Harneys in Tortola looks at changes to BVI Law in 2015 and what lenders and borrowers need to know
The British Virgin Islands’ (BVI) reputation as the leading offshore jurisdiction is well earned and it is dedicated to maintaining its status as a jurisdiction which is creditor friendly and commercially flexible.
The developments of 2015 are the latest example of its evolution as it continues to meet the needs of the global financial community.
Below is a quick summary of the key developments in 2015 in BVI law most likely to be of interest to lenders and borrowers.
The BVI Business Companies (Amendment) Act 2015
The most recent slate of changes to BVI company law are set out in the 13th round of amendments to the BVI Business Companies Act 2004, the majority of which came into effect on January 15 2016. The changes are quite varied in nature and scope but this note covers only those which are of direct relevance to lenders or borrowers.
Instructions to registered agents
Registered agents are required to act upon 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 upon the enforcement of share security where the registered agent holds the original share register and is required to update the share register 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 (the BVI Registry). However, the liquidator will have 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 the BVI
A BVI company wanting to continue out of the BVI to another jurisdiction will be required to file a notice of continuance with the BVI Registry and where there is security registered against the BVI company it will also be required to: (1) release the registered security interest, (2) confirm that the security interest holder has either consented or not objected to the proposed continuation out or (3) satisfy the BVI Registry that the security interest will not be compromised. If a registered security document contains a prohibition against the BVI company continuing out, then the BVI company will be prohibited from continuing out of the BVI.
Execution of deeds
The proper mode of execution of BVI law deeds has been clarified to expressly 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 of Mercury Tax Group Limited v HMRC and should simplify life for all involved in closings.
The private register of charges
Any changes to a BVI company’s privately maintained register of charges (which is separate from the public register of registered charges held by the BVI Registry) must be made within 14 days of the change.
Administration Orders in the BVI – still pending
Like the BVI’s Business Companies Act, its insolvency law framework takes into account the commercial realities which affect financing and other similar transactions. The overall effect of this is insolvency legislation which favours creditors, particularly secured creditors. The BVI’s Insolvency Act 2005 includes provisions for the grant of administration orders, but these provisions relevant to administration have not yet been brought into force. If, and when, they do take effect it is worth noting (for both lenders and borrowers) that administration is an alternative to liquidation.
BVI administration, although modelled in large part on English law administration provisions, 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 and during the relevant period an administration order would essentially operate as a stay on the rights of creditors, preventing them from enforcing.
Whilst no precise timing has been given, we do have reason to believe that the administration provisions of the BVI Insolvency Act 2005 may well be brought into effect in the not too distant future and if (and when) they are, this would signal a significant change to the existing regime. Our advice remains that if a lender wishes to have the right to veto the making of an administration order (should it become law), then they should take a lightweight BVI law floating charge over the assets of the relevant BVI company.