BVI Business Companies
The BVI Business Companies Act (as revised) (BCA), requires each BVI company to maintain a register of charges at its registered office or at the office of its registered agent (BC Private Register) and to record details of any security interest granted over the assets of that BVI company.
The required details include the date of creation of the charge or the date on which any property subject to an existing charge was acquired by the BVI company; a short description of the liability secured and the property charged; the name and address of the chargee or trustee of the security; and details of any negative pledge granted, prohibiting or restricting the BVI company granting any future charge ranking equally with or in priority to the charge contained in the security document.
Whilst there is no time limit within which such particulars of the charge must be entered in the BC Private Register, failure to do so can make the BVI company liable to pay a penalty under the terms of the BCA.
Distinct from the BVI mandatory private registration regime, an application may also be made to the BVI Registry of Corporate Affairs (BVI Registry) to register details of the security interest in the public register of registered charges for the BVI company maintained by the BVI Registry (BC Public Register).
Whilst public registration of the security interest is voluntary (unlike the mandatory private registration), it does operate to give notice to the public of the secured interest and, most crucially, ensures priority of interest over any subsequently registered charge and any unregistered charge. This is irrespective of the date of creation of any other subsequently registered charge or unregistered charge.
Accordingly, in order to protect lender’s interests from any potential competing security interests, it is always recommended that public registration is effected as soon as possible following the BVI company’s entry into the document granting the charge.
Failure to enter the security interest particulars on either the BC Private Register or the BC Public Register does not, however, affect either the validity or the enforceability of the charge.
Registration of the particulars of charge is effected by submitting the relevant registration form on the electronic filing platform operated by the BVI Registry by the company or a BVI legal practitioner acting on its behalf or the chargee or a person authorised to act on its behalf. Once the application to register a charge has been electronically filed and the BVI Registry is satisfied that all the required conditions of the application have been met, the BVI Registry will subsequently update the BC Public Register to reflect the new security and issue a certificate of registration of charge.
Former BVI IBC Companies
Although the old International Business Companies Act, 1984 (IBC Act) has been repealed, all companies previously registered under the IBC Act have been re-registered either voluntarily or automatically under the BCA., where security filed under the IBC Act still exists, it is still possible for a BVI company’s registered agent to file amendments to any register of mortgages and charges which were created under the IBC Act. However, because under the old IBC Act – it was not mandatory for a company to register security, charges created prior to 1 January 2005 under the IBC Act continue to rank in the order in which the security was granted prior to the BCA coming into force and may accordingly take priority over a charge created on or after 1 January 2005.
Bermuda Exempted Companies
The Bermuda Registrar of Companies (the Bermuda Registry) maintains a publicly searchable register of charges created under Part V of the Bermuda Companies Act 1981 (as amended) (the Bermuda Companies Act). Any charge on the assets of a Bermuda exempted company (BEC) can be registered, irrespective of the physical location of the asset.
Registration of a charge is not mandatory for the charge to be valid under Bermuda law. However, registration constitutes notice to the public of the charged interest in or over the charged assets and, where priority falls to be determined by Bermuda law, such registration ensures priority over any subsequently registered charge, irrespective of the date of creation of such charge and over any unregistered charge (again, regardless of its date of creation).
The Bermuda Companies Act does not prescribe any time limits for the registration of a charge. However, given that the date of registration (as opposed to the date of creation) is the date upon which priority of the charge is established, it is advisable that registration is effected as soon as possible following grant of security.
Either the BEC, the secured party or any other interested party (or Bermuda counsel acting on their behalf) can make the registration filing with the Bermuda Registry. A copy of the security document is required to be provided together with the relevant registration form containing the particulars of the charge and the prescribed fee payable to the Bermuda Registry. Once the Bermuda Registry is satisfied that all of the requirements as set out under the Bermuda Companies Act have been complied with, it will register the charge in the public register of charges and issue a certificate of registration of charge.
For BECs, it is possible to register security under section 55 of the Bermuda Companies Act over the assets of the company or under section 61 in respect of “charges on property in Bermuda which are created, and charges on property in Bermuda which is acquired, by a company incorporated outside Bermuda”. Section 61 registrations are relevant primarily to charges over the shares of a BEC where the chargor is not a Bermuda company.
Bermuda Limited Liability Companies
Under the Bermuda Limited Liability Company Act 2016 (as amended) (LLCA), the Bermuda Registry similarly maintains a register of charges in respect of any charges registered against the assets of a Bermudian limited liability company (LLC).
Registration of a charge under the LLCA is much the same as that set out above in respect of Bermuda exempted companies. A copy of the security document is required to be provided to the Bermuda Registry together with the relevant registration form containing the particulars of the charge and the prescribed fee. There is no time limit within which the charge needs to be registered and priority will run from the date of registration of the charge against the LLC, not the date of creation of the charge.
