Company restoration to comply with deposit insurance requirements

When financial institutions close, account holders are faced with several problems due to the limitations on their account facilities. These creditors face several problems. Especially when they have all their eggs in one basket and liquidity is needed to cover their daily expenses. Businesses and individuals alike are affected by this. From bank failure to resolution, liquidation and dissolution is a lengthy and frustrating process. Account holders must consider different strategies to get their money returned. Corporate account holders, and especially those with companies registered in offshore financial centers may halt their annual financial responsibilities for the company for the time being. When repayment opportunities arise, they can reactivate their company to enhance their chances of repayment.

A bank resolution decree triggers statutory administration during its initial phase. Limited access to certain account facilities can often be permitted during this phase. The fact that this occurs often within a few weeks or months after the initial closure makes company reactivation and restoration to the corporate registry unnecessary because companies are used while there are in good standing. However, bank deposit protection and the deposit guarantee scheme may not be activated until months or years after the initial closure. This is because it reflects the financial position of the bank, such as being insolvent or unable to honor its obligations to its creditors and that requires cooperation from the bank and its controlling persons.

Although the conditions for the repayment of account balances via a deposit insurance scheme depend on local situations, claimants must be eligible. This is universal. Only active companies, e.g. those that are in good standing and can submit evidence of this active status are eligible for repayment. Due to the limited time-frame of the deposit protection scheme, creditors who rely on a DGS repayment, must act rather quickly to reactivate and restore their (offshore) company.

For a company to be restored to the corporate register, all arrears, late fees and annual disbursement must be settled. The company, its official name and registration number remain reserved for the original beneficiaries. This very company, even though dissolved at this particular moment, holds the bank account and only under exceptional circumstances the court may deviate from the position of the company and its ownership. Beneficiaries must realize that the highest chance for success in resolution and repayment is when the company is in active and official good standing. 

Reactivation and company restoration in offshore jurisdictions may take some time. It is also not a given that an IBC can be restored. For example, the Commonwealth of Dominica has repelled its IBC law in 2022 and therefore cannot restore a company that is struck of the registry in its original state. Even though there are possibilities for reactivation, court intervention at the expense of the corporate beneficiaries is realistic. Therefore, beneficiaries of offshore IBC’s must appreciate the rules of their game before they start playing so that they can act accordingly.