Project Finance 2020

Last Updated November 03, 2020

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. For more information, please visit: https://www.conyers.com/legal-services.

The flexibility of British Virgin Islands (BVI) company law makes the BVI a popular jurisdiction for project finance transactions.

A broad variety of sponsors and lenders participate, as dictated by onshore counsel. Participants typically include institutional lending banks, private equity firms, infrastructure companies and government-owned development agencies.

PPP projects in the BVI include the expansion of the Terrence B. Lettsome Airport on Beef Island BVI, which is likely to be with a Chinese consortium, and Seven Seas Water which is the operator of the water desalination plant which provides water as a service to the BVI government.

Conyers Dill & Pearman has acted for the past ten years in connection with, inter alia, the group restructuring, listing on the NYC, extension of the local lease of the plant, financing and take-private transactions.

To carry on business in the BVI requires a trade licence.

The BVI is a leading tax-neutral jurisdiction through which to structure international project finance transactions. The BVI is a British overseas territory and, as such, the UK is responsible for the BVI’s external affairs and security; otherwise, the BVI is self-governing.

Types of BVI vehicle include BVI business companies, limited partnerships and trusts. BVI business companies are the most popular vehicles to structure project finance transactions. The BVI Business Companies Act, 2004 (the BVIBC Act) provides a framework whereby the memorandum and articles of association can be tailored to give effect to a wide range of commercially agreed terms.

Assets typically available as collateral to lenders are shares of the project company, assets of the company, the project site, bank accounts, project contracts and insurances.

There is no concept of "perfection" in the BVI. A charge is effective once it is executed by the parties.

All BVI business companies are required to keep a register of charges pursuant to Section 162 of the BVIBC Act.

The BVI business company or chargee may elect to register the charge with the registrar of corporate affairs. While there is no concept of perfection in the BVI, Section 166 of the BVIBC Act provides that, in the event a relevant charge over the assets of a BVI business company is registered under the BVIBC Act, it has priority over a subsequently registered charge and an unregistered charge.

Generally, most forms of security available in common law jurisdictions are available in the BVI. Fixed and floating charges are permissible under BVI law. Fixed charges are usually taken over specific assets. Floating charges cover those assets which are not covered by a fixed charge. A floating charge remains dormant until some event causes it to crystallise and affix to the assets at the time of crystallisation. Until crystallisation, the company has apparent authority to deal with the assets in the ordinary course of its business.

A fee of USD200 is payable to the registrar of corporate affairs when a charge is registered under Section 163 of the BVIBC Act. A charge is registered by filing an application, specifying the particulars of the charge, in the approved form.

The registrar shall keep, with respect to each company, a register of registered charges. If the registrar is satisfied that the requirements of Section 163 have been complied, upon receipt of the application the registrar shall forthwith register the charge in the register of charges kept for that company, issue a certificate of registration of the charge and send a copy to the company and the charge. The registrar shall state on the certificate the date and time on which the charge was registered. The certificate is conclusive proof that the requirements of Section 163 have been complied with and that the charge referred to in the certificate was registered on the date and time referred to in the certificate.

All asset debentures are permissible and are a common type of security in financing transactions. Each item of collateral need not be individually identified in the debenture itself. A general description of the types of collateral is sufficient.

There are no statutory restrictions on the form of security that can be granted by a BVI company. As such, all the property of a BVI company is available to secure project finance transactions. The directors have a fiduciary duty to act in the best interests of the company. If there is any doubt that guaranteeing the obligations of another company may not necessarily be in the interest of the first company, the directors’ decision to grant the security may be whitewashed by resolution of the members.

A search against a BVI company of the records maintained by the registrar (see 2.3 Registering Collateral Security Interests), together with a certificate of the registered agent of the company, will determine whether a BVI company has granted any security interests. Under Section 162 of the BVIBC, a company must maintain a register of charges created by the company, a copy of which must be kept at the office of the registered agent, showing the following:

  • if the charge is a charge created by the company, the date of its creation or, if the charge is a charge existing on property acquired by the company, the date on which the property was acquired;
  • a short description of the liability secured by the charge;
  • a short description of the property charged;
  • the name and address of the trustee for the security or, if there is no such trustee, the name and address of the trustee for the security or, if there is no such trustee, the name and address of the chargee;
  • unless the charge is a security to the bearer, the name and address of the holder of the charge; and
  • details of any prohibition or restriction, if any, contained in the instrument creating the charge on the power of the company to create any future charge ranking in priority to or equally with the charge.

Typically, there will be a deed of release between the parties. The security will be noted as satisfied in the company’s internal register of charges. Where particulars of the security have been filed pursuant to Section 163 of the BVIBC Act, a notice of satisfaction or release in the approved form may be filed under Section 165 of the BVIBC Act if:

  • all liabilities secured by the charge registered under Section 163 have been paid or satisfied in full; or
  • a charge registered under Section 163 of the BVIBC Act has ceased to affect the property, or any part of the property of the company.

