Cross-Border Financing Report 2015

Featuring Bakouchi & Habachi – HB Law Firm Çiğdemtekin Dora Arancı East African Law Chambers G Elias & Co GlobaLex Chambers Latham & Watkins Prager Dreifuss Shin & Kim Walkers Weerawong Chinnavat & Peangpanor

Lead contributors: James Chesterman Sam Hamilton Jane Summers IFLR international financial law review BRITISH VIRGIN ISLANDS

British Virgin Islands www.walkersglobal.com Nick Egan and Omonike Robinson-Pickering of Walkers

Section 1 – Bank licences law to recognise the validity or enforceability of security created by BVI companies. Once the security document has been duly executed and deliv - 1.1 What licences or approvals do lenders need to have if lending ered, the security which has been granted will be valid as a matter of BVI to a borrower in this jurisdiction if a) the lender is a bank or b) the law. lender is a not a bank? Generally, no banking licences or approvals will be needed by foreign lenders In the very rare case of BVI law-governed security being taken over by bank proposing to lend to British Virgin Islands (BVI) companies. This is the accounts, receivables, contractual rights and insurance policies, it is advisable case whether the lender is a bank or not. that notice of the security be given to the relevant bank, counterparty or in - surance provider (and that such insurance bank, counterparty or insurance The two main exceptions are lending to BVI government bodies and certain provider acknowledges the notice). types of secured lending involving regulated entities in the BVI. However, in most lending transactions, these exceptions would not be applicable. In the unusual circumstances of a BVI company having an interest in real property located in the BVI, a legal mortgage over land would be the most 1.2 Are any exemptions available and/or are any techniques common form of security document. typically used to structure around such requirements? Not applicable. With respect to assets other than shares and real property, if those assets happen (unusually) to be located in the BVI, then they would typically be Section 2 – Security interests secured by a fixed and or an assignment.

2.1 Can security be taken over the following asset classes and what 2.2 Highlight any issues with securing obligations that may arise in documentation or formalities are required to create, perfect and the future. maintain such security? Issues may arise with respect to the priority of security in certain circum - a) shares stances involving future obligations. b) bank accounts c) receivables Specifically, a mortgage or charge over certain assets of a BVI company (en - d) contractual rights cumbered assets) which secures all obligations owed by such company (first e) insurance policies security) will not necessarily rank in priority to a mortgage or charge over f) real property the encumbered assets which is later granted by such company to, or in g) plant and machinery favour of, another person (later security). Where the beneficiary of the first h) intellectual property security has made a further advance to the company at a time when it has i) debt securities notice of the later security, the first security may rank behind the later secu - j) future/after acquired property rity in respect of such further advance. k) floating charges over all assets 2.3 Can a universal security agreement be used to grant security Yes, security can be granted over each of the assets listed above. over all assets in this jurisdiction? Yes. However, a BVI company will rarely have assets within the BVI. For In relation to shares in a BVI company, security would usually be taken by that reason, it is generally more appropriate for a universal security agree - way of an equitable share mortgage or a fixed charge which, once signed ment entered into by a BVI company as security provider to be governed and delivered by the relevant parties, will be sufficient to create the security. by the law of the jurisdictions where the assets are situated or the law of the It is advisable to place a notation on the relevant company’s register of mem - loan agreement. bers evidencing the existence of the security. A copy of the annotated register of members can be publicly filed with the Registry of Corporate Affairs in 2.4 Can security be granted for the benefit of different classes of the BVI (Registry) and thereby recorded on the company’s public corporate under the same security agreement and if so, are there records. These steps will provide actual notice to third parties of the existence any issues that creditors should be aware of in adopting this of the security if they review the register of members or carry out a company approach? search of the company, although the annotation of the register of members Yes. However, except in the case of security over shares in a BVI company, and its filing with the Registry do not constitute automatic or constructive security given by a BVI company will typically be governed by foreign law. notice to third parties of the security. This will usually be a matter for the governing law of the relevant security document. Even where BVI law governed security is taken over shares, where The assets listed in b)-k) owned by a BVI company will generally be situated the security is given in favour of different classes of creditors, the share se - in a foreign jurisdiction or governed by foreign law, with the result that in curity will typically be given in favour of a security trustee with the rights most cases the law of the foreign jurisdiction where the asset is situated, its of the different classes regulated by a foreign law governed intercreditor foreign governing law or the law of the loan agreement will be the most ap - agreement. propriate law to govern the security. The creation, perfection and mainte - nance of such security will therefore usually be a matter of such foreign governing law.

