Secured Lending – Creating Security in the BVI

Introduction

The BVI Business Companies Act (As Revised) (the “BCA”) provides a comprehensive regime to facilitate and execute secured lending transactions, most notably with respect to the creation and registration of security interests that have been granted by a BVI business company (a “BVI Company”) over assets which may be maintained outside of the BVI. This regime has been paramount in ensuring the BVI remains a leading international finance centre.

This article will look in detail at the steps, both required and optional, to register security created by a BVI company in a secured lending transaction.

BCA Principles of Security

The BCA provides that a BVI Company may, subject to the terms of its memorandum and articles of association (the “M&A”), create a charge over its property. This charge must be created by an instrument in writing which, if agreed by the BVI Company and the chargee, may be governed by the laws of a foreign jurisdiction (i.e. governed by the laws of a jurisdiction other than the BVI).

Register of Charges

The BCA requires a BVI Company create and maintain a register of charges (the “Register of Charges”), being an internal or private register of the BVI Company. The original Register of Charges must be maintained at the registered office of the BVI Company or the office of its registered agent. This register must set out the following details or particulars about each security interest which has been created by the BVI Company pursuant to a security instrument:

the date of the creation of the security interest;
a short description of the liability secured by the security interest;
a short description of the property secured;
the name and address of the trustee for the security or, if there is no such trustee, the name and address of the chargee;
the name and address of the holder of the charge; and
details of any prohibition or restriction, if any, contained in the security instrument creating the charge on the power of the BVI Company to create any future security interest ranking in priority to or equaroberlly with the security interest.

Where there is any change to the security interest which impacts the details required to be set out in the Register of Charges, as set out above, then the BCA requires the relevant BVI Company to provide details of such change to its registered agent within 14 days in order to update the particulars of security in the original Register of Charges.

While the BCA does not impose a timeframe to update the Register of Charges following the creation of a security interest by a BVI Company, a chargee will typically request (by way of undertaking) that a certified copy of the updated Register of Charges be provided within a specified timeframe following execution of the security instrument.

Perfection of Security

There are no steps required under the BCA or BVI law generally for the BVI Company to perfect a security interest created over its foreign assets pursuant to a security instrument governed by the laws of a foreign jurisdiction. Accordingly, a security instrument which is not registered in the Register of Charges will still be enforceable, valid and admissible in evidence of the security interest, however the BVI Company may be liable on summary conviction to a fine for failing to record the particulars of the security interest in accordance with the BCA.

Public Registration of Security

In addition to the registration of a security interest in the Register of Charges, the BCA also provides that the security interest may be (but is not required to be) registered in the register of registered charges (the “Register of Registered Charges”) which is maintained by the BVI Register of Corporate Affairs (the “BVI Registrar”) in respect of each BVI Company. Separate to the internal Register of Charges of a BVI Company, the Register of Registered Charges is a publicly searchable register of the particulars of each security interest created by the BVI Company which have been filed through the VIRRGIN online filing system of the BVI Financial Services Commission. While the security instrument itself is not filed or registered, any particulars which have been so filed will be recorded in the Register of Registered Charges and made publicly available and searchable.

Once the BVI Registrar is satisfied that an application to register the relevant particulars of security have met the BCA requirements, the BVI Registrar will issue a certificate of registration of the security interest and a copy will be made available to the BVI Company creating the charge and to the chargee. The certificate of registration of a charge issued by the BVI Registrar will state, and the certificate will be conclusive proof of, the date and time on which that security interest referred to in the certificate, was registered.

Priority of Registered Security

The BCA contains a statutory priority regime which applies to security interests which have been registered on the Register of Registered Charges. A security interest created over property of a BVI Company (the “Relevant Property”) and which has been registered on the Register of Registered Charges will have priority ahead of:

a security interest created over the Relevant Property that is subsequently registered on the Register of Registered Charges with the BVI Registrar; and
a security interest created over the Relevant Property that is not registered on the Register of Registered Charges with the BVI Registrar.

The BCA makes clear that the order of priorities set out under the statutory priority regime is subject to:

any express consent of the holder of a security interest that varies the priority of that security interest in relation to one or more other security interests that it would, but for the consent, have had priority over; or
any agreement between chargees that effects the priorities in relation to the charges held by the respective charges.

Furthermore, a registered floating security interest is postponed to a subsequently registered fixed security interest unless the floating security interest contains a prohibition or restriction on the power of the BVI company to create any future security interest ranking in priority to or equally with the charge.

Priority and Considerations for Chargee

A chargee holding the benefit of a security interest granted by a BVI Company should carefully consider the statutory priority regime under the BCA. While the BCA does not:

obligate the registration of a security interest on the Register of Registered Charges; or
apply a statutory timeframe to register such security interest,

a chargee holding the benefit of such a security interest should seek to have that security interest registered at the earliest possible time so that a potential third party chargee will be on notice of the security and also to ensure that no later security interest that may be created by the BVI Company over the same property (in favour of a third party chargee) can be registered before its own security interest is registered. The impact of the BCA statutory priority regime in such a scenario would be to cause the latter security interest (created in favour of a third party chargee) to take priority over the initial chargee’s security, were it not registered on the Register of Registered Charges.

Furthermore, a chargee (or potential chargee) taking security in the form of a floating charge should be careful to ensure that the security instrument it enters into with the BVI Company contains a clear negative pledge – a prohibition or restriction on the power of the BVI company to create any future security interest over the relevant property or collateral being secured in its favour. This is to ensure that the floating charge which has been registered is not, through operation of law, made subordinated in priority to a subsequent fixed charge which has been registered.

Priority of Unregistered Security Interests

Security interests which have not been registered on the Register of Registered Charges remain subject to the common law rules of priority which, in general terms, hold that priority between separate security interests will be determined by the dates upon which the relevant security interests were created. Certain exceptions to the common law rules may apply and it is always prudent to seek legal advice which takes into account specific fact patterns when these circumstances arise.

Variation of Registered Security

Where a security interest has been registered on the Register of Registered Charges by the filing and registration of the relevant particulars, and there has been a subsequent variation to that security interest, the terms of which impact the filing, then the BCA permits a variation to be filed to allow the BVI Registrar to update the registered security interest to reflect the variation.

Once the applicable variation filing has been made in the approved form, the BVI Registrar will register the variation and issue a certificate of variation which will contain the date and time on which the variation to the security interest was registered (and which will constitute conclusive proof of the date, and time, the variation was registered).

Release of Registered Security

Once a security interest in respect of the relevant property of a BVI Company has been released by a chargee (or all liabilities secured by the security interest have been paid or satisfied in full), a notice of satisfaction or release may be filed with the BVI Registrar.

The notice of satisfaction or release may be filed by the BVI Company or the chargee. To the extent the filing is made by:

the chargee, it may be filed by the registered agent or a BVI lawyer of the chargee; or
the BVI Company, it may be filed by the registered agent of the BVI Company or a BVI lawyer acting on the instruction of the BVI Company, however the notice must be signed by the chargee or a registered agent or BVI lawyer acting on behalf of the chargee.

Provided the notice of satisfaction or release complies with the provisions of the BCA reflected above, the BVI Registrar will register the notice and issue a certificate of the satisfaction, release or partial release (as applicable) of the security interest and issue a copy of the certificate to the BVI Company and the chargee. This certificate will state the date and time the security interest is deemed to no longer be registered in respect of the relevant property specified in the notice (be it the entirety of the secured property or a part thereof).

Release – Register of Charges

The release, or any partial release, of a security interest created by a BVI Company will also need to be reflected in the internal Register of Charges.