The economy of the Turks and Caicos Islands (TCI) is dominated by luxury tourism, and its offshoot construction, supplemented by a modest financial services industry.

Most of the jurisdiction’s big financings are in that luxury tourism/construction sector. Lenders are typically either (i) international banks, finance houses, REITs, or syndicates whose participants frequently include regional banks or pension funds, or (ii) one of the three big domestic lenders. Those domestic lenders are the TCI or Bahamian arms of three large Canadian banks: CIBC, ScotiaBank, and RBC.

There is a modest locally-sourced lending market comprising TCI mortgage funds and trust companies whose funding, in turn, comes from private investors.

Public/private partnership transactions are relatively rare in TCI and when they occur, they usually relate to major elements of TCI’s public infrastructure. Thus, TCI’s main international air gateway, Howard Hamilton International Airport in TCI’s commercial hub Providenciales was the subject of a public/private partnership for over a decade in the early 2000s, and a planned replacement terminal is currently the subject of a competitive bidding process for a new public-private partnership.

Such arrangements are subject to TCI’s public procurement law, the Public Procurement Ordinance, cap. 19.19 (as amended). The statute establishes a regime for public procurement, based on principles of competition, fairness and transparency, value for money, and probity. All procurement contemplated by this chapter will be high-value procurement within the meaning of the statute. All high-value procurement must be the subject of a tendering process and an extensive pre-procurement phase. In addition, public-private partnerships must first:

• be suitably appraised by the TCI legislature to ensure that value for money is obtained and that a robust cost-benefit analysis is carried out;
• have the approval of a Secretary of State (a senior minister in the UK government); 
• be the subject of prior financial appraisal; 
• meet long-term affordability requirements; and
• be the subject of an independent opinion from a qualified accountant of good standing on the correct accounting treatment of the project in the government’s accounts.

The larger financing transactions will typically have as their foundation a credit or loan agreement governed by the laws of either New York or England and Wales. Because the main aspects of the security package will be TCI assets (being either shares of TCI companies, underlying TCI real estate or both), the security elements will typically be governed by TCI law, as the TCI courts are the final arbiter of the ownership of those assets.

Commercial structuring will be in accordance with the prevailing norms for such loans in New York or London, as the case may be. From the TCI standpoint, the security package will be designed to ensure both flexibility of enforcement, and (where the financing is for a luxury tourism project) to ensure that those elements of the project that are for sale to members of the public can be sold readily and without triggering any of the lending covenants.

Thus, the primary TCI security will typically be over the shares of TCI companies that own or control the underlying hard assets, with security over real estate an important but secondary aspect (because of the cumbersome and borrower-friendly enforcement procedures under TCI’s land laws with respect to real estate charges).

The luxury tourism sector is the dominant industry in TCI and most big financings are, and will continue to be, in that arena. TCI has a modest financial services industry and TCI-registered entities, whose business or assets are located internationally, are also active in the sector, as are local utility companies who are expanding in response to TCI’s booming economy and population growth.

Shares of TCI companies (both operating companies and asset holding companies), along with the underlying assets of those companies are the most frequently used collateral.

Given the prevalence in the TCI market of loans to the luxury hospitality sector, the most attractive security target tends to be the underlying real estate. TCI’s Registered Land Ordinance, cap. 9.01, has a long-established regime dealing with the registration charges over TCI real estate. However, the enforcement mechanism for default is bureaucratic and time-consuming and so TCI corporate borrowers will typically also be required to give the lender a debenture (fixed and floating charge) over all of their assets and undertakings. That debenture will frequently be the primary security, with the land charge a secondary element. This is because the debenture provides a much quicker route to the sale of, or appointment of a receiver over, the underlying security than does a TCI land charge.

A debenture given by a TCI company will be registered in the Register of Registered Charges at the TCI Companies Registry. The TCI Companies Ordinance, cap. 16.08, gives priority to such charges over subsequently registered charges and over charges that are unregistered. That regime operates independently of the land charges regime under the Registered Land Ordinance, and will not provide priority with respect to that real estate over a prior-ranking registered land charge. Thus, a land charge will also typically be registered even if the lender has no intention of ultimately relying on that security for enforcement purposes.

Charges over company shares are typically given by way of pledge, and if the grantor of the pledge is a TCI company, that pledge can likewise be registered in the Register of Registered Charges in the Companies Registry as affecting that grantor/pledgor.