As a general rule, there are no perfection requirements necessary under BVI

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2.5 Can security trustee or security agent structures be used in this giving of such guarantees is governed by the BVI Business Companies Act, jurisdiction to secure obligations that are owed to fluctuating 2004 as amended (BVI BC Act) and the company’s memorandum and ar - classes? ticles of association. The BVI BC Act expressly provides that, subject to its Yes, although in practice for the reasons stated above these will likely in prac - memorandum and articles, a BVI company has the power to guarantee a li - tice be issues of the relevant foreign governing law of the documents. ability or obligation of any person and secure any of its obligations by mort - gage, pledge or other charge, of any of its assets for that purpose. 2.6 Briefly outline any issues to consider when transferring loans and accompanying security interests between lenders. The BVI BC Act also provides that a BVI company can, subject to its mem - If any variation is made to the terms of security registered against a BVI orandum and articles, do any act or enter into any transaction irrespective company as described in question 2.8, amendments to the registrations of corporate benefit. It also provides specifically that a BVI company may should be made. The process to transfer loans and security interests will be give financial assistance in connection to the acquisition of its own shares. as set out in the transaction documentation and governed by the laws of that documentation. 3.2 What regulatory or other consents are required to grant downstream, upstream and cross-stream guarantees (other than 2.7 Can security be granted by third parties? Are there any rights of board/shareholder approvals)? contribution, subrogation or similar that might arise as a result of Other than board or shareholder approvals, no regulatory or other consents granting/enforcing third party security that ought to be/can be are required to grant downstream, upstream and cross-stream guarantees. waived? Yes, BVI law specifically provides that a BVI company may give security in 3.3 Briefly outline any enforceability concerns associated with the relation to the liabilities of another person. Rights of contribution or sub - granting of downstream, upstream and cross-stream guarantees rogation under any BVI law governed security agreement can arise but can that lenders should be aware of (eg any exchange controls or be waived under the provisions of the relevant document. similar obstacles). There is no exchange control legislation under BVI law, and no similar ob - 2.8 Briefly outline the registration requirements, if any, applicable to stacles that lenders should be aware of in connection with the enforceability security interests created in this jurisdiction, including of downstream, upstream and cross-stream guarantees. considerations such as the timing, expense and the consequences of non-registration. Section 4 – Enforcement A BVI company must keep a private register of all relevant charges created by such company, either at the company’s registered office, or at the com - 4.1 Do the local courts generally recognise and enforce foreign-law pany’s registered agent’s office. This should be done immediately after the governed contracts? company has granted the security. If a company fails to keep the register, it Yes, if it is valid, binding and enforceable as a matter of its governing law is committing an offence and is liable on summary conviction to a fine of (and assuming it does not offend public policy in the BVI), the BVI court $5,000. would recognise and enforce a foreign-law governed contract.

