Most Read Contributor in British Virgin Islands, February 2017
In an era of increasing complexity in regulation globally, the
BVI has carefully built a simple and clear regulatory framework
that minimises the legal risk for lenders and financial markets
participants dealing with BVI companies.
The BVI's regulatory framework is structured to make the
legal risk of lending or selling financial assets to a BVI entity
lower than almost any other jurisdiction.
The jurisdiction's primary laws, the BVI Business Companies
Act, the Insolvency Act and the Securities and Investment Business
Act, are stable pieces of legislation (albeit undergoing regular
refinement), which, from their roots generally in English laws,
have been optimised for the creditor-driven needs of the BVI and
are used as models in the offshore world. The Insolvency Act
provides a codified creditor-driven insolvency regime with no
moratorium on the enforcement of security.
Insolvency set-off and the financial markets exemptions set out
in Part XVII allow certainty in default situations, resulting in
positive close-out opinions and optimal regulatory capital
Although the regulatory requirements for obtaining a license to
carry on investment business in the BVI are tough, no requirements
are likely to restrict a counterparty with no physical or legal
presence in the BVI from lending or selling financial assets to a
With strong rules on implied authority and the effective
abandonment of ultra vires in relation to corporate
capacity, there are rarely grounds for a BVI company to challenge
transactions. Similarly, the fact that a BVI entity has failed in a
regulatory obligation will not usually affect a counterparty's
rights against that BVI entity. This is not, however, an excuse to
avoid due diligence entirely: a struck-off company does not have
the capacity to deal with its assets, and although a company is
rarely struck-off without warning, a counterparty should, at the
very least, obtain regular evidence of good standing.
The BVI has the capability and experience of dealing with
transactions that go wrong: information exchange agreements and a
responsive regulator ensuring cooperation with regulatory
authorities worldwide and an efficient court system that is
accustomed to hearing complex, high value and time sensitive
In theory, the commercial risk (liquidity, market, non-legal
credit, operational etc) of selling financial assets to a BVI
entity should be no different from that of any other entity. One
might argue that a requirement for accounts to be publicly filed
for all entities would reduce credit risk, but as with any other
jurisdiction, a counterparty with potential exposure to a BVI
entity should conduct appropriate due diligence on assets and
management, regardless of their location – which in most
cases is not the BVI anyway.
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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