Banking & Finance 2023

Last Updated October 12, 2023

British Virgin Islands

Law and Practice


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Trends in the British Virgin Islands (BVI) loan market largely mirror those of the major global financial centres. The BVI has established a unique position in the global financial system, notably through its flexible corporate structures, making it a popular and highly regarded jurisdiction for cross-border financing transactions.

Within the wider macroeconomic context, recent economic cycles coupled with a tightened regulatory environment onshore affecting the way in which financing is obtained have inevitably impacted both deal flows and structuring. Factors such as increased market volatility, tightening of monetary policy (including higher solvency and liquidity requirements for banks), de-risking by institutional and other lenders and high inflation leading to higher interest rates have affected the onshore lending landscape. These shifts have had a ripple effect, influencing cross-border financing transactions as well.

The overall net effect has been a reduction in new lending by institutional lenders and a more rigorous and often protracted vetting process for borrowers, often leading to delayed access to credit for corporates. To fill the credit gaps created by these tighter financing conditions within the traditional banking sector, companies have increasingly turned to capital markets to address liquidity issues, leading to an increase in bond and note issuances involving BVI corporate vehicles and private credit.

Like many other jurisdictions, the BVI has not been immune from the far-reaching effects of the Russia/Ukraine war. The war was the catalyst for a huge shock to the global economy, straining supply chains and elevating prices within the energy and food sectors to unprecedented levels.

A key immediate impact of the war on the BVI stemmed from the imposition of co-ordinated and rigorous international sanctions on Russian and Belarusian banks, corporates and individuals by the United States, the United Kingdom and various EU member states. The effects of the sanctions were further exacerbated by the suspension of operations within Russia by several international businesses followed by their departure from the country. As a jurisdiction that adheres to the highest regulatory standards, the BVI also imposed the relevant sanctions and the combined impact of these actions has been significant within the global financial system, significantly impacting financing transactions involving Russia, Belarus and Ukraine.

Against a backdrop of international sanctions and increased social consciousness, a culture of enhanced scrutiny has been ushered in for cross-border financing transactions involving Russian and Belarusian entities, banks and individuals and transactions with a nexus to Ukraine. Extreme care and diligence have become features of cross-border transactions and this enhanced approach appears to be here to stay (at least for the short to medium term) because of the potentially far-reaching impacts of breaching sanctions.

With respect to contractual terms, none have become entrenched thus far but the implications for the drafting of certain contractual terms within facility agreements (and supporting credit documentation) will likely continue to evolve over time. Current indicators suggest some utility in giving broader consideration to standard provisions or terms within finance documents, particularly representations and warranties (such as those dealing with compliance with laws and sanctions, regulatory matters and the use of proceeds (since facility agreements will often restrict the use of loan proceeds) in violation of sanctions).

This market has proven an important source of alternative funding for corporates seeking liquidity for CAPEX and other purposes, providing a platform for larger companies to seek financing at a time when bank financing was less accessible for various reasons. The market has facilitated funding access within a structure that is less onerous than standard credit facilities and tends to be characterised by inherently flexible covenant packages. This has proven attractive to issuing corporates and the past few years have been characterised by a surge in issuances, particularly for entities operating within the property markets across Europe and Asia in particular.

Issuances with a cross-border component are structured onshore, often as global notes, featuring a trustee which acts as agent for the holders (effectively promoting uniform treatment between holders) and ensuring that amounts recovered by a trustee are distributed to all holders on a pro-rata basis in accordance with a pre-determined waterfall. Structures will often also incorporate security over bond (or note) collateral while preserving the holders’ ability to transfer their notes without requiring re-execution of security documentation in the case of incoming transferees.

Senior bank financing is the most common form of cross-border debt financing but funding through private credit, the capital markets and mezzanine funding have also increased. The latter forms of financing provide corporates with access to credit at lower rates, often with more flexible terms than found in traditional bank facility agreements. The structuring is largely guided by onshore considerations while ensuring that these also work from a BVI law perspective.

In addition to the other forms of financing outlined herein, convertible debt instruments are also used. The decision on the choice of warrants or options will typically be made onshore (with the documentation drafted so as to permit the debt holder the right to convert the debt into equity upon the occurrence of certain trigger events).

The consequences of climate change have ushered in a trend toward “green investing” and “green financing”. Both have become more evident within the transactional landscape as a demand for and allocation of financing towards greener purposes across the globe has continued to gain footing. Financing is a key feature of any such investment and while most financing transactions are typically structured onshore, BVI’s tax neutrality and flexible corporate regime (which facilitates the formation of BVI companies with either wide or restricted objects) has continued to make the use of BVI vehicles within lending transactions in this space quite attractive for lenders/investors and borrowers alike.

The evidence suggests that financial investors, asset managers and institutional lenders have shifted attention towards ESG/sustainability issues in recent years, seeking more ESG-focused growth. The shift towards environmentally beneficial investments and finance opportunities has in turn heralded a trend towards more green and sustainable finance. An increasing number of transactions classify as “Green Project Finance”, with many funding environmental projects such as wind and solar farms or otherwise facilitating the conduct of business with a reduced carbon footprint.