A notice of satisfaction or release shall:

  • state whether the charge has been paid or satisfied in full or whether the charge has ceased to affect the property, or any part of the property, of the company;
  • if the charge has ceased to affect the property, or any part of the property of the company, specify the property of the company that has ceased to be affected by the charge, stating whether this is the whole or part of the company’s property.

A notice of satisfaction or release may be filed by:

  • the company or a legal practitioner in the BVI authorised to act on its behalf;
  • the registered agent of the company or a legal practitioner in the BVI acting on behalf of the charge.

Where the notice of satisfaction or release is filed by or on behalf of the company it shall be signed by the charge or signed by a legal practitioner in the BVI, or a registered agent acting on behalf of the charge.

If he or she is satisfied that the filed notice has been correctly completed and filed by the appropriate person, the registrar will register the notice and issue a certificate of the satisfaction, release or partial release of charge and send a copy of the certificate to the company and to the chargee.

The registrar shall state in the register of registered charges and on the certificate the date and time on which the notice filed.

The BVI has statutory provisions under the Insolvency Act, 2003 which permit a secured creditor to enforce its security outside any liquidation and without the leave of the court. The finance and security documents will set out enforcement events and the basis upon which the security agent can enforce against the collateral. A secured creditor with a valid claim can enforce irrespective of whether the BVI company granting the security is in liquidation.

The choice of foreign law as the governing law of the contract is a valid choice of law and would be recognised and given effect to in any action brought before a court of competent jurisdiction in the BVI, except for those laws (i) which such court considers to be procedural in nature, (ii) which are revenue or penal laws, or (iii) the application of which would be inconsistent with public policy, as such term is interpreted under the laws of the BVI.

In respect of a judgment of the courts of Australia, Bahamas, Barbados, Belize, Bermuda, Grenada, Guyana, Jamaica, Nigeria, St. Lucia, St. Vincent, Trinidad and Tobago or the UK courts, the following applies. A final and conclusive judgment in the superior courts of the foreign courts against a BVI company 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 British Virgin Islands against the BVI company without the necessity of any retrial of the issues which are the subject of such judgment or any re-examination of the underlying claims.

In respect of all other jurisdictions, the following applies. The courts of the British Virgin Islands would recognise as a valid judgment, a final and conclusive judgment in personam obtained in the foreign courts against a BVI Company 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 British Virgin Islands;
  • such judgment was not obtained by fraud;
  • the enforcement of the judgment would not be contrary to the public policy of the British Virgin Islands;
  • no new admissible evidence relevant to the action is submitted prior to the rendering of the judgment by the courts of the British Virgin Islands; and
  • there is due compliance with the correct procedures under the laws of the British Virgin Islands.

An arbitration award is enforceable in the BVI under the Arbitration Act 2013 by leave of the court, in the same manner as a judgment or order of the court that has the same effect, and where leave is so given, judgment may be entered in the terms of the award.

As a matter of BVI law, there are no other matters that might impact a foreign lender’s ability to enforce its rights under a loan or security agreement.

There are no restrictions on foreign lenders granting loans to BVI companies from outside the BVI. Foreign lenders will not be deemed to be resident, domiciled or carrying on business in the BVI by reason only of the execution, performance and/or enforcement of the loans.

A foreign lender has standing to bring an action or proceedings before the appropriate courts in the BVI for enforcement of loans. It is not necessary or advisable in order for a foreign lender to enforce its rights under the loan agreement, including the exercise of remedies thereunder, that it be licensed, qualified or otherwise entitled to carry on business in the BVI.

There are no restrictions on the granting of security or guarantees to foreign lenders by a BVI company.

A foreign investor wishing to establish a presence in the BVI will need to apply for the applicable licences and permits and comply with any additional conditions imposed by the BVI government in relation to local shareholdings and employees. There are no restrictions on foreign investment made into BVI companies used for project finance transactions.

There is no exchange control legislation in the BVI. As such, there are no restrictions on payments abroad or repatriation of capital by foreign investors.

It is permissible for a BVI project company to maintain offshore currency accounts as a matter of BVI law.

To ensure the enforceability in the BVI of the financing or project agreements, it is not necessary or desirable that they be registered in any register kept by any government authority or regulatory body in the BVI, unless the agreements create a charge over the assets of the company, in which case the provisions set out in 2.1 Assets Available as Collateral to Lenders apply.

Ownership of land by a BVI company outside of the BVI does not require a licence as a matter of BVI law.

BVI law recognises the role of an agent or trustee, acting on behalf of all lenders, assuming the transaction documents provide for the appropriate trust and the trust is properly constituted. We do not see any commonly used alternative structures. Structures are driven by the jurisdiction of the transaction documents.

