2016 was the year of Donald Trump, Brexit and extensive overtime for celebrity obituary writers. The 2016 Atlantic hurricane season was equally active: the most expensive since 2012 and the deadliest since 2005. The BVI missed out on most of the tropical storm activity, but (along with most of the offshore world) had its own storm with the Panama Papers – the leak of the client database of Panamanian-based corporate service provider Mossack Fonseca. 2016 was a hard year for BVI registered agents and a good year for people looking for employment as compliance officers.
Panama Papers
Starting with the elephant in the room. The BVI, as the largest International Financial Centre (IFC) by number of companies, was home for many of the thousands of companies mentioned in the Panama Papers. This resulted in a lot of international media attention. Eventually, the real nature of the Panama Papers began to be heard (but not quite as loudly as the original story), namely that this was about the internal failings of one service provider and should not detract from the real value that IFCs contribute to the global economy. And the world media's attention reluctantly moved on. Mossack Fonseca was fined and censured by various regulators across the world. The BVI's Financial Services Commission levied the heaviest fine in its history. Many people thought that Mossack Fonseca would fold and while it has pulled out of some territories, it does appear to have survived. We shall see if it does survive 2017 as an independent entity or if it is taken over by a rival.
Developments in BVI law
The latest amendments to the BVI Business Companies Act went live in 2016 and these included the mandatory (but not publicly accessible) registration of directors. Measures to introduce a register of beneficial ownership (accessible to approved international law enforcement bodies, but not the public) are scheduled to be introduced in June 2017.
Enforcing share security without a court order
One of the amendments was the introduction of section 91B requiring registered agents to act on the instructions of directors, which complicated share security letters of instruction (to registered agents). In one of our "firsts" for 2016, Harneys used this section to successfully enforce share security without a court order. Previously, registered agents would sometimes require a court order (BVI or foreign) before updating the original register of members in the face of understandable resistance from their "client of record" and so remedies such as possession and appropriation did not work well in practice in the BVI. This may now change and is a development to watch with interest.
BVI Court rulings
There were two rulings of the BVI courts in 2016 of particular interest to secured creditors of BVI companies: UVW v XYZI, which broadened Norwich Pharmacal orders in the BVI to include BVI based registered agents where the judgement debtor has shown evasive conduct; and Tipp Investments PCC v Chagala Group Ltd. et al, which held that a beneficial owner holding its interest via a nominee was not a member of a BVI company and did not have standing for bringing an unfair prejudice claim.
Iran and Italy
In 2016 the BVI repealed its sanctions on Iran and was added to Italy's "whitelist" of countries deemed to allow for adequate exchange of information with Italy. These steps will facilitate dealings with BVI companies and Iran and Italy respectively.
Expectations for 2017
BVI Limited Partnership regime
The much-anticipated revised BVI Limited Partnership regime is expected to be introduced in the first half of 2017 and should boost the private equity industry's use of the BVI.
UK inheritance tax changes
In April 2017, the United Kingdom's inheritance tax will extend to UK residential property held by non-UK corporations. BVI companies are popular vehicles for holding UK real estate and this has resulted in a trend towards "de-enveloping" those companies holding non-commercial property (ie dividending up the property to the shareholder and voluntarily liquidating the BVI company). For more information, see our legal update on the UK's inheritance tax rules on residential property in the UK that is held indirectly by non-domiciled individuals or excluded property trusts. Depending on specific circumstances, a trust outside the UK can remain an attractive estate and tax planning tool.
Increased company incorporations
In Q2 2016, the rate of growth by new incorporations in the BVI was understandably slower in light of the Panama Papers, but the Q3 figures which were recently published showed an impressive increase from the previous quarter of 14.8 per cent.
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