There are no special requirements or procedures to which banks or non-banks need to adhere in order to be authorised to lend to a BVI company within the context of cross-border financing transactions. It is typically not necessary for such entities to be authorised or otherwise qualified to conduct business in the BVI, save where they seek to operate in or from within the BVI.

Banking institutions operating within the BVI and offering banking services within the BVI are required to be licenced under the Banks and Trust Companies Act (1990). However, if the relevant lenders are not engaging in activities that constitute soliciting business within the BVI (in which case regulatory licences would be required), no authorisations would be required in the BVI.

Where any non-bank lender is also a BVI corporate entity, it will need to ensure that any authorisations required in accordance with its constitutional documents and principles of good corporate governance are obtained. Where such a lender is a BVI company or limited partnership, it will also need to ensure that it is operating in compliance with the economic substance laws of the BVI (ie, those relating to banking business and finance and leasing business – both of which are considered “relevant activities” attracting certain requirements for BVI business companies or limited partnerships considered “tax resident” in the BVI).

A foreign lender which is not conducting business in the BVI will not be required to comply with the licensing requirements or legislation which apply to lenders operating in the BVI. A foreign lender will not be considered to be conducting business in the BVI simply by virtue of entering into a financing transaction with a BVI counterparty and provided the lender is not operating in contravention of BVI law in this regard, there are no restrictions under BVI law which would apply in respect of its ability to provide loans to BVI counterparties.

There are no particular restrictions that would apply. The commercial laws of the BVI operate in a creditor-friendly manner and the granting of security and guarantees by a BVI company and other legal entities is often central to the structure of cross-border financing transactions.

Most security documents and guarantees are foreign law governed and provided the relevant foreign law requirements for the valid creation of the security or guarantee are satisfied, BVI law (and the courts of the BVI where appropriate) will generally recognise and give effect to the security or guarantee granted by a BVI entity.

There are no government controls or exchange controls that operate within the BVI and there are no exchange controls imposed on foreign lenders under BVI law. 

There are no restrictions on the borrower’s use of proceeds from loans or debt securities from a BVI perspective but the use of the proceeds will typically be prescribed within the relevant documentation.

The BVI courts recognise the concepts/roles of agent and trustee and BVI’s legal system supports the ability of entities operating in those roles to take the benefit of security, to transfer or assign the benefit of security and to enforce the relevant security in accordance with the agreed upon terms and conditions of the applicable security documentation.

The transfer of debt owed by a BVI company is common and the mechanisms relating to the transfer of loans and security interests will typically be set out in the relevant transaction documentation. The underlying loan and security documentation will often be governed by onshore law and similarly, where applicable, any sale or sub-participation will also be governed by those laws.

There is no way to assign a chose in action (such as a debt) or other property right under BVI law; as such, where a party intends to transfer legal title to a right in action under BVI law, this is generally done by way of novation. A chose in action may be transferred in equity. In such cases, enforcement necessitates that notice of the assignment be given to the security provider.

Transactions will be structured onshore and controls and parameters will be set out within the relevant credit agreements. Provided all local law considerations for structuring the transaction are properly considered (including any BVI law considerations relevant to any of the BVI companies involved) and the transaction is legally and structurally permissible under each, BVI law will give effect to it.

Financing transactions will be structured onshore and will therefore conform with the requirements applicable to the acquisition of public companies requiring “certain funds” under the laws of the relevant onshore jurisdiction. Similarly, the form of documentation will typically be guided by onshore legal considerations.        

While certain amendments to the BVI Business Companies Act 2004 (the Business Companies Act) came into effect in the first quarter of this year (including, but not limited to, changes providing for the immediate dissolution of BVI companies which are struck off the register of companies and the requirement for BVI companies that are not listed publicly, regulated in the BVI or already engaged in filing a BVI tax return), none of the relevant changes have necessitated any changes to our BVI law-governed documentation.       

There are no applicable usury or interest limitation laws in the BVI that would restrict the recovery of payments generally or the performance of a BVI company of its contractual obligations. However, under BVI law transactions considered “extortionate credit transactions” are vulnerable to being set aside where the rate of interest provided for by the relevant transaction documents is grossly exorbitant or otherwise contravenes ordinary principles of fair trading.

With the exception of the requirement for directors to disclose any conflicts of interest they may have in connection with any particular transaction and any other contractual or procedural notice requirements, there are no disclosure requirements specific to the BVI.

Withholding tax is not payable in the BVI and while certain sums may be deducted or withheld from payment made in connection with financing arrangements in certain jurisdictions, such payments are not required under BVI law.

There are no stamp duties, income taxes or other duties which are imposed within the context of standard financing transactions. However, where a BVI company or limited partnership with legal personality has charged assets, registration with the BVI Registry of Corporate Affairs (the BVI Registry) would be advisable to secure priority under BVI law and this will attract a filing fee of USD200 per filing. In addition, while most BVI companies do not own real property in the BVI, where security is given over BVI shares, where the BVI company owns an interest in real property in the BVI, any transfer of its shares will attract stamp duty under BVI law.