There are no statutory provisions under British Virgin Islands law which would determine the priority of competing security interests – priority would be determined by the established rules at common law and in equity. These rules can be summarised as follows:

  • a person cannot, in general, transfer a better title than he or she possesses and therefore, in general, priority among competing interests is determined by the order of their creation;
  • a legal estate or interest is preferred to an equitable interest;
  • while – as between competing equitable interests – the first in time prevails, if the holder of the second interest, having advanced his or her money without notice of the first, gets in the legal title, he or she thereby obtains priority;
  • the priority of successive assignees of a debt or other chosen in action is determined by the order in which notice of assignment is given to the debtor or fund holder;
  • both legal and equitable interests prevail over mere equities;
  • one whose interest derives from the holder of an indefeasible title can shelter behind that title, even if taking with notice of an earlier title or if taking otherwise than for value, unless he or she committed or assisted in the wrongdoing by which that earlier title was lost;
  • even the holder of a legal estate or interest will lose his or her priority where:
    1. he or she has connived at or participated in a fraud as the result of which the later interest was acquired without notice of the prior legal title; or
    2. he or she has held out the debtor, or permitted the debtor to hold themself out, as the unencumbered owner of the asset or as authorised to deal with it free from the security interest; or
    3. he or she has by their gross negligence in failing to obtain or, semble, retain the title deeds enabled the debtor to deal with the asset as if it were not encumbered by the security interest;
  • the holder of a floating charge is postponed to the grantee of a subsequent fixed charge unless this is taken with notice of a negative pledge clause in the floating charge;
  • normal priority rules may be displaced by agreement between the competing interests, so a first mortgagee may agree to have their interest subordinated to that of a second mortgagee – such subordination agreements are not uncommon and do not require the consent of the debtor;
  • there are special rules governing the ability of a secured party, after the grant of a subsequent encumbrance, to tack advances or further advances ranking in priority to the later encumbrance; and
  • discharge of a security interest automatically promotes junior security interests – if Blackacre is mortgaged first to A, then to B, then to C, and the mortgage in favour of A is discharged, B becomes the first mortgagee, and C the second mortgagee.

A subordination deed is typically used in the BVI. Priority may be contractually varied.

There are no BVI law requirements as to the jurisdiction of organisation of the project company. Typically, the project company is organised in the jurisdiction in which the assets are located.

Beyond the scope of commercial litigation, there are no prescribed procedures. Whilst administration has been legislated for, it is not yet in force. There is no concept of a proceeding akin to Chapter 11. Companies in the BVI may be liquidated by way of voluntary liquidation or by compulsory liquidation, an administrative receiver may be appointed and compromises can be made with creditors by way of a scheme of arrangement.

On a compulsory liquidation, unsecured creditors make a claim under the claims procedure in a prescribed manner. Secured creditors can enforce their security outside of the liquidation.

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 insufficient to pay off the debt in its entirety, the creditor can claim for the balance as an unsecured creditor.
  • Liquidation costs – all costs and expenses of the liquidation.
  • Preferential debts – these comprise employees (in respect of a limited sum referenced to salary) and sums due to the BVI government.
  • Debts secured by a floating charge.
  • Unsecured creditors – all unsecured creditors rank equally amongst themselves.
  • Subordinated debts – all debts can be subordinated by contract unless a creditor who is not party to the contract is prejudiced.
  • Interest payments – namely, all interest accrued on claims since the commencement of the liquidation. Payment is made equally to all creditors.
  • Shareholders’ equity – any surplus after the above distributions have been paid is paid to the shareholders in accordance with their rights in the company and number of shares held.

Unfair preferences, undervalue transactions, voidable floating charges and extortionate credit transactions are all voidable 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 a period of six months before the onset of insolvency (or two years for a connected person). This period, whichever applies, is known as the “vulnerability period”; its effect is to put the creditor in a position which, in the event of the company going insolvent, will be better than the position he or she would have been in if the transaction had not been entered into.

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 consideration provided by the company. In either case, the transaction needs to be made at the time the company was insolvent or made such as to cause the company to become insolvent, and entered into during the vulnerability period referred to above.

Voidable floating charges are those created within the vulnerability period. These are not voidable to the extent they secure money paid to a company after the 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 assets sold or supplied or services provided at the same time or after creation of the charge.

Extortionate credit transactions are those entered within the vulnerability period, requiring grossly exorbitant payments or otherwise grossly contravening ordinary principles of fair trading.

There are no entities that are excluded from bankruptcy proceedings.

There are no restrictions, controls, fees and/or taxes on insurance policies over project assets provided or guaranteed by insurance companies imposed by BVI law.

As a matter of BVI law, insurance policies over project assets may be payable to foreign creditors.

Payments made by a BVI project company are not subject to tax in the BVI, either by withholding or otherwise.

There are no other taxes, duties, charges or tax considerations relevant to lenders making loans to entities incorporated in the BVI. No stamp duty is payable in respect of the transaction documents unless the security, if any, is over an interest in land.

There are no usury laws or other laws limiting the amount of interest that can be charged to a BVI company.

The project agreements will typically be governed by the jurisdiction in which the project assets are located.

Financing agreements are typically governed by the jurisdiction of the lender. US law or English law is invariably chosen.

An equitable mortgage over shares of a BVI company and security over any assets located in the BVI are typically governed by BVI law.

Conyers

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

+1 284 852 1111

+1 284 852 1001

Audrey.robertson@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. For more information, please visit: https://www.conyers.com/legal-services.

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