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 floating charge 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 creditors 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 IFLR REPORT | CROSS-BORDER FINANCING 2015 13 BRITISH VIRGIN ISLANDS 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 - creditor 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.