Foreign lenders (ie, lenders operating outside of the BVI) will not generally be subject to taxes or other levies under BVI law and as a result there are no tax considerations that would apply to such entities.

Lenders will have access to the usual range of assets by way of security (including, but not necessarily limited to, real estate, moveable and immovable property, securities, claims and receivables, cash deposits and intellectual property).

Real Estate

The most common form of security involving security over land is a legal mortgage and the formalities for creation will depend upon the laws of the jurisdiction where the real estate is located.

Tangible Movable Property

The form of the relevant security will be determined by any local law requirements applicable to the jurisdiction where the property is located. Assets such as aircraft and yachts are often owned by BVI companies and often used as security for lending. A typical aircraft financing transaction would involve an aircraft mortgage and assignments in connection with aircraft and engine maintenance support agreements as well as insurances and warranties and a typical yacht financing transaction would include a ship mortgage (and deed of covenants) and assignment of insurance.

The formalities for creation will depend upon the laws of the jurisdiction in which the relevant asset is located and/or registered. The BVI Mortgaging of Aircraft and Aircraft Engines Act 2011 facilitates an aircraft and security registration system in the BVI for the purposes of regulatory oversight.

The Virgin Islands Shipping Registry (VISR) facilitates the registration of vessels and ship mortgages in the BVI (in accordance with the Merchant Shipping Act 2001). For any ship mortgages registered with the VISR (in the statutorily prescribed form), priority is determined by the date and time of registration. Mortgages may be registered in respect of previously registered vessels or vessels still under construction and a priority notice can also be registered in respect of a proposed mortgage, thus maintaining priority of the interest in the vessel.

Financial Instruments/Securities

Security can be taken over the shares owned by a BVI company and over shares in the company itself (the BVI shares). The form of security will generally be guided by commercially agreed terms between the parties as well as the laws applicable to the shares. Security over shares owned by a BVI company in a foreign company will typically take the form of a share mortgage, charge or pledge (depending on what is required/permissible under the laws governing the shares). Security over BVI shares may take the form of a legal charge or a legal or equitable mortgage but will most often take the form of an equitable mortgage.

While BVI law expressly permits security over BVI shares to be foreign law governed, such security is also often BVI law governed. A charge or mortgage over BVI shares need not take any particular format but must be in writing, signed by or with the authority of the registered holder and must expressly indicate:

  • the intention to create a mortgage or charge; and
  • the amount secured by the mortgage or charge and how that amount is to be calculated.

Where the share mortgage or charge is foreign law governed, it must comply with any requirements under its governing law in order to be valid and binding (and the remedies thereunder will also be governed by the foreign law while the rights between the mortgagor or mortgagee as a member of the BVI company and the BVI company itself will be governed by the memorandum and articles of association of the company). Where the governing law is BVI, certain statutorily prescribed remedies will be available to the mortgagee or chargee (subject to any provisions or limitations within the share mortgage or charge).

Lenders will also require a notation evidencing the existence of the share security to be entered in the register of members of the relevant BVI company. This is an important step for a lender taking the benefit of an equitable security interest in BVI shares as it acts as notice to potential third parties of the existence of the security. The option also exists for the annotated register of members to be publicly filed with the BVI Registry where the parties wish to proceed on this basis.

It is also worth noting that while shares in a BVI company regulated by the BVI Financial Services Commission (FSC) may be the subject of security, the prior consent of the FSC is required.

Claims and Receivables

Jurisdiction-specific requirements applicable to the relevant assets will typically determine the form of security and will often take the form of assignments (eg, assignments of rental income).

BVI law does not currently provide for the legal assignment of intangibles (such as choses in action). There is therefore no statutory concept of an assignment by way of security. As a result, an assignment of a receivable (including by way of security) will take effect as an equitable assignment under BVI law and should always have the benefit of notice to a security provider in order to facilitate possible enforcement.

Cash Deposits

Security may be given by BVI companies over cash deposits in accounts held in any jurisdiction and will typically be governed by the laws of the jurisdiction where the accounts are located. Where security is given over cash deposited in bank accounts located in the BVI, an arrangement that includes the co-operation of the account bank will generally be necessary in order to facilitate enforcement since there are no statutory provisions relating to security over cash deposited in BVI bank accounts.

Intellectual Property

Security given by BVI companies over intellectual property is typically provided in the form of a debenture. The BVI has a patents and trade marks registry and the governing legislation provides for registration and protection of trade marks in the BVI and related matters including the charge and assignment of trade marks. A trade mark can be charged in the same manner that any other personal or movable property may be charged and under the BVI’s Trade Marks Act 2013 an assignment of a registered trade mark, including an assignment by way of security, will not take effect unless it is (i) made in writing and (ii) signed by or on behalf of the assignor or its personal representative.

Once effective, the grant of a security interest over a registered trade mark or any right therein will be registrable by the Registrar of Trade Marks, Patents and Copyright in the BVI.

Security may also be granted over fungible and future assets of a BVI Company.

