British Virgin Islands: Taking And Registering Security In The British Virgin Islands

BVI companies are the investment vehicle of choice for international business activity. There are over 465,000 active BVI companies and, given the popularity of such companies, they are often used in secured financing transactions. The BVI is a creditor friendly jurisdiction and the process of taking and registering security is straightforward. In addition, BVI legislation is robust with a legal system based on English common law and a dedicated commercial court. As a result, the legal system is stable and attractive for lenders. This briefing will examine key aspects of taking and registering security in the British Virgin Islands.

How to take effective security

Taking security over the shares or assets of a BVI company is straightforward. Nonetheless, it is important to ensure in the first instance that the company granting the security interest has the requisite power and capacity and that the particular transaction is properly approved and authorised.

Taking security over assets of a BVI company
Where taking security over the assets of a BVI company, the following key features should be noted:

  • Instrument in writing: the charge must be in writing, although no particular form is required and no particular provisions are prescribed.
  • Free choice of governing law: the parties are free to choose the governing law notwithstanding the situs of the assets.
  • No formalities: no formalities are required under BVI law for taking security.
  • No perfection requirements: there are no perfection requirements under BVI law in order to make the security agreement valid or enforceable.
  • No stamp duty: no stamp duty is payable on the creation or enforcement of a security agreement.

Taking security over shares in a BVI company
Where taking security over the shares of a BVI company, the following key features should be noted:

  • Instrument in writing: the charge or mortgage must be in writing and signed by or with authority of the holder of the relevant shares.
  • Mortgage or charge: the security taken must be a mortgage or charge. It is not possible to take security by way of pledge as title to shares is determined by reference to the share register rather than possession of the share certificates, so such rights are incapable of being pledged.
  • Flexible form: no particular form is required although the document must clearly indicate the intention to create a mortgage or charge and the amount secured (or how the amount is to be calculated).
  • Free choice of governing law: the parties are free to choose the governing law notwithstanding the situs of the assets.
  • Remedies: under a foreign law mortgage or charge, the remedies available are as provided by the governing law. Under a BVI mortgage or charge the available remedies are either (i) to sell the shares, or (ii) to appoint a receiver (who may vote the shares, receive distributions or exercise other rights and powers of the secured party in respect of the shares), subject to any contractual provisions to the contrary. It should be noted that unlike the position under English law, there is no remedy of appropriation under BVI law governed security.
  • No formalities: no formalities are required under BVI law.
  • No perfection requirements: there are no perfection requirements under BVI law in order to make the security agreement valid or enforceable.
  • No stamp duty: no stamp duty is payable on the creation or enforcement of a security agreement.

How to register security

Unlike most other offshore jurisdictions, the BVI has a statutory registration system for security interests. It is not necessary to register a security interest under BVI law in order to ensure the validity or enforceability of a security agreement. However, it is advisable that security interests are registered with the Registrar of Corporate Affairs in the BVI (the "Registrar") in order to ensure the priority of the secured party's interest. Priority of security interests in the BVI is generally governed by the date and time of registration. Registering a security interest ensures priority over subsequently registered security interests and prior unregistered security interests.

Registering security over assets of a BVI company
Where registering security over the assets of a BVI company, the following key points should be noted:

  • The company's internal register of charges must be updated: a BVI company is required to maintain a register of charges in which it must record details of security granted over its assets. This is an internal rather than a public register and a copy must be kept at the registered office or at the offices of the registered agent in the BVI. If the company fails to update the register it commits an offence and is liable on conviction to a fine of up to US$5,000.
  • Notice of the security interest may be filed at the Registry of Corporate Affairs: such filing is optional but, as noted above, is recommended in order to ensure priority. The filing can be made by the company, its registered agent or lawyers for the secured party. A certificate of registration, issued by the Registrar, confirms the time and date of registration and is conclusive evidence of compliance with the requirements of the BVI Business Companies Act, 2004 (the "Act"). Filing also constitutes notice to the world of the security interest.

Registering security over shares of a BVI company

Where registering security over the shares of a BVI company, the following key points should be noted:

  • The company's register of members may be annotated: a notation may be made in the company's register of members that the relevant shares are subject to a mortgage or charge. The conventional view being that such notation constitutes actual notice of the security interest to anyone inspecting the register of members.
  • The company's register of members may be filed on the public register: a company may elect to file its register of members with the Registrar. Such filing is optional, and sometimes contested, although it is of benefit to lenders as it will provide actual notice of the security interest to anyone reviewing the public files of the company.

Concluding points

This briefing provides a succinct guide to the key features of taking and registering security over the shares in or assets of a BVI company. However, this note does not seek to provide a detailed analysis of the mechanics of taking security, enforcement or questions of priority and, if further advice is required on such topics, please do not hesitate to contact Bedell Cristin.

Bedell Cristin is frequently engaged on secured financing transactions and can assist lenders in conducting due diligence on BVI companies, assisting with the preparation of security documentation and registration of security, reviewing corporate authorities to determine whether security has been properly authorised, and provide legal opinions as to the validity and enforceability of finance and security documentation.

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.

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