Security may be granted in favour of a security agent.

A debenture (a fixed and floating charge over all of the assets and undertakings of the company that is giving the security) is typically the primary security in a TCI commercial loan and, if properly drafted and perfected, will give a floating charge over all present and future assets of the company.

Aside from legal fees (an item for negotiation with the provider), the main cost associated with registering collateral security interests in TCI is a stamp duty on charges over TCI real estate at the rate of 1% of the amount secured, to a maximum duty amount of USD50,000.

Each item of the collateral does not need to be identified in the applicable TCI security document (save with respect to land charges). However, it will be essential if assets are identified (for instance) by reference to a particular class, that a specific asset can clearly be categorised as property falling within that class.

For land charges, the registration regime laid out in the Registered Land Ordinance requires that the specific land parcel be identified by reference to a parcel number, block, section and island.

The articles of a TCI company may specify that a corporate guarantee must be executed under the company seal. In any event, it should be stated that that corporate guarantee is executed as a deed, and, for governance reasons, it is customary to ensure that it is supported by corporate resolutions acknowledging the corporate benefits flowing to the company by virtue of its giving the guarantee concerned.

Under the regime specified for land charges, those documents must be executed under seal and generally against the signatures of a director and the secretary of the TCI company granting the land charge.

Lenders will typically carry out a variety of searches to ensure that the collateral is free of other liens or charges. Such searches would typically include the following:

• Register of Registered Charges at the TCI Companies Registry;
• the internal charge register of the TCI company granting the security;
• judgment records at the TCI Supreme Court; and
• TCI Land Registry.

Release of a debenture or share pledge will typically be by a narrative form of release, duly executed by an appropriate officer of the lender concerned. Between the parties, this can be exchanged electronically. If the debenture or share pledge is registered on the Register of Registered Charges in the TCI Companies Registry, a statutory form of release executed by or on behalf of the lender is filed electronically at the Registry.

In relation to land charges, a wet ink form of discharge in a statutory form is required to be physically filed at the TCI Land Registry, and that discharge is completed by its registration.

Assuming that the primary security document is a debenture (a fixed and floating charge) granted by a TCI company, the circumstances in which enforcement can take place will typically be set out in the debenture. With a view to avoiding differences between the terms of the debenture and the terms of the primary credit or loan agreement, it has become customary to specify in the debenture that the enforcement will be in accordance with the provisions of the credit or loan agreement. Those provisions are a matter of contract, and events of default and applicable grace periods will typically be set out in the loan agreement, following which periods the right to enforce the security vests.

In a TCI debenture, the most common enforcement right would be to appoint a receiver who will have full powers to stand in the shoes of the directors of the company concerned, to carry on running the company’s business if that is deemed appropriate or to sell any or all of the assets that are secured by the debenture. This right of sale effectively circumvents the much more restrictive and unwieldy procedure for sale of secured real estate assets laid down by the Registered Land Ordinance, and so is very attractive to lenders to TCI luxury hospitality projects.

Similarly, the enforcement rights against shares secured by a share pledge will typically be set out in the terms of the share pledge concerned. It is customary that the certificate for the shares is held by the lender or by a security agent for the lender who is granted sale rights in the event of an event of default that is not remedied within the specified grace period (if any).

The rights of the lender in these circumstances do not include the right simply to sell the underlying assets at a price that is enough to recover the amount owed and costs. The lender has an obligation to the borrower to respect the borrower’s equity in the underlying assets and therefore to try reasonably to obtain the best price that can be obtained in the market, having regard to the distressed nature of the assets in the circumstances.

Provisions for the enforcement of a guarantee are a matter of contract and will be set out in the terms of the guarantee itself.

The Registered Land Ordinance specifies an elaborate procedure for enforcement of land charges but as that is typically circumvented by reliance on a debenture or similar floating charge, consideration of that statutory regime is moot for the purposes of this chapter.

The choice of foreign law as the governing law of the loan contract and the submission to foreign jurisdiction will typically be upheld by the TCI court, subject always to the proviso that the TCI court is the final arbiter of the ownership of shares of TCI companies and of TCI real estate. Therefore, it is customary to specify in the security documents that give security interests over those TCI assets that TCI law prevails in that regard.