To protect a lender or agent’s security and ensure they are conferred with 4.2 Will the local courts generally recognise and enforce a foreign priority against unsecured creditors and subsequent secured creditors, the judgment that is given against a domestic company in foreign lender or agent has the option to make an application to the Registry to reg - courts (particularly the New York or English courts) without re- ister the particulars of a created by a BVI company. Follow - examining the merits of the decision? ing approval of the application, the particulars of the charge are placed on Yes. Generally, a foreign judgment may be enforced by the BVI court if all the BVI company’s corporate records at the Registry to put third parties on of the following apply: (a) the judgment is directed towards a particular per - automatic constructive notice of the existence of the security interest. son or entity; (ii) the foreign court had jurisdiction over the party against whom the claimant is attempting to enforce the judgment; (iii) the judg - Failure to file at the Registry could lead to a subsequently-created security ment is not impeachable under the relevant common law rules, for example over the same asset taking priority under BVI law over the previously-created for fraud, where its enforcement would be contrary to BVI public policy, security if the later created security is filed at the Registry. or if the proceedings in which the judgment was obtained were opposed to natural justice; and (iv) the judgment is final and conclusive. There is no specified time limit within which this filing must be made, but it should be filed as soon as possible after creation of the security, since pri - 4.3 Will the local courts recognise and enforce an arbitral award ority is established based on the date of the filing not the date of creation of given against the company without re-examining the merits of the the security. decision? Yes, BVI court may refuse to enforce an arbitration award in some circum - 2.9 Briefly outline any regulatory or similar consents that are stances, including, for example, where the award: (a) deals with matters be - required to create security (other than board/shareholder yond the scope of the submission to arbitration; or (b) has not become approvals). binding on all parties (for example, if it was still subject to appeal). There are no applicable BVI regulatory or similar consents (other than in the very rare instances where lending is to BVI government bodies or in - 4.4 When enforcing security, what factors significantly impact the volves regulated entities in the BVI). time such enforcement takes and the value of the proceeds received from such enforcement? For example, are there any Section 3 – Guarantees statutory requirements such as (a) holding a public auction; (b) court involvement; or (c) obtaining regulatory consents? 3.1 Briefly explain the downstream, upstream and cross-stream Factors influencing the time it takes to enforce security would include guarantees available, with reference to any particular restrictions or whether or not the security provider seeks to challenge the lender’s right to limitations. enforce the security and the ease with which the lender can take possession Guarantees given by BVI companies may be downstream, upstream or cross- of the secured assets. If the process of taking possession of and selling the stream in nature. BVI companies commonly enter into guarantees and other secured assets is protracted, this might negatively impact the value of the non-beneficial arrangements as part of financial structuring. There are no proceeds resulting from enforcement. particular restrictions or limitations on the giving of such guarantees. The

