Inactive, dormant, lapsed, and liquidated offshore companies can cause complications. Financial institutions follow FATF (special) recommendations and comply with customer due diligence and Know Your Customer (KYC) regulation. Financial institutions are more and more instructed to police the financial system by using their role as a gatekeeper. The result is that access to the financial system gets limited for offshore companies unwilling or unable to comply with the desired information provisioning.
Reactivation of an offshore company can cause less stress for all sides of the platform. Regulators approve compliant financial institutions, receiving banks trust the remitter of specific transactions and the offshore companies and its management is able to benefit from the potential of the corporate relationship. It is often that when unusual transactions and opaque corporate structures conceal the nature and ownership of the offshore entities that financial institutions become nervous. Robust fines to systemic financial institutions and the removal of bank licenses from smaller (offshore) banks trigger financial institutions around the world to scrutinize its medium and high risk clientele.
Where the beneficiaries of an offshore company are asked to confirm the good standing of the company, a problem can commence for inactive entities. The corporate registry can only confirm the good standing of an offshore company when the periodic renewal processes are followed. This process includes the payment of the yearly registration fees and often the confirmation of ownership and further confirmation of personal KYC information. If the registry cannot produce the required certificate of good standing, the company possibly was removed from the registry. Reactivation of the offshore company is then required.
The reactivation of an offshore company can include the payment of penalties and late fees. Also, in some cases the court needs to intervene to reactivate the company. This is often the result of offshore companies that were liquidated or where yearly fees were not paid for several years in succession. A reactivation request can have several reasons. The most common of which are the recovery of the corporate assets, the protection of the beneficiaries and directors against personal liability, a regulatory investigation into the activities of the offshore company, or when the offshore company falls into an estate of a late beneficial owner.
Not all jurisdictions follow the same reactivation procedure. Yet, reactivation of an offshore company takes time. Often the need for evidence of the good standing of the offshore company is required by a financial institution, settler or liquidator giving the company a short timeframe to comply with the information at the expense of account closure or a rejection of a payment in a settlement or liquidation. Hence the reason to comply with the request as fast as possible. For information on estimated lead times to reactivate an offshore company, please visit the ‘products’ page on this website and choose the jurisdiction of incorporation for additional insight.