The TCI courts will enforce a final, conclusive, and enforceable judgment in personam of the courts of a foreign jurisdiction (whose laws govern a loan or credit agreement) enforcing the rights of the parties to the loan documents against a TCI company, provided that the judgment:

• is final and conclusive (though it might be subject to appeal);
• is for a liquidated sum not in respect of penalties or taxes or a fine or similar fiscal or revenue obligation;
• was neither obtained in a manner, nor is of a kind, of which enforcement is contrary to natural justice or the public policy of TCI; and
• was rendered by a court having jurisdiction.

There are no other matters that might typically impact a foreign lender’s ability to enforce its rights under a loan or security agreement in TCI.

The granting by a foreign lender of a loan to a TCI company or borrower is not prohibited by TCI law and is not the subject of TCI licensing requirements. If a foreign lender was routinely or regularly granting loans to TCI borrowers, then it might be construed as doing business in TCI, such that it might therefore be required to obtain a TCI business licence. However, occasional or standalone loans by international lenders to TCI borrowers are not the subject of restrictions in TCI.

Similarly, the granting of security or guarantees to foreign lenders is not restricted or impeded in TCI.

TCI’s business model, as a small open economy dependent primarily on luxury tourism, and without large-scale indigenous capital, is to welcome foreign investment, and foreign investment has transformed the TCI economy in the last 30 years.

TCI has no corporate, income or capital taxes, the currency is the US dollar, and there are no exchange controls or limitations on capital movement.

Foreign investment is welcomed, and that open-door policy operates primarily at two levels, namely:

• large-scale foreign investment at a level and of a type where the investment is not available locally (and the most obvious and prevalent example of this is foreign investment in substantial luxury tourism projects running to tens or hundreds of millions of dollars per project); and
• luxury villa or condominium investment in the second home market where the investors are individuals who do not intend to do business in TCI that competes with local providers.

At a micro level, there are numerous business categories that are limited to indigenous TCI residents. Moreover, because luxury hospitality and construction are so labour-intensive and because TCI’s indigenous population (Islanders) is small, about two-thirds of the population is foreign-born. To control these high levels of immigration, there is a significant immigration regime that limits the right to work in the islands to Islanders, permanent residents, and work permit holders.

TCI has no direct corporate, income, or capital taxes. The currency is the US dollar and there are no exchange controls.

A project company is permitted to maintain foreign currency accounts.

Other than the registration of the various security items described in 2.1 Assets Available as Collateral to Lenders, there is no necessity to record or file the financing agreement in TCI.

As part of its open-door foreign investment policy, TCI does not impose any alien land holding licence requirements, and land ownership does not require a licence regardless of the country of origin of the proprietor. However, although any foreign individual can own TCI real estate, any corporate entity that own’s TCI real estate must be a TCI company. There is no limitation on the upstream ownership of that TCI company by foreign individuals, corporations or trusts.

The same rule does not apply to the corporate holders of security over TCI real estate; there is no requirement that such an entity must be a TCI company.

Agency and trust concepts in lending are recognised in TCI.

Priority of competing security interests in TCI is primarily governed by the statutes giving the security concerned. Thus, registration of a charge in the Register of Registered Charges at the TCI Companies Registry affords such a charge priority over subsequently registered charges and against unregistered charges. Similarly, in relation to TCI real estate, a registered land charge will give the holder of that charge priority against all comers, where that charge is a first registered charge. If it is a second or subsequent charge, it will have priority over subsequent charges.

Where there are prior ranking charges which it is not intended to discharge, the relevant parties may by contract agree subordination provisions specifying that a lower ranking charge has priority over the prior ranking one. Contractual subordination arrangements between competing security holders over TCI assets will survive the insolvency of a borrower incorporated in TCI.

Because major financings in the TCI market will typically relate to TCI luxury tourism projects or to projects otherwise situated in and owning real estate in TCI, the project company will typically be incorporated in TCI (not least because to own TCI real estate, a company must be incorporated in TCI). The typical legal form of a project company is a company limited by shares, though companies limited by guarantee or hybrid companies partially limited by shares and partly limited by guarantee are permissible. There are no TCI limitations as to the upstream ownership of the project company.

