Banking & Finance 2021

Last Updated October 05, 2021

British Virgin Islands

Law and Practice

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Conyers is a leading international law firm with a broad client base, including FTSE 100 and Fortune 500 companies, international finance houses and asset managers. The practice comprises a team of highly experienced lawyers, advising on the laws of Bermuda, the British Virgin Islands and the Cayman Islands. Through its global network of offices, including real-time capability in the prominent financial markets of London, Hong Kong and Singapore, Conyers advises some of the world’s leading corporations, banks and financial institutions, providing lenders and borrowers with high-quality, responsive and solutions-oriented advice on a wide variety of secured and unsecured financial transactions.

There have not been any significant regulatory changes affecting the direction and trend of the loan market in the British Virgin Islands (BVI) is a creditor-friendly jurisdiction. BVI business companies are commonly used in a variety of international transactions. The lenders are invariably from the major “onshore” financial centres such as London or New York. As such, transactions involving BVI business companies are driven by market trends and developments in those jurisdictions.

COVID-19 has had a significant impact on the BVI economy particularly in the tourism sector and local businesses which depend on tourism such as hotels, the charter and yachting industry. The effect of COVID-19 has forced the world to do business in a different way and the BVI is no exception. The BVI announced the introduction of a work in paradise programme in April 2021 to allow people to work remotely from the BVI performing their foreign based jobs.

In the loan markets, there are examples of BVI borrowers restructuring debt consistent with trends in the wider global economy.

While there are no doubt examples of BVI issuers accessing the high-yield market, such structuring decisions tend to be driven by investor/lender demand or by considerations in the jurisdictions in which they operate and not by BVI factors.

BVI business companies feature in a variety of structures across diverse market sectors. As such, it is not uncommon to see credit facilities being made available by alternative credit providers. In such circumstances borrowers may elect to source debt from alternative credit providers for reasons such as willingness to lend on higher leverage multiples, faster execution speed and length of term.

The BVI is a well-established, creditor-friendly jurisdiction with a legal system based on English common law, modified by BVI statutes and BVI court decisions. Given current economic conditions lenders are paying more attention to their options on enforcement. The BVI provides certainty to secured creditors.

The BVI introduced “economic substance” requirements for entities carrying on certain specified activities, in the form of the Economic Substance (Companies and Limited Partnerships Act, 2018 (the “ES Act”) on January 2019.

Under the ES Act, “legal entities” carrying on a “relevant activity” will need to establish economic substance in the BVI.

A legal entity is a business company or limited partnership and includes foreign companies and foreign limited partnerships that are registered in the BVI.

A non-resident entity, ie, an entity that is resident for tax purposes in a jurisdiction outside of the BVI that is not included in Annex 1 to the EU list of non-cooperative jurisdictions for tax purposes is excluded from the definition of legal entity and is therefore not subject to the economic substance requirements.

Legal entities which carry on any one or more of the following relevant activities will be in scope under the ES Act and must comply with economic substance requirements:

  • banking business;
  • distribution and service centre business;
  • financing and leasing business;
  • fund management business;
  • headquarters business;
  • holding business;
  • insurance business;
  • intellectual property business; and
  • shipping business.

Banking business has the meaning ascribed in Section 2.1 of the Banks and Trust Companies Act, 1990.

Banking business means the business of receiving (other than from a bank or trust company) and holding on current, savings or deposit or similar account money that is repayable by cheque or order and is capable of being invested by way of advances to customers or otherwise but does not include the receiving of interest on savings, deposit or other similar account money which is paid by one company to another at a time when:

  • one company is the subsidiary of another; or
  • both are subsidiaries of another company.

Finance and Leasing business means the business of providing credit facilities for any consideration.

Consideration may include consideration by way of interest.