For most types of security given by BVI companies, no particular perfection requirements are necessary under BVI law for the validity or enforceability of the security. However, it is standard for particulars of the relevant security to be registered in the publicly maintained register of registered charges kept at the BVI Registry upon payment of the applicable filing fee to preserve the priority of the relevant security interests under BVI law. Once filed, the particulars (ie, the entry in the register of registered charges of the relevant company) will be searchable and will provide notice to third parties of the relevant security interests. Priority is determined in accordance with the date and time of this public registration.

All assets security and floating charges are permitted under BVI law and may be governed by the laws of the BVI or any other jurisdiction which permits the granting of such security.  BVI companies will often provide a floating charge in addition to fixed charges over specific assets.

Where a BVI company grants security, particulars thereof are registrable in the company’s register of registered charges and its private register of charges in accordance with the Business Companies Act. A registered floating charge will rank behind a subsequently registered fixed charge unless the floating charge contains a prohibition or restriction on the power of the BVI company to create any future charge ranking in priority to or equally with the charge.

BVI companies have wide powers generally and may give guarantees which are upstream, down-stream or cross-stream in nature. Such guarantees are a standard feature of lending transactions involving BVI companies as there are no particular limitations or restrictions on giving such guarantees. Structuring will typically take place onshore so any issues relating to adequate credit support are addressed at that level. For BVI law purposes, a BVI company, subject to its memorandum and articles of association, may guarantee the obligations or liabilities of itself or a third party. The BVI company’s directors should approve its entry of the guarantee and in certain instances, shareholder approval should also be obtained. 

Upstream and cross-stream guarantees may be considered to be distributions under BVI law and directors should ensure that the necessary solvency test is considered when giving such guarantees (ie, they must be satisfied that (i) the value of the BVI company’s assets exceed its liabilities and (ii) it would be able to pay its debts as they become due). The authorising resolutions must also contain a statement to this effect as a failure to satisfy the solvency test immediately following the distribution could result in a shareholder having to repay the distribution and financial cost for directors to repay any sums not recoverable from the shareholder; therefore, care should be taken to comply with the legal requirements for making distributions.

There is no statutory prohibition against financial assistance under BVI law. Subject to its memorandum of association, a BVI company’s powers will extend to giving financial assistance to any person in connection with the acquisition of its shares.

While there are typically no restrictions in connection with the granting of security or guarantees by BVI companies, any lender should conduct due diligence to ensure that the company has the capacity and power to provide the security or guarantee.

A lender should have regard to the constitutional documents of the relevant entity to ensure there are no impediments to its capacity to contract. If dealing with a BVI company that has been incorporated as a restricted purposes company, the objects clause of its memorandum and articles of association should be reviewed to assess its capacity to enter into the security documentation or guarantee. While the vast majority of BVI companies will not fall into this category, a lender should review (i) the constitutional documents of the relevant company to determine whether there are any restrictions on the activities in which it may engage and (ii) corporate authorisations adopted by its directors (and where appropriate) its shareholders expressly approving entry into the documentation.

Given that directors of BVI companies must be guided by certain statutory and common law duties, there will be instances where the approval of both the directors and shareholders should be obtained where the company seeks to guarantee or secure the obligations of a third party.

The mechanism for the release of security will typically be guided by onshore considerations and the lex situs of the secured assets and the documentation may be foreign law governed or BVI law governed (the latter often being the case with BVI shares).

Where a BVI company or BVI limited partnership with separate legal personality has charged assets and particulars of the security have been publicly registered with the BVI Registry, once the security has been validly released, a notice of release can be filed with the BVI Registry in a statutorily prescribed format by either (i) the relevant company or limited partnership or a legal practitioner in the BVI, authorised to act on its behalf or (ii) a registered agent of the relevant company or limited partnership or a legal practitioner in the BVI acting on behalf of the chargee. Upon completion of the de-registration, a Certificate of Release/Satisfaction is issued by the BVI Registrar of Corporate Affairs (the “BVI Registrar”).

The Business Companies Act prescribes a structure for determining the priority of competing security interests for security given by BVI companies. Priority is determined by registration of particulars of the security interests with the BVI Registrar in a publicly maintained “register of registered charges”. Registration provides priority over (i) a relevant charge created by the company that is subsequently registered with the BVI Registrar in accordance with section 163 of the Business Companies Act and (ii) a relevant charge that is not so registered.

Public registration determines priority although it should be noted that (i) a registered floating charge will be postponed to a subsequently registered fixed charge unless the floating charge contains a prohibition or restriction on the power of the relevant company to create any future charge ranking in priority to or equally with the charge; and (ii) such priority can be varied by agreement or consent.

Priority for security registered against BVI limited partnerships with legal personality are also determined in accordance with public registration of the relevant security particular with the BVI Registrar.

Contractual subordination is permissible and (assuming the transaction is not voidable by a liquidator) such provisions will generally survive the insolvency of a company.

Within the context of cross-border financing transactions, such security interests will typically be guided by the location of the assets of the relevant company. Such liens are most commonly provided for within the structure of guarantees and certain security documents, such as security given over accounts with foreign lenders.

