British Virgin Islands ("BVI") companies regularly provide security over their assets (both located within and outside of the BVI) as part of financing transactions.
Once the obligations secured by this security are repaid in full and the security released or discharged, it is important that any security registrations which have been put in place in the BVI are removed, as outstanding security registrations can lead to delays in future transactions.
However, an important headline point is that the de-registration of registered security interests is a separate process to the actual release or discharge of the security, which will be governed by the terms and governing law of the relevant security document. As such, de-registration is not a requirement in order for the underlying security to be released; nor will any de-registration achieve a release or discharge in itself.
Public Register of Charges
Section 163 of the BVI Business Companies Act as amended (the “Act”) provides for the creation of a public register of charges by filing an application to register a charge with the BVI Registry of Corporate Affairs (the “Registry”). This filing is optional and can be made by the company’s registered agent or by BVI legal counsel to the company or the chargee. Further information on this may be found in Carey Olsen’s guide titled “Registering security in the British Virgin Islands”; suffice to say for the purposes of this guide that the chargee should always ensure that security granted by BVI companies is publicly registered to protect priority.
Details of security registered on the public register can be found through a company search carried out in the BVI and, in order to remove such registration from the register, a notice of release or satisfaction of charge must be prepared (please contact your Carey Olsen BVI contact in this regard) and submitted to the Registry. The notice must contain specific information required by the Registry, and must either be signed on behalf of the chargee (or by the chargee’s BVI legal counsel) or filed by BVI legal counsel or a registered agent acting on behalf of the chargee. A partial release uses the same form but must set out details of the property released from the charge and confirm that it is only part of the property of the company. Each filing is subject to a government filing fee of US$50 payable to the Registry.
From a practical perspective, there are two important points to note: (i) a specific form of notice is required to make the filing; and (ii) as a consequence of the requirement for the form to be either signed or filed by or on behalf of the chargee (or its BVI legal counsel or a registered agent acting on its behalf) it is not possible to make such a filing without the involvement of the chargee, even where it has granted a valid release of the underlying security.
For completeness, we note that amendments were made to the Act to permit a statutory declaration to be filed with the notice of release or satisfaction of charge, which had been thought would provide a mechanism for a company which had been granted a valid release by a chargee to complete the administrative act of de-registration without requiring the further involvement of the chargee (particularly useful where, for example, the chargee has subsequently ceased to exist). Unfortunately, the Registry has in our experience not generally been willing to accept filings made on the basis of statutory declarations made by directors of the company whose assets have been released, much reducing the usefulness of this option.
Upon a correctly completed filing being made, the Registry will issue a certificate of release or satisfaction of charge (“Certificate of Release”). The Certificate of Release will, among other things, confirm the effective date of the de-registration (being the date on which the release filing was submitted). The process is straightforward, is conducted electronically, and is often achieved on a same day basis (but generally within no more than 1-2 business days).
Following the Certificate of Release being issued by the Registry, the Certificate of Release will form part of the results of any subsequent company search carried out in respect of the company, thereby effectively removing the security registration from the company’s public register (although the historic filing relating to security will still be included in the overall search results).
Private Register of Charges
In addition to the public register of charges, Section 162 of the Act requires all BVI companies to maintain a register of all charges created by the company, a copy of which must be kept at the company’s registered office or at the registered office of the registered agent of the company. As a private document, details of the charges contained in this register will not be disclosed on a company search (details of the charges will only be disclosed in a certificate of incumbency/ registered agent’s certificate - i.e. with the consent of the company). The entries, or removal of entries, do not have any impact on the validity, enforceability or priority of any security, but as a matter of good practice and to avoid mismatches with the public records, the updating of this register should also be attended to promptly following any release of security.
In order to ensure that the private register of charges is updated to remove any security which has been released (following the execution of a deed of release as discussed above), a copy of the deed of release / release document should be sent to the registered agent of the company (together with a copy of the Certificate of Release if the security has also been released from the company’s public register of charges) with an instruction to the registered agent to update the company’s private register to remove the relevant charge. The registered agent can then update the internal register to note the security has been released.
Register of Members
Although not strictly a form of security registration, where security has been granted over shares of a BVI company, a properly advised chargee will require the BVI company to make an annotation on its register of members containing certain information specifically provided by the Act to evidence that the shares have been mortgaged or charged.
It is also common for a chargee to require as a term of the share security that the annotated register of members be filed with the Registry, the effect of which is to make the register of members available for public inspection, increasing the likelihood of a potential acquirer of a legal interest in the shares obtaining actual knowledge of the security interest.
Where security over the shares of a BVI company is released, it is therefore important to check whether an annotation was entered in the company’s register of members and, if so, a copy of the deed of release should be sent to the registered agent of the company, instructing them to remove the annotation.
If the annotated register of members has also been filed with the Registry, a further step is required and the updated register of members with the annotation removed should be filed at the Registry. The company should also consider at this point whether it wishes to continue maintaining a public register of members - unless there is new security and the company is required to maintain the public filing, this would be very rare. To stop publicly filing its register, the company needs to file a notice with the Registry, which notice can be filed at the same time as the updated register of members showing the prior security has been discharged. It should be noted that any register of members that has been filed with the Registry will remain a public, albeit historical, document and it cannot be removed from the company’s public records.
Most security registrations currently registered and outstanding in the BVI were registered under the Act, being the current corporate statute. However, for companies which were incorporated and created security prior to 1 January 2007, it is necessary to check whether any security registration was made under the former corporate statute, being the International Business Companies Act, 1984 (the “IBC Act”).
Where registration was made under the IBC Act, the security registration process was slightly different and involved a private register of mortgages, charges and other encumbrances (which determined priority) together with an optional ability to publicly file the register (for notice reasons). The first step in respect of the de-registration of such security is to check with the company as to whether such a register of mortgages, charges and other encumbrances was maintained and to check search results to see if there was any public filing of the register.
If a register of mortgages, charges and other encumbrances was maintained, the company will need to update it to record the release / discharge. Where such a register was also publicly filed with the Registry (which as noted above was optional), de-registration requires the register to first be updated by the company and then for the updated register to be filed with the Registry.
One practical difference from the registration / de-registration process under the Act is that in relation to the filing of an updated register of mortgages, charges and other encumbrances under the IBC Act, only the company’s registered agent can make such filing (third parties such as chargees or legal counsel to either the chargee or the company cannot).
The de-registration of security in the BVI is a relatively straightforward, electronically conducted process which can usually be completed within a few days. It is however important to ensure on the release of any security over the shares or assets of a BVI company that the BVI security registration aspects are taken into account at the time and that BVI legal advisors and the registered agent of the company are involved in the process in order to ensure that there are no surprises left to be discovered on future transactions.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.