  • The provision of credit may be by way of instalments for which a separate charge is made and disclosed to the customer in connection with:
    1. the supply of goods by hire purchase;
    2. leasing other than any lease granting an exclusive right to occupy land; or
    3. conditional sale or credit sale.
  • A legal entity carrying on a relevant activity must demonstrate to the BVI International Tax Authority that:
    1. the relevant activity is directed and managed in the BVI;
    2. having regard to the nature and scale of the relevant activity;
      1. there are an adequate number of suitably qualified employees in relation to that activity who are physically present in the BVI (whether or not employed by the legal entity or by another legal entity and whether on temporary or long-term contracts);
      2. there is adequate expenditure incurred in the BVI; and
      3. there are physical offices or premises as may be appropriate for the core income- generating activities.
    3. the legal entity conducts core income-generating activity in the BVI;
    4. in the case of income-generating activity carried out for the relevant legal entity by another entity
      1. no core income-generating activity is carried on outside the BVI;
      2. only that part of the activities of that other entity which are solely attributable to generating income for the relevant entity and not for any other legal entity shall be taken into account when considering if the relevant legal entity meets the economic substance requirements;
      3. the relevant legal entity is able to monitor and control the carrying out of that activity by the other.

All BVI business companies and foreign companies registered in the BVI must make an annual filing with the BVI International Tax Authority.

There have been no recent developments in relation to ESG or sustainability linked lending in the BVI.

Any person carrying of banking business in or from within the BVI as defined in Section 2.1 of the Banks and Trust Companies Act must be licensed by the BVI Financial Services Commission to do so. As noted, banking business means a deposit taking business. Accordingly, there is no requirement for a foreign bank or other financial institution providing financing to a company incorporated in the BVI that it be licensed or otherwise approved by any BVI regulatory authority.

There are no restrictions on foreign lenders granting loans from outside of the BVI to BVI entities.

There are generally no restrictions on the granting of security or guarantees to foreign lenders. However, where security is granted over real property, a foreign lender should obtain a non-belonger’s land holder licence from the BVI government.

There are no restrictions, controls or other concerns on and regarding foreign currency exchange.

There are no restrictions on the borrower’s use of proceeds from loans or debt securities.

Agent and trust concepts are recognised and commonly used in the BVI.

There are no BVI specific mechanisms for loan transfers between foreign lenders. If there is a change of security agent or trustee and the agreement is governed by BVI law, an assignment agreement would be used to transfer the benefit of the underlying security. To ensure priority a registration would be made with the Registrar of Corporate Affairs to record the change.

Debt buy-back is permitted.

The BVI Business Companies Act does not differentiate between public and private companies. There are no specific rules under BVI law regarding “certain funds” as it pertains to acquisition financings. It is common for BVI business companies to be listed on foreign exchanges and, as such, they would be subject to the listing and regulatory rules of that exchange any “certain funds” requirements thereunder.

The BVI Business Companies Act does not differentiate between public and private companies. There are no specific rules under BVI law regarding “certain funds” as it pertains to acquisition financings. It is common for BVI business companies to be listed on foreign exchanges and, as such, they would be subject to the listing and regulatory rules of that exchange any “certain funds” requirements thereunder.

BVI business companies and limited partnerships are exempt from any taxes, including stamp duty, payable in the BVI, in respect of any loan, guarantee and security arrangements. Stamp duty applies to security over real property.

No usury laws or other limitations on chargeable interest apply to BVI business companies or limited partnerships.

The assets typically available as collateral include shares (and related rights), deposits in bank accounts, claims and receivables, intellectual property, real property, inventory, rights to insurance policy proceeds and contractual rights.

Share Charge

Security over shares of a BVI company is by way of a BVI equitable mortgage, executed as a deed.

The following deliverables are typically provided:

  • executed undated share transfer forms and original share certificates, if any;
  • undated letters of resignation from directors and officers, and letters of authorisation to date the same;
  • an irrevocable proxy; and
  • a direction to the registered agent to register the share transfers on enforcement.

Typically, a notation that the shares have been charged is made on the register of members of the company is made and the register filed for registration with the registrar of corporate affairs.