Security interests are enforceable in accordance with the terms of the security documentation and such documents will typically be governed by the laws of the jurisdiction in which the assets are located. In most instances, the documentation will be foreign law governed since BVI companies will rarely have assets in the BVI.

BVI law governed security documents will most often create security over BVI shares and where they take the form of a BVI law-governed mortgage or charge, the Business Companies Act entitles a mortgagee or chargee to sell the mortgaged shares subject to any provisions to the contrary or other limitations in the security document. There is also an entitlement to appoint a receiver over the mortgaged shares, who, subject to any provisions to the contrary in the security document can (i) exercise the voting rights attached to the mortgaged shares, (ii) receive distributions in respect of the mortgaged shares and (iii) exercise other powers and rights of the mortgagor or chargor in respect of the mortgaged shares. A well-drafted security document will generally facilitate statutory out-of-court enforcement rights to be exercisable immediately (or as otherwise agreed) upon the occurrence of events of default in order to prevent potentially lengthy default cure periods (and delayed enforcement action).

For foreign law-governed security documents, the Business Companies Act provides that the available remedies are governed by the foreign law and the document itself. The practical effect of this is that the enforcement should be guided by and conducted in accordance with the governing foreign law (but BVI law advice should be obtained prior to enforcement action).

It is standard for financing transactions to feature documentation that provides for foreign governing laws and the submission of the parties to such jurisdictions in addition to the waiver of immunity from suit or enforcement of a judgment. Such provisions are valid under BVI law and are upheld as valid by the BVI courts. 

Judgments for a definite sum may be enforced in the BVI (i) through registration under the Reciprocal Enforcement of Judgments Act 1922 (REJA) or (ii) at common law.

In the case of the former, the option for registration would apply where (i) the judgment was issued by the High Court of England and Wales or Northern Ireland, the Scottish Court of Session, or the courts of countries to which reciprocity has been extended (including the superior courts of the Bahamas, Barbados, Bermuda, Trinidad and Tobago, Belize, St Lucia, St Vincent, Grenada, Guyana, Jamaica, New South Wales (Australia), and the High Court of the Federation of Nigeria); and (ii) the judgment was for a sum of money, provided the following three conditions are met:

  • the application must be made for registration of the judgment within twelve months of its date or such longer period as the BVI court may allow;
  • the BVI company must not be appealing or have the right and intention to appeal; and
  • the BVI court must consider it just and convenient that the judgment be so enforced.

A judgment obtained in a non-REJA court is not registrable but may be treated as a cause of action in itself and sued upon as a debt at common law so that no retrial of the issues is necessary in which case an appeal is irrelevant unless a stay of execution has been granted.

Whether registering a judgment under REJA or suing upon a judgment as a debt at common law, it will be necessary that:

  • the court had jurisdiction in the matter and the BVI company either submitted to such jurisdiction or was resident or carrying on business within such jurisdiction and was duly served with process;
  • the judgment given by the court was not in respect of penalties, fines, taxes or similar fiscal or revenue obligations;
  • in obtaining judgment there was no fraud on the part of the person in whose favour a judgment was given or on the part of the court;
  • recognition or enforcement in the BVI would not be contrary to public policy; and
  • the proceedings under which judgment was obtained were not contrary to the principles of natural justice.

Arbitral awards in respect of a final and conclusive monetary award may also be enforced in the BVI in accordance with the Arbitration Act 2013 with the leave of the BVI High Court.

A foreign lender will generally be able to enforce its rights under the relevant transaction documents (particularly security documents) but should conduct due diligence to ensure no capacity or authority issues operate as an impediment to a BVI company’s ability to contract.

Once a liquidator is appointed, they have custody and control of all of the assets of a BVI company (subject to a statutory trust to be applied in accordance with the BVI Insolvency Act 2003 (the Insolvency Act) for the benefit of the general pool of creditors). Except in instances where the court has so approved, proceedings may not be commenced or continued against a BVI company, no alteration may be made to the liabilities or status of the shareholders and the shareholders cannot exercise or alter any powers under the company’s memorandum and articles of association. Once appointed, a liquidator is tasked with assessing and collecting in the assets of the relevant company and assessing claims for payment.

Liquidation will generally affect contractual and property rights (such as the ability of a liquidator to disclaim onerous property and the risk of certain transactions being set aside or otherwise varied by the court as voidable transactions upon application by a liquidator – see 7.5 Risk Areas for Lenders). However, the rights of secured creditors in respect of a company’s assets will remain unaffected (except insofar as they may be vulnerable as voidable transactions). There is no stay on their right of possession or enforcement of their security and they need no special order of the court in order to enforce their rights. Secured creditors have the option of either seeking to enforce their security interests directly over the relevant assets (as they have the right to do so outside of the liquidation process) or they may elect to surrender their security and claim in the liquidation as unsecured creditors would. The latter option will rarely be one that is advantageous to a secured creditor and so will not typically be a path chosen in such circumstances. However, where a secured creditor believes that the assets subject to the security are insufficient to meet the secured claims, they may value the assets and then claim in the liquidation for the balance (following completion of enforcement, if all of the secured claims are discharged and a surplus remains then the secured creditor must account to the liquidator for that surplus).

