Priority of Security in the British Virgin Islands
In 1984, the International Business Companies Act (the "IBC Act") came into force in the British Virgin Islands ("BVI") and was the legislation under which international corporate vehicles were incorporated in the territory. Twenty years on, and in line with the BVI's commitment to providing a modern and flexible legislative framework, the IBC Act was updated and then ultimately replaced by the BVI Business Companies Act, 2004 (the "BC Act"). To ensure a smooth transition, the two pieces of legislation ran in parallel for a pre-determined period of time. During this time, a company incorporated under the IBC Act could voluntarily re-register under the BC Act. On 1 January 2007 all companies incorporated under the IBC Act that did not make such election were automatically re-registered under the BC Act and thus became subject to its provisions. Simultaneously, the IBC Act was repealed.
Applicable legislation in the BVI expressly provides that a BVI company may create a charge over its property. Unlike some other jurisdictions, no steps are required, as a matter of BVI law, to perfect a security interest. However, filings can (and should) be made to protect the priority of a chargee. The priority of existing security granted by a BVI company will depend on several factors, including under which Act it was incorporated, as set out below.
Under the IBC Act, a company could elect to maintain a register of mortgages, charges and other encumbrances (the "Register of Mortgages") with its Registered Agent, onto which particulars of a charge were entered. However, maintaining such a register was entirely optional. Whilst keeping a register was not a legal requirement, it did serve to secure the priority of the filed charge against any unregistered or future charges which the company granted. In addition, as the Register of Mortgages would be held by the Registered Agent of the company at its registered office in the BVI, its contents would have been confidential. The company could also opt to file the Register of Mortgages with the Registrar of Corporate Affairs in the BVI (the "Registrar") although public filing had no impact on the priority of the security. Under the IBC Act, unregistered securities would rank behind any security noted in the Register of Mortgages and would rank amongst themselves in the order in which they were granted.
The introduction of the BC Act made it a legal requirement for a company to keep a register of charges (the "Register of Charges") to be held at the company’s registered office and maintained by its Registered Agent. As with the IBC Act, the company may opt to file particulars of the charges registered in the Register of Charges with the Registrar and, in direct contrast to the position under the IBC Act, it is the public filing with the Registrar that protects the priority. While entry of the particulars of a security document onto the Register of Charges held by the Registered Agent is mandatory, this has no influence as to the priority. Securities not filed with the Registrar would rank behind those that have been filed and amongst themselves in the order in which they were granted. As a practical point, it should be noted that documents filed with the Registrar are publicly available, but priority can only be obtained in this manner. In addition, filings can be made by a chargee directly with the Registrar (with the assistance of a legal advisor) removing the need for co-operation of the Registered Agent in the filing process, although once a filing has been made with the Registrar a copy of the filing should be sent to the Registered Agent for their records.
For companies incorporated under the IBC Act that were either (a) automatically re-registered under the BC Act by operation of law on 1 January 2007; or (b) voluntarily re-registered prior to such date ("re-registration"), the rules on priority are a hybrid of the old legislation and the new legislation.
For such companies, charges created prior to re-registration will continue to rank in the order in which they would have ranked had the BC Act not come into force, i.e. in the order in which they are entered on the Register of Mortgages held at the registered office. Such pre-registered security will continue to take priority over security created on or after re-registration. In respect of security created on or after the re-registration, priority will be in the date order of the filings made with the Registrar. Entries made on the Register of Charges maintained at the registered office after re-registration will have no bearing on priority of security. Securities not filed as set out above would rank behind those correctly filed and would rank amongst themselves in the order in which they were granted.
By way of a working example: If a company was incorporated on 3 January 1999 under the IBC Act and automatically re-registered under the BC Act on 1 January 2007 and had granted the following charges:
Charge A granted on 4 August 2001 and entered into the Register of Mortgages held by the Registered Agent on 5 August 2001;
Charge B granted on 3 September 2003 but not entered into the Register of Mortgages when granted, nor has any filing been made since;
Charge C granted on 15 October 2008 but not filed with the Registrar until 5 May 2011; and
Charge D granted on 22 November 2010 and filed with the Registrar on 23 November 2010, the priority of the charges will be as follows (assuming no agreement to the contrary between the parties):
Charge A will rank with first priority, followed by Charge D, then Charge C and Charge B will rank behind all those charges registered and any registered in the future (until such time as it is itself registered).
1. If the company was incorporated under the BC Act, then the priority of security is determined by the date on which the security is filed with the Registrar.
2. If the company was incorporated under the IBC Act and re-registered (either voluntarily or automatically) under the BC Act, then the priority of security granted prior to the date of re-registration is determined by the date on which details of the security were entered onto the Register of Mortgages held by the Registered Agent.
3. For all security granted after the date of re-registration, the priority of security is determined by the date on which the security was filed with the Registrar.
4. Securities not correctly filed as set out above would rank behind those filed, either with the Registered Agent or the Registrar (as applicable), and would rank amongst themselves in the order in which they were granted.
Maples and Calder can conduct basic due diligence on the company, on behalf of a party taking security over its assets to ascertain what, if any, security may already be in place. For companies incorporated under the BC Act, the priority of security can be determined by conducting a company search at the Registry. For companies incorporated under the IBC Act, and re-registered, the co-operation of the Registered Agent will be required to determine the priority of existing security and a copy of the Register of Mortgages should be requested from the Registered Agent. In order to release this information the Registered Agent will require the approval of its client of record at the company.