Two or more domestic companies may merge or consolidate. The directors of each constituent company must approve a written merger or consolidation plan, which must contain:

• the name of each constituent company and the name of the surviving or consolidated company;
• the number of outstanding classes of shares in each constituent company entitled to vote on the merger or consolidation;
• the terms and conditions of the proposed merger or consolidation, including the manner and basis for cancelling, reclassifying or converting shares in each constituent company into shares, debt obligations, or other securities of the surviving or consolidated company or money or other assets of the surviving company; and
• any proposed amendments to the articles of incorporation of the surviving company.

The plan or merger of consolidation must be approved by a resolution of the shareholders of each class of shareholders entitled to vote on the merger or consolidation.

Once the plan of merger or consolidation is approved, articles of merger or consolidation must be filed with the Registrar of Companies. The articles of merger must contain:

• the plan of merger or consolidation;
• the date on which each constituent company was registered;
• the manner in which the plan of merger was authorised; and
• in the case of a merger, the resolution to amend the articles of the surviving company, and in the case of a consolidation, the articles of the consolidated company.

If the Registrar is satisfied that the proposed merger or consolidation is compliant with the provisions of the Companies Ordinance, the Registrar will issue a certificate of merger or consolidation and in the case of consolidation, a certificate of incorporation of the consolidated company.

A domestic parent company may merge with one or more subsidiaries without the authorisation of any member of the subsidiary, by the directors approving a plan of consolidation, in terms similar to that of a merger between two unconnected companies.

The merger or consolidation becomes effective on the date of filing of the articles of merger or consolidation, or such later date, not exceeding 30 days, as specified in the articles of merger and consolidation. Once the merger or consolidation becomes effective, the surviving company becomes liable for the debts and obligations of the constituent company. Any pending proceedings against the constituent company may be continued against the surviving company and any judgments, debts, and obligations may be enforced against the surviving company.

One or more domestic companies may merge with one or more foreign companies if the merger or consolidation is permitted under the laws of the jurisdiction in which the foreign companies are incorporated. The domestic companies must comply with both the laws of the TCI with respects to merger and consolidation, as the case may be, and the foreign company must comply with the laws of the jurisdiction in which it is incorporated.

If the surviving company or consolidated company is to be incorporated under the laws of a foreign jurisdiction, it must file:

• an agreement that service of process may be effected in TCI in respect of any claim, debt, liability or obligation of a constituent company registered in the TCI or in respect for proceedings for the enforcement of the rights of a dissenting constituent TCI company, against the surviving company or the consolidated company;
• the irrevocable appointment of a registered agent in the TCI to accept service of process in any proceedings referred to in the first bullet point above;
• an agreement that it will promptly pay to a dissenting member of a constituent TCI company, the amount, if any, to which that dissenting member is entitled; and
• a certificate of merger or consolidation issued by the appropriate authority of the foreign jurisdiction or other evidence of approval satisfactory to the Registrar.

If the surviving or consolidated company is a TCI company, the merger or consolidation becomes effective on the date of registration of the articles of merger or consolidation by the Registrar or any subsequent date not exceeding 30 days as stated in the articles of merger or consolidation. If the surviving or consolidated company is a foreign company, the merger or consolidation takes effect as set out in the laws of the foreign jurisdiction.

A lender may not commence or continue any proceeding against a company in liquidation or any of its assets unless the court otherwise orders. A lender may not enforce any rights or continue to enforce any rights or remedy against a company in liquidation or any of its assets unless the court orders. The above prohibitions do not prevent a secured creditor from taking possession of, realising, or otherwise dealing with any of its secured assets.

Where a company is in provisional liquidation, the court may stay any existing proceedings pending the hearing of a winding-up petition.

In the liquidation of a company, the assets of the company are to be applied in the following order of priority:

• paying the claims, costs, and expenses properly incurred in the liquidation;
• paying the claims of preferential creditors;
• paying other admitted debts;
• paying interest on claims in respect of the period after the commencement of the liquidation; and
• distribution to members of a company in accordance with their rights and interests.

Where the assets of a company are insufficient to pay the cost of liquidation and preferential debts, those costs will have priority for payment out of the assets of the company subject to a floating charge.

The following constitute preferential debts:

• wages, salaries and accrued holiday due to a past or present employee in respect of the four months immediately preceding liquidation up to USD20,000;
• any sum due on behalf of an employee in respect of medical health insurance premium or pension contribution up to USD20,000;
• any sum due to the National Insurance Board in respect of the contributions deducted from an employee’s salary or payable by the employer in respect of the six months preceding liquidation without limit;
• sums due to the government in respect of taxes up to USD40,000; and
• sums due to the Financial Service Commission up to USD20,000.