Unsecured creditors can submit a claim in writing to the liquidator, supported by documentary evidence and the liquidator will then either admit or reject the claim (whether in whole or in part). In the latter case, any such rejection must be provided to the creditor with notice specifying the reasons for rejection. The appointment of a liquidator is done principally for the benefit of creditors and the liquidator’s overriding duty will be to take control of the assets and realise what is owed to creditors (with any surplus being returned to the members of the relevant company where appropriate).

Secured creditors operate outside of the insolvency process and are generally able to enforce their claims against the relevant assets outside of the liquidation.

Once appointed, a liquidator will then pay out the proceeds of liquidation based on the statutory priority scheme which provides for the application of the relevant proceeds in the following order: 

  • first, to the costs and expenses properly incurred in the liquidation in accordance with the prescribed priority;
  • second, in paying the preferential claims admitted by the liquidator in accordance with the provisions for the payment of preferential claims/creditors prescribed;
  • third, in paying all other claims (ie, those of unsecured creditors) admitted by the liquidator; and
  • fourth, in paying any interest which is payable on any claim in the liquidation of a company in respect of the period after the commencement of the liquidation; and
  • finally, after paying all of the foregoing, any balance is then distributed between the members and former members who have claims against the relevant company arising in their character as a member.

A typical application to appoint liquidators must be adjudicated upon within six months after filing. That period can only be extended by an order of the court if it is satisfied that “special circumstances” exist and no retrospective consent can be given. Any extension must be for a period not exceeding three months, although extensions can be granted for additional periods (in special circumstances). 

Most creditor applications are dealt with within the six-month period and usually well before the end of that period. The court does not generally like to adjourn matters more than once and as a result, it is possible in a straightforward case to have the application listed and heard within six weeks of issue provided the advertising requirements have been complied with (this covers the time between issue of the application and its determination).

However, if the creditor’s application is based on a statutory demand, the process will be lengthier. Debtors are allowed at least 21 days from the date the demand is served to respond. If no counter-application is filed to set aside the demand, this will add at least an extra 21 days to the overall timeline.

Where a debtor wishes to dispute the debt, they may apply to set aside the statutory demand but must do so within 14 days of the date of service of the demand. The court may not extend this deadline. Once such an application is made it is essentially a matter of having the application listed and heard, which is difficult to predict in terms of time. The court generally seeks to list and dispose of applications to set aside in a time-efficient manner but a contested application does extend the overall time period.

An unsuccessful application tends to accelerate the process once the application is listed since the creditor can rely on the statutory demand and the debtor cannot rely on the same grounds to defeat the application to appoint liquidators.

A definitive response with respect to recoveries would be difficult to provide as this will depend on the circumstances of each individual case. However, given the fact that many BVI companies are holding companies the recovery rate is likely to be high.


BVI law features certain mechanisms that permit insolvent companies sufficient breathing room for restructuring. These are broadly structured as arrangements, of which there are three types:

  • a plan of arrangement under section 177 of the Business Companies Act;
  • a creditor’s arrangement under Part II of the Insolvency Act; and
  • a scheme of arrangement under section 179A of the Business  Companies Act.

Plan of arrangement

where the directors of a company determine that it is in the best interests of the company or the creditors or members thereof, the directors of the company may approve a plan of arrangement that contains details of the proposed arrangement. 

Once the directors have resolved to approve a plan of arrangement, an application is made to the BVI court for approval of the proposed arrangement and the BVI court has wide powers to take a range of actions, including (but not limited to) determining whether approval should be obtained and the manner of such approval. 

Once court approval has been obtained, the directors have confirmed the plan, provided notice to all relevant parties and obtained their consent, articles of arrangement are filed with the BVI Registrar. A certificate evidencing the filing is then issued and the arrangement is effective from the registration date (or such later date, up to 30 days later, as specified in the articles).

Scheme of arrangement

Where a compromise or arrangement is proposed between a company and its creditors, or any class of them, or between the company and its members, or any class of them, the BVI court may order a meeting of the relevant group to be summoned in such manner as the BVI court directs. If the company is in administration, the application may be made by the company, a creditor or a member. If the company is in voluntary liquidation or if an Insolvency Act liquidator has been appointed, the application may be made by the relevant liquidator.

Creditors’ arrangement

Where the directors of a BVI company believe on reasonable grounds that the BVI company is or is likely to become insolvent, they may resolve to appoint a licensed insolvency practitioner as interim supervisor of the proposed creditors’ arrangement and the relevant insolvency practitioner must accept or endorse the appointment. The proposed arrangement may include a range of matters, including, but not limited to, cancellation of all or any part of the company’s liability and varying the creditors’ rights or the terms of the debt.

Where the relevant company is in liquidation, the liquidator may appoint themselves as the interim supervisor and once appointed they are required to file notice of their appointment with the BVI Registrar within two business days. Once appointed, the principal duty of the interim supervisor will be to prepare a report on the proposal for the company’s creditors. The group of creditors will then be able to consider the proposal at a meeting and where creditors holding 75% or more of the relevant company’s debt approve the proposal it will pass. The chairman of the meeting will then provide each creditor with a report outlining the outcome of the meeting and the list of creditors and debt due to each and will file a copy with the BVI Registrar. Insofar as the proposal is approved, the supervisor will be required to file notice of their appointment with the BVI Registrar and the proposal is thereafter binding upon the relevant company, its members and creditors.