Other Assets

Typically a debenture is used to take security over other assets which would include a fixed and floating charge and an assignment.

There is no concept of perfection in the BVI. However, a registration under Section 163 of the BVI Business Companies Act may be filed with the Registrar of Corporate Affairs. A charge so registered ranks in priority to subsequently registered and unregistered charges. The current filing fee is USD200.

Floating charges over present and future assets are permitted in the BVI.

A BVI business company may grant downstream, upstream and cross- scream guarantees. Directors of BVI business company have a fiduciary duty to act in the best interests of the company. Where it is not clear that granting a guarantee is of corporate benefit to the first company, the decision of the directors can be white washed by resolution of the shareholders. There are no associated limitations or restrictions.

There are no restrictions on a target granting guarantees, security or financial assistance for its own shares.

There are no other restrictions in connection with, or significant costs or consents required to approve the grant of security or guarantees.

BVI security is typically released by a BVI deed of release. To release a charge registered with the Registrar of Corporate Affairs, a prescribed statutory from is filed with the Registrar who will then issue a certificate of cessation/satisfaction as appropriate.

A BVI business company granting a charge over its assets and the secured party have the option of making application to the Registrar of Corporate Affairs to file the charge for registration pursuant to Section 163 BVI Business Companies Act.

Once registered the charge, will in respect of the secured assets, have priority over any subsequently registered charges and any unregistered charges.

The register of charges maintained by the Registrar in respect of a BVI business company is publicly searchable. A fee of USD200 is payable for the registration.

There are no statutory time limits for registration. Typically, security documents provide within three working days.

A BVI business company is required by statute to maintain a private register of charges. The register or a copy must be kept at the office of the registered agent in the BVI.

Typical methods of subordination include a subordination agreement or intercreditor agreement. A liquidator will respect any valid and binding agreement as to their respective priority.

A secured lender may enforce its collateral without the need for any application to court. The security documents will set the provisions for enforcement which are linked to the facility agreement. In the BVI the principal methods by which BVI security would be enforced are sale, possession appointment of a receiver or foreclosure.

Sale

BVI law does not confer a statutory power of sale on a mortgagee. Any power of sale is contained in the security document. The secured party has a duty to obtain the best possible price for the collateral. A secured party may not sell the collateral to itself.

Where the proceeds of sale are inadequate to satisfy the debt, the secured party may still sue the chargor for the difference or prove in insolvency proceeding along with any other creditors. Where the sale proceeds exceed the debt, the secured party must account to the charger for the excess.

Possession

It is also possible for a secured party to enforce its security by taking possession of or exercising other rights in relation to the collateral for example the right to receive dividends or voting rights under share charge.

Appointment of Receiver

There is no statutory power under BVI law on a secure party to appoint a receiver. Rather it is a contractual remedy conferred under the terms of the security document.

A secured party will usually appoint a receiver so as to achieve a sale of the secured property. The security document would provide that the receiver is the agent of the chargor and not the secured party.

The security document will set out the powers of the receiver which will be wide ranging and include the power of sale and powers to exercise rights in respect of the secured property.

Foreclosure

Is only available with respect to mortgages over real property.

The BVI courts will generally respect the parties’ express choice of law in contract except in certain limited circumstances, eg, where the choice has been made in good faith or where the application would be contrary to public policy.

The BVI courts will not usually interfere with the submission to foreign courts. However, notwithstanding any provision providing for the exclusive jurisdiction of a foreign court, the BVI courts may, if it is satisfied that it just and equitable to allow such proceedings to continue in the BVI, decline to say such proceedings issued in contravention of such provision or grant leave to serve BVI proceedings out of BVI. A BVI court may decline to accept jurisdiction notwithstanding a contractual submission to the BVI court if it determines that some other jurisdiction is more appropriate or convenient.

A foreign state or sovereign entity may waive its right to sovereign immunity by submitting to the jurisdiction of the BVI courts.