If a borrower becomes insolvent, creditors run the risk of not being paid where the lender is not a secured creditor because of insufficiency of assets of the borrower to meet claims after the cost of liquidation and discharging the liabilities of preferred creditors. Such lenders will have to share available assets on a pari-passu basis. Even if the lender is a secured creditor, there is a risk that the secured asset may not be sufficient to discharge the borrowers’ liabilities to the lender in full, in which case the lender will have to claim in the liquidation for the balance due. If the lender wishes to claim in the liquidation for the whole of the lender’s claim, the lender will have to forego the status of a secured creditor by surrendering security interest to the liquidator for the general benefit of creditors.

In the case of the insolvency of a security provider, there should be little risk, unless the secured assets are insufficient or the granting of the security interest itself is challenged on some valid basis. Such a challenge may include lack of authority, insolvency of the security provider at the time of giving the security or that the security was given during a vulnerability period of the security provider. In the case of a guarantor, it may be necessary to bring proceedings against the guarantor, and the court’s permission will be required to bring such proceedings. In any event, the lender will become an unsecured creditor in relation to the assets of the guarantor and will have to claim in the liquidation of the guarantor and share available assets on a pari-passu basis.

Foreign companies are not subject to the insolvency regime under the Insolvency Ordinance 2017. Statutory bodies are also excluded because they do not fall within the definition of a company under Section 2 of the Companies Ordinance 2017, which defines a company as one that is incorporated or continued in the TCI.

Under the Insurance Ordinance, cap 16.06, it is an offence to carry out insurance business in TCI without holding the requisite licence. In addition, there is a prohibition under the same Ordinance against entry into an insurance contract to insure a risk located in TCI with an insurer that is not licensed under the Ordinance, unless that person first obtains a dispensation under the Ordinance.

For this purpose, risk is located in TCI if it is a risk in relation to a person who, at the time of effecting the insurance contract, is ordinarily resident in TCI or in relation to property that, at the time of effecting the insurance contract, is in TCI, or in the case of a vehicle, vessel or aircraft or other movable property, is ordinarily based in TCI.

Thus, if a borrower is a TCI entity or if the secured property is located in TCI, the insurance contract with respect to that collateral must be effected in TCI with a licensed insurer unless a dispensation is first obtained from the TCI Financial Services Commission.

The granting of the dispensation will require that the person demonstrate to the satisfaction of the relevant TCI government official an evident need that the insurance contract be so placed. Typically, the dispensation will be granted where the insurance cover concerned is not available in TCI or is not available in TCI on terms that are commercially reasonable in the circumstances. In any event, it will be a condition of the granting of the dispensation that the insurer concerned pay the insurance premium sales tax that would have been payable under the Insurance Premium Sales Tax Ordinance, cap. 19.17, if the policy or contract of insurance had been placed in TCI.

Under the Insurance Premium Sales Tax Ordinance, a tax of 2.5% of the premium is imposed on most insurance contracts (with the exception of life and health insurance).

There is no limitation on the payment of proceeds of insurance policies over project assets to foreign creditors, save with respect to condominium properties registered under TCI’s Strata Titles Ordinance, cap. 9.04, where the court has powers to direct application of insurance proceeds in reinstatement of the building concerned in certain circumstances.

There are no material withholding taxes with respect to payments of principal, interest or other payments made to lenders, under TCI law.

The only material tax or duty relevant to lenders making loans to entities incorporated in TCI, and arising under TCI law, is stamp duty on land charges where the collateral for the loan includes security over TCI land. Such duty is charged at the rate of 1% of the amount secured, capped at USD50,000.

If on an enforcement against TCI collateral, there is a sale or transfer of those assets to a buyer, stamp duty or share transfer duty may arise on that sale. Those duties are typically paid by that buyer, as a matter of contract.

There are no material usury laws or other rules limiting the amount of interest that can be charged in TCI.

If the project concerned is located in TCI, the law governing the project agreements will typically be that of TCI.

The laws governing the financing documents in substantial loans to TCI entities are typically those of either New York or England & Wales. 

The law governing the security documents will typically be that of TCI, where the collateral is shares of TCI companies or TCI real estate.