The British Virgin Islands' reputation as the leading offshore jurisdiction is well earned and it is dedicated to maintaining its status as a creditor-friendly and commercially flexible jurisdiction. The developments of 2015 are the latest example of its evolution as it continues to meet the needs of the global financial community. The following are the key developments to BVI law that are most likely to interest lenders and borrowers.
The most recent changes to BVI company law are set out in the 13th round of amendments to the BVI Business Companies Act 2004, most of which came into effect on January 15 2016. The changes are quite varied in nature and scope; this update covers only those which are directly relevant to lenders or borrowers.
Instructions to registered agents
Registered agents must act on a valid resolution of the board of directors of a BVI company, irrespective of the wishes of their client of record. This should have a direct impact on the enforcement of share security where the registered agent holds the original share register and is required to update it to effect the transfer of ownership of the shares.
A BVI company may go into voluntary liquidation even if there is a security interest registered against it at the BVI Registry of Corporate Affairs. However, the liquidator has a duty to apply the BVI company's assets towards payment of the amounts owed to the secured creditor in accordance with applicable BVI law.
Consent of secured creditors when continuing out of British Virgin Islands
A BVI company wanting to continue out of the British Virgin Islands to another jurisdiction will be required to file a notice of continuance with the BVI Registry of Corporate Affairs; further, where there is security registered against the BVI company it will be required to:
- release the registered security interest;
- confirm that the security interest holder has consented or not objected to the proposed continuation out; or
- satisfy the BVI Registry of Corporate Affairs that the security interest will not be compromised.
If a registered security document contains a prohibition against the BVI company continuing out, the BVI company may not continue out of the British Virgin Islands.
Execution of deeds
The proper mode of execution of BVI law deeds has been clarified expressly to permit the addition of specifically pre-signed pages to the final form of deeds at closing with the authority of the executing party. This change amounts to a statutory disapplication of the English High Court decision in Mercury Tax Group Limited v HMRC and should simplify affairs for all involved in closings.
Private register of charges
Any changes to a BVI company's privately maintained register of charges (which is separate from the public register of charges held by the BVI Registry of Corporate Affairs) must be made within 14 days of the change.
As with the BVI Business Companies Act, the BVI insolvency law framework takes into account the commercial realities that affect financing and other similar transactions. The overall effect of this is insolvency legislation which favours creditors, particularly secured creditors. The Insolvency Act 2005 includes provisions for the grant of administration orders, but these provisions relevant to administration have not yet been enacted. If and when they take effect, both lenders and borrowers should note that administration is an alternative to liquidation.
Although modelled in large part on English law administration provisions, BVI administration has notable differences, including being even more secured-creditor friendly. Its ultimate aim is to give a financially distressed company enough breathing room to restructure itself; during the relevant period, an administration order would essentially operate as a stay on the rights of creditors, preventing them from enforcing.
While no precise timeframe has been given, the administration provisions of the Insolvency Act 2005 may well be enacted in the not-too-distant future. This would signal a significant change to the existing regime. If a lender wishes to have the right to veto the making of an administration order (should it become law), it should take a lightweight BVI law floating charge over the assets of the relevant BVI company.
For further information on this topic please contact Michelle Frett-Mathavious or Hamish Masson at Harney Westwood & Riegels by telephone (+1 284 494 2233) or email ([email protected] or [email protected]). The Harney Westwood & Riegels website can be accessed at www.harneys.com.
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