The Judgments (Reciprocal Enforcement Act) 1958 applies to Australia, Bahamas, Barbados, Belize, Bermuda, Grenada, Guyana, Jamaica, Nigeria, St. Lucia, St. Vincent, Trinidad and Tobago, United Kingdom courts: a final and conclusive judgment in the superior courts of the foreign courts against a BVI entity based upon the Document under which a sum of money is payable (not being in respect of multiple damages, or a fine, penalty, tax or other charge of similar nature) would, on registration in accordance with the provisions of The Reciprocal Enforcement of Judgments Act (or, where applicable, the Foreign Judgments (Reciprocal Enforcement) Act), be enforceable in the High Court of the BVI against a BVI entity without the necessity of any retrial of the issues which are the subject of such judgment or any re-examination of the underlying claims.

Where the 1958 does not apply, the courts of the BVI would recognise as a valid judgment, a final and conclusive judgment in personam obtained in the foreign courts against a BVI entity under which a sum of money is payable (other than a sum of money payable in respect of multiple damages, taxes or other charges of a like nature or in respect of a fine or other penalty) and would give a judgment based thereon provided that:

  • such courts had proper jurisdiction over the parties subject to such judgment;
  • such courts did not contravene the rules of natural justice of the BVI;
  • such judgment was not obtained by fraud;
  • the enforcement of the judgment would not be contrary to the public policy of the BVI;
  • no new admissible evidence relevant to the action is submitted prior to the rendering of the judgment by the courts of the BVI; and
  • there is due compliance with the correct procedures under the laws of the BVI.

BVI law imposes restrictions on non-belonger companies holding land. This would have an impact  on the ability of a non-BVI lender to enforce security over land situated in BVI.

The BVI’s statutory scheme of arrangement regime enables companies to restructure or reorganise outside a formal winding up procedure. The board of a company passes resolution making a proposal for an arrangement acknowledging it is insolvent and nominating a BVI licensed insolvency practitioner as interim supervisor. The interim supervisor will then call a meeting of creditors and advertise the same, at which he will present a report and statement of affairs. Approval of 50% of the value of creditors present is required to implement.

The interim supervisor appointed must file notice with the registrar within two days. A meeting of creditors must be called within 28 days after the commencement date of the proposal period by sending notice to creditors, directors and by causing the meeting to be advertised.

In respect of administration (legislated for but not yet in force) unsecured creditors cannot enforce their rights. Once court approved then there is a moratorium precluding the taking of enforcement measures without leave of the court.

In respect of compulsory liquidation, rights can only be enforced within the liquidation process. Unsecured creditors make a claim under the claims procedure in the prescribed manner.

In respect of administrative receivership, this is a single secured creditor remedy, and therefore participation by an unsecured creditor is not anticipated.

Secured creditors can enforce their remedies in each procedure. In the case of administration it is intended that any administrative receiver in place must consent to any order in respect of a security interest, or leave of the court is otherwise obtained. During administration, the rights of a secured creditor to enforce their security rights are suspended, however, either upon agreement with the administrator, or court order, such suspension can be lifted.

The order of priority for payment is as follows.

  • Debts secured by a mortgage or fixed charge – subject to the validity of the security relied on, secured creditors have priority over the secured assets. If the secured assets are not sufficient to pay off all of the debt, the creditor is considered an unsecured creditor in respect of the balance due.
  • Liquidation costs – all costs and expenses of the liquidation. There is usually a provision specifying the order of priorities for each category of liquidation expense.
  • Preferential debts – these comprise employee claims and sums due to the BVI government (for example taxes). There is no maximum.
  • Preferential claims rank equally amongst themselves.
  • Debts secured by a floating charge.
  • Unsecured creditors – all unsecured creditors rank equally among themselves.
  • Subordinated debts – all debts can be subordinated by contract unless a creditor who is party to the contract is prejudiced.
  • Interest claims – these are all interests accrued on claims made since the start of the liquidation. Payment is made equally to all creditors irrespective of the priority of the claim on which it is based.
  • Shareholders’ equity – any surplus after the above distributions have been made is paid to the shareholders, in accordance with their rights and interests in the company.

