis Chambers website @ www.lexjustis.com or email him at mmccartney@lexjustis.com, mario.l.mccartney@gmail.com.
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