Under the Insolvency Act, the rights of (i) a secured creditor, and (ii) a preferential creditor, may not be adversely affected by a creditor’s arrangement without their consent and a creditor’s arrangement most notably differs from the other two forms of arrangement in that:

  • there is no requirement for an application before the BVI court (although creditors who believe that they have been “unfairly prejudiced” may seek court intervention); and
  • a licensed insolvency practitioner must act as supervisor of the arrangement.

In certain circumstances, transactions entered into by a BVI company in the period prior to going into liquidation may be vulnerable as voidable transactions. In such instances, a liquidator of the relevant company can petition the BVI court to review a transaction as a voidable transaction. Creditors and third parties have no independent right to make such an application.

There are four types of voidable transaction under BVI insolvency law, and there is a notable degree of overlap in relation to the rules that regulate them.

The four types, with brief descriptions, are as follows:

  • unfair preferences – where a creditor of the company is unfairly put into a better position than other creditors shortly before liquidation;
  • undervalue transactions – where the company enters into a transaction where it gives up far more than it receives shortly before liquidation;
  • voidable floating charges – where the company grants a floating charge (other than for new value) shortly before liquidation; and
  • extortionate credit transactions – where the company receives credit on grossly exorbitant terms before liquidation.

Each of the types of voidable transaction has three core requirements:

  • entry into the transaction during the relevant vulnerability period;
  • entry into the transaction when the company was insolvent, or the transaction must have caused the company to become insolvent (and for these purposes “insolvent” excludes balance-sheet insolvency from the definition); and
  • the transaction must not be within the relevant safe harbour.

Voidable Transaction Tests

The tests for each type of voidable transaction are outlined below.

Unfair preference

A transaction that puts a creditor in a position which, in the event of liquidation, will be better than the position they would have been in if the transaction had not occurred is potentially an unfair preference. It is not necessary under BVI law to show any intention to prefer. In principle, granting a security interest, or a transaction that gives rise to a right of set-off, will normally be capable of being an unfair preference.  Sometimes simply paying a creditor can constitute an unfair preference to that creditor.

Undervalue transaction

Where the company gives a gift, or otherwise receives no consideration, or enters into a transaction where the consideration that it receives (in money or money’s worth) is significantly less than the consideration that it provides, this potentially constitutes an undervalue transaction. In considering whether there has been an undervalue transaction, the court will look at the totality of the transaction, rather than one isolated aspect of it. 

Voidable floating charge

Any floating charge created within the vulnerability period and whilst the company is insolvent is a voidable floating charge, but subject to the safe harbours set out below.

Extortionate credit transactions

A credit transaction is extortionate if it requires the debtor to make payments (whether unconditionally, or upon the occurrence of certain contingencies) which are grossly exorbitant or otherwise grossly contravenes ordinary principles of fair dealing. In determining whether a credit transaction is extortionate, regard shall be had to such evidence as is adduced concerning the degree of risk accepted by the creditor (which will usually be high if the company is insolvent). It is important to note that the transaction must be more than simply unfair; it must reach the level of being oppressive.

Vulnerability Periods

The vulnerability period depends on the type of voidable transaction. For an extortionate credit transaction, it is five years. For all other types it is usually six months, but two years if the transaction was entered into with a “connected person” (as defined under BVI law). In each case, the period is the period preceding the date of commencement of liquidation (which will normally be the date of the order, but may be a different date if the company enters liquidation voluntarily).

Where the company enters into either an unfair preference or an undervalue transaction with a connected person, in addition to the longer vulnerability period, it is presumed that:

  • the company was insolvent or that the transaction caused it to become insolvent; and
  • the relevant safe harbour does not apply unless proved otherwise.

Safe Harbours

Each of the voidable transactions, other than extortionate credit, has a designated safe harbour for transactions to protect good faith arm’s length attempts to rescue the company from insolvency. If a transaction qualifies for the relevant safe harbour, it will not be considered a voidable transaction.

Unfair preference

A transaction is not an unfair preference if it takes place in the ordinary course of business.

Undervalue transaction

A transaction is not an undervalue transaction if:

  • the company entered into the transaction in good faith (subjective test) and for the purposes of its business; and
  • at the time when it enters into the transaction, there were reasonable grounds (objective test) for believing that the transaction would benefit the company.

Voidable floating charge

A floating charge is not voidable to the extent that it secures money advanced or paid to the company at the same time as or after creation of the charge, or similarly reduces or discharges a liability, or supplies assets of value, and any relevant interest thereon.

Court Orders

Once a court is satisfied that the criteria for a voidable transaction apply, it has wide a discretion in relation to the orders that it can make (including, in theory, making no order at all, if deemed appropriate). In essence, it may:

  • set aside the transaction, in whole or in part;
  • for an unfair preference or undervalue transaction, make such orders as it sees fit for restoring the parties to their positions as if the transaction had not been entered into; and
  • for extortionate credit transactions, order a variation of the terms of the transaction, the return of sums already paid, surrender of any security provided and the taking of accounts.