All claims in a particular category must be paid in full before any of the claims in the category below are paid.

Under the Insolvency Act contractually subordinated debts are recognised, see 7.3 The Order Creditors Are Paid on Insolvency.

Unfair preferences, undervalue transactions, voidable floating charges and extortionate are all vulnerable in certain circumstances.

Unfair preferences are transactions that were entered into at a time when the company was insolvent or caused the company to become insolvent, within six months before the onset of insolvency (two years for a connected person, this period, whichever applies is referred to as the vulnerability period) and the effect of which is to put the creditor in a position, which, in the event of the company going insolvent, would be better than the position the creditor would be better have been in had the transaction not been entered into. There is no subjective test or mental element involved in determining such a preference, it being a matter of objective determination as to whether there was betterment of the position or not.

Undervalue transactions occur where a gift is made or no consideration passes to the company, or where the company receives consideration which, in money or money’s worth, is significantly less than the value of the consideration provided by the company. In either case the transaction needs to be made at a time when the company was insolvent or made such as to cause the company to become insolvent and was entered into the vulnerability period referred to above.

Voidable floating charges are those created within the vulnerability period and is made an insolvency transaction. However, these are not voidable to the extent they secure money paid to a company after creation of the charge, the amount of any liability discharged or reduced at the same time as, or after, creation of the charge, the value of the assets sold or applied or services provided at the same time or after creation of the charge.

Extortionate credit transactions are those entered into the vulnerability period requiring grossly exorbitant payments, or contravenes ordinary principles of trading.

The BVI is a well recognised jurisdiction in the international project finance market. BVI business companies are commonly used as joint venture vehicles to finance international projects. The BVI’s reputation as a well established creditor friendly jurisdiction and its flexible company law statute based on Delaware law sees BVI business companies used in a considerable number of transactions. The structures are dedicated by onshore counsel – generally USA or UK by the specific commercial requirements of the parties concerned.

The BVI has a small population of approximately 35,000 people. As such there are few public- private transactions. The most notable are the government contract with Seven Seas Water, a company which provides desalinated water throughout the Caribbean, discussions with a Chinese consortium for the expansion of the Terrence B. Lettsome and the design and supervision by a German company of the rebuild of  the ferry dock at the west end of the island, destroyed during hurricane Irma.

No government or regulatory approvals are required for international project finance transactions. As there is no tax payable in the BVI by BVI companies, investors are attracted to BVI as a tax neutral and efficient jurisdiction.

There is no particular regulation in relation to these sectors. However, any company conducting business in the BVI will require a trade licence under the BVI Business, Trade and Professions Act. Employees require work permits issued by the Labour Department and approval from the Immigration Department.

BVI business company structures are flexible. The structure of the deal is driven “onshore”.

In the BVI there are a variety of financing structures including bank financing, export credit agent financings and project bonds.

The BVI call its “natural resources” except water from the onshore market. There are no exports.

Unless the project is being undertaken in the BVI, there will be no regulatory oversight. Employees in the BVI have the protection of the BVI Labour Code.

Conyers

Commerce House
Wickhams Cay 1
PO Box 3140
Road Town
Tortola, VG1110
British Virgin Islands

+1 284 852 1111

+1 284 852 1001

bvi@conyers.com www.conyers.com
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Law and Practice

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Conyers is a leading international law firm with a broad client base, including FTSE 100 and Fortune 500 companies, international finance houses and asset managers. The practice comprises a team of highly experienced lawyers, advising on the laws of Bermuda, the British Virgin Islands and the Cayman Islands. Through its global network of offices, including real-time capability in the prominent financial markets of London, Hong Kong and Singapore, Conyers advises some of the world’s leading corporations, banks and financial institutions, providing lenders and borrowers with high-quality, responsive and solutions-oriented advice on a wide variety of secured and unsecured financial transactions.

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