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Further, there is no requirement to hold a public auction, court involvement A credit transaction entered into by the company in the five year period would not usually be necessary unless the security provider (or another prior to the onset of may be challenged if the terms of the credit party) challenges the enforcement of the security and, considering the types transaction require grossly exorbitant payments to be made or the transac - of assets over which security is typically granted in the BVI, it is very unlikely tion otherwise grossly contravenes ordinary principles of fair trading. that regulatory consents would be required. Creditors with preferential claims rank after secured creditors (who have a 4.5 Are there any restrictions that apply specifically to foreign prior claim to the assets of the company and the costs and expenses incurred lenders when taking enforcement action? in the ). However, preferential claims are rather limited in the No. Foreign lenders may enforce their rights against BVI companies in the BVI, relating to, for example, wages, pension contributions or medical in - same way as BVI-based lenders. surance due to employees and social security payments and tax owed to the BVI government. Section 5 – and insolvency proceedings 5.3 Do bankruptcy/insolvency processes provide for any kind of 5.1 Briefly, outline the main bankruptcy/insolvency processes in stay/moratorium on enforcement of lender claims? If so, does the this jurisdiction, including any control or influence that creditors stay/moratorium apply to the enforcement of security interests? can exert on the process, the timeframes usually involved and any Yes. With effect from the commencement of liquidation, no person may mandatory filing requirements. (unless the court orders otherwise): (a) commence or proceed with any ac - A creditor of an insolvent company may make an application to court for tion or proceeding against the company or in relation to its assets; or (b) the appointment of a . The court may appoint an eligible insol - exercise or enforce, or continue to exercise or enforce, any right or remedy vency practitioner to a BVI company if the court is satisfied that the com - over or against assets of the company. pany is insolvent or if it is just and equitable for it to so do. However, the above restrictions do not affect the rights of a A BVI company will be insolvent if: (a) it fails to comply with the require - to take possession of and realise or otherwise deal with assets of the company ments of a statutory demand that has not been set aside; (b) execution or over which the creditor has a security interest. another process issued by the BVI Court in favour of a creditor of the com - pany is returned wholly or partly unsatisfied; or, (c) it is proved to the sat - Section 6 – Your Jurisdcition isfaction of the court that the value of the company’s liabilities exceed its assets, or the company is unable to pay its debts as they fall due. 6.1 In no more than 200 words, outline any cross-border financing trends specific to your jurisdiction. Applications for the appointment of a liquidator must be served on the com - The BVI remains a popular and respected jurisdiction for companies enter - pany and advertised in the BVI Gazette and publications suitable for bring - ing into cross-border debt financing transactions. There are certain key fea - ing the application to the attention of the company’s creditors. tures of BVI law that make the jurisdiction attractive to lenders. These include: (a) insolvency legislation that affirms the protection of creditors’ Taking into account the advertising requirements and the court’s timetable, rights; (b) the availability of a range of self-help remedies for secured cred - it is usually possible to have a hearing of an application for the appointment itors on enforcement, which are similar in many respects to the remedies of a liquidator within four to six weeks of filing the application. available under ; (c) the lack of restrictions on the type of fi - nancing transactions BVI companies can enter into as described above; (d) 5.2 Are there any preference, , clawback, a straightforward security registration system providing a clear position as hardening periods or similar issues or preferential creditor rights regards priority under BVI law; (e) a predictable legal system based on Eng - that lenders should be aware of? lish law and a highly respected dedicated commercial court; and (f) the avail - Liquidators can bring claw-back and avoidance claims under the voidable ability of high quality legal advice from international law firms. transactions provisions contained in BVI legislation if a particular transac - tion could be said to give an or was a transaction at an un - As a result, BVI companies routinely continue to be involved as parties in dervalue, a voidable floating charge or an extortionate credit transaction. high value and complex international financings arranged by the world’s premier banks. The hardening period for transactions giving an unfair preference, transac - tions at an undervalue and voidable floating charges is six months prior to The latest OECD review of the BVI has given the jurisdiction the same tax the onset of insolvency (or two years in relation to transactions between cer - transparency rating as the United Kingdom, the United States, Germany tain connected persons). and Hong Kong.

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Nick Egan About the author Senior counsel, Walkers Nick Egan is based in Walkers’ British Virgin Islands office, where he is Tortola, British Virgin Islands senior counsel in the firm’s global finance and corporate groups. T +1 284 852 2224 He advises clients on: mergers and acquisitions; takeovers; IPOs; joint M +1 284 346 0592 ventures and shareholders’ agreements; private equity; corporate E: [email protected] reorganisations; debt and equity capital raisings and ; W: www.walkersglobal.com banking; security; general corporate; and, regulatory matters. Prior to joining Walkers, he worked in the corporate group of a leading London law firm for eight years.

Omonike Robinson-Pickering About the author Associate, Walkers Omonike Robinson-Pickering joined Walkers’ British Virgin Islands office in 2009 where she worked in each of Walkers practice groups for Tortola, British Virgin Islands 18 months. She was then permanently seated as an associate in the T +1 345 814 4592 finance and corporate group. From 2012-2013, she worked in Walkers’ M +1 345 925 3492 Singapore and Hong Kong offices on secondment and is currently on E: omonike.robinson- secondment to Walkers’ Cayman Islands office. [email protected] W: www.walkersglobal.com She advises on a range of finance, general corporate and commercial matters. Her finance experience includes asset finance transactions, general corporate financings and other secured and structured financings. Her corporate experience includes mergers and acquisitions, joint ventures and corporate restructurings. She also advises on probate and succession matters including applications for grants of personal representation. She also regularly advises financial institutions and personal representatives handling the estates of high net worth individuals.

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