Power to Disclaim Onerous Property

A liquidator also has the right to disclaim onerous property, which applies to unprofitable contracts and assets of a company that are unsaleable or not readily saleable or which may give rise to a liability to pay money or perform an onerous act. Any such attempt by a liquidator requires filing of notice with the court, following which they must within 14 days provide notice to each person who is (to their knowledge) affected by the disclaimer.

While the discretion is one which may be exercised by a liquidator, it may not be exercised without limitation. For instance, in the case of contracts considered to be unprofitable, it would be insufficient to seek to disclaim any such contract simply on the basis that it would yield a small profit or is financially disadvantageous. 

There is no option for partial disclaimer – the contract or property must be disclaimed in its entirety and there is also no option for disclaimer of a contract that has been fully performed by a company. Any rights and benefits that have already vested are also beyond the reach of any attempt at disclaimer. It is beyond the power of a liquidator to seek to “take back” obligations that have already been performed or rights already conferred and for this reason a liquidator will typically be unable to disclaim security interests granted by a company on this basis.

BVI companies continue to be a feature of cross-border project financing transactions. Much of the activity within the project financing arena tends to involve some element of bank financing and while last year has seen a slowdown in the volume of financing activity involving new projects, there has been steady activity with respect to amendments to existing financings for projects with ongoing capital requirements, primarily within the areas of real property and ESG given the push towards increased sustainability.

While we are not aware of any notable public-private partnership transactions (involving BVI companies locally) over the past year, the commercially-oriented environment of the BVI is one that would support such transactions. The legislation and legal requirements for completion of such transactions will depend on the nature and structure of the relevant partnership and any cross-border issues that may apply.   

Transactions will typically be structured onshore and the relevant supporting transaction documentation (with the exception of any security documents in respect of BVI assets such as BVI shares that may be BVI law governed) will be governed by the laws of the relevant onshore jurisdiction. The parties may contractually agree to submit to the jurisdiction of any court or arbitration for the settlement of disputes in connection with the relevant transaction.

Ownership of an interest in real property located in the BVI by a foreign company will require a Non-Belonger’s Land Holding Licence (NBLHL) issued by the BVI Ministry of Natural Resources and Labour. In the case of a BVI company that mortgages its interest in real property located in the BVI in favour of a foreign lender, the relevant company may do so by way of a legal mortgage. While the terms of the mortgage may vary, a legal mortgage would typically operate in the usual manner and would require the transfer of legal title to the land to the foreign lender, subject to the requirement for the land to be re-transferred to the relevant company upon satisfaction of the obligations secured thereby. As the secured creditor, the foreign lender wouldl be granted powers to deal with the land in the event of a default.

Cross-border deals will be structured onshore while having regard to any local law requirements or considerations (for instance environmental issues relevant to the location of the relevant project). There are no applicable Central Bank regulations or restrictions on foreign investment but foreign companies will likely require certain licences to conduct business within the BVI (such as a Trade Licence from the Department of Trade, Investment Promotion and Consumer Affairs and where it will hold an interest in real property, a NBLHL). BVI’s corporate regime is one which is flexible and where a BVI company is designated as the project company, its memorandum and articles of association may be drafted with restricted purposes, tailored to the needs of the project (ie, a Special Purpose Company) or they may be drafted with a wide objects clause which permits the relevant company to engage in any activity which is permissible under BVI law.

The BVI is a party to various tax information exchange treaties; however, in keeping with international practice, information is only provided to competent authorities in certain circumstances. 

Projects will tend to be structured and operated outside of the BVI and the decision as to the most viable and efficient sources of funding will be made onshore. While the majority of project financing transactions will be bank funded, bond or note issuances as well as private credit and equity provide alternative sources of funding for corporates (usually larger ones) in order to meet or supplement the needs of a given project.

The BVI relies upon its reserve of natural resources to enhance its tourism product. Its most notable natural resource is its marine ecosystem/biodiversity and it has recently secured a grant from the Resilience, Sustainable Energy and Marine Biodiversity Programme (a programme that supports the sustainable human development efforts of Caribbean Overseas Countries and Territories). The BVI has no known mineral reserves and does not engage in mining activities.

There is currently no BVI legislation that provides for lender environmental liability.       


Harney Westwood & Riegels LP
Craigmuir Chambers, PO Box 71
Road Town

+1 284 494 2233
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Law and Practice


Harneys is a global offshore law firm with entrepreneurial thinking built around professionalism, personal service and rapid response. Open, progressive and personable, they provide advice on British Virgin Islands, Cayman Islands, Cyprus, Luxembourg, Bermuda and Anguilla law to an international client base which includes the world’s top law firms, financial institutions, family offices, investment funds and private individuals. Their network is one of the largest among offshore law firms, with locations in major financial centres across Europe, Asia, the Americas and the Caribbean, allowing them to provide services of the highest quality to clients in their own languages and time zones.

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