Taking Security over BVI and Bermuda Company Shares
A common misconception is that security interests granted under BVI or Bermuda law over shares in BVI or Bermuda law companies operates by way of a “share pledge” as such documents are common in the US. This is not the case under BVI or Bermuda law. BVI and Bermuda company share certificates are not determinative of share ownership. It is entry into the register of members of such companies that is regarded as prima facie evidence of title in those shares. Consequently, a chargee’s possession of share certificates would, in and of itself, not carry value as granting security interests under BVI and Bermuda law (save that an argument could be made that equity should regard the deposit of share certificates as an implied agreement that the certificates were deposited as security).
Accordingly, rather than a share pledge (pursuant to which actual possession of the shares would be transferred), an equitable charge is the most common form of granting security over shares in BVI and Bermuda companies. Pursuant to an equitable charge over shares, the chargor remains the registered owner of the shares but grants (among other rights) a right to the chargee (or its nominee) to be entered in the issuing company’s register of members in place of the chargor following an event of default. Such registration of the chargee (or its nominee) as shareholder does not convert the chargee to the absolute legal and beneficial owner of the shares (unlike in circumstances where the English law remedy of appropriation applies) but rather it converts the chargee’s security from an equitable charge to a legal charge. The chargee is entered in the relevant BVI or Bermuda company’s register of members but the chargor retains an equity of redemption, pursuant to which the charged property would ordinarily be transferred back to the chargor upon the secured obligations being settled in full.
A BVI company which is granting security over its shares may also enter a notation of the security interest in its register of members. Whilst this does not establish priority, the annotated register of members can nevertheless be filed with the BVI Registry to give notice to third parties of the security interest.
Subject to the limited partnership agreement of a BVI partnership, Part V of the Limited Partnership Act (as revised) (LPA) allows for the assets of limited partnerships to be charged, whether or not they have legal personality. Whilst a limited partnership with legal personality is able to charge its own assets, it would be for the general partners of a limited partnership without legal personality who own the assets of such limited partnership to grant security over the assets of a limited partnership without legal personality.
As is the case in relation to BVI business companies, BVI limited partnerships are required to keep a register of all relevant charges created over the assets of the limited partnership at its registered office or at the office of its registered agent (the LP Private Register). The LP Private Register is to include a record of the date of creation of all security or the date on which any property subject to existing security was acquired by the limited partnership; a short description of the liability secured and the property charged pursuant to any relevant charge; the name and address of the chargee or trustee of the security and details of any negative pledge granted, prohibiting or restricting the BVI limited partnership granting any future charge ranking equally with or in priority to the charge contained in the security document.
Similar to BVI business companies, distinct from the BVI mandatory private registration regime, an application may be made to the BVI Registry to register the security granted by a BVI limited partnership in its public register of charges (the LP Public Register). The application can be made by the limited partnership, a general partner or a BVI legal practitioner authorised to act on the limited partnership’s behalf, the chargee or a person authorised to act on the chargee’s behalf. Once the application has been filed and the BVI Registry is satisfied that all the required conditions of the application have been met, the BVI Registry will subsequently update the LP Public Register to reflect the new security, establishing priority of the charge and a certificate of registration of charge will be issued.
Bermuda partnerships can elect to have separate legal personality, allowing for such partnerships to hold assets and grant security in their own name. Accordingly, under the Bermuda Partnership Act 1902 (as amended) (the BPA), secured parties are able to register the particulars of any security created by such Bermuda partnerships with the Bermuda Registry under the BPA in the same way as Bermuda exempted companies and LLCs are able to do so under the Bermuda Companies Act and the LLCA, with a similar registration procedure and formalities as set out above.
Whilst charges over the assets of Bermuda partnerships which have not elected to have separate legal personality cannot be registered with the Bermuda Registry, the Mortgage Registration Act 1786 (the MRA), provides for a mechanism for such security interests to be registered with the Registrar General in Bermuda where the security is over property situate in Bermuda. In doing so, the secured party will also benefit from establishing priority from the date of registration. An application to register a charge under the MRA can be made by any person holding the security interest and should include a memorandum of mortgage, a copy of the security document and the prescribed fee.
Depending on the identity of the general partner and/or ultimate general partner, additional filings may be considered. For example, if the general partner was a Bermuda exempted company, a filing may be made against such company at the Registrar of Companies.
Although the security registration process in each of the offshore jurisdictions of BVI and Bermuda clearly have similarities, a number of differences nevertheless distinguish them from each other when comparing the registration formalities.
In the BVI, maintaining a private register of charges is mandatory for both BVI business companies and limited partnerships. There is no such statutory requirement of an internal record of the security interests which have been granted in Bermuda.
All applications to register security publicly are submitted to the BVI Registry in the BVI, whether this be in respect of a company or a limited partnership. In Bermuda, whilst a similar registration regime with the Bermuda Registry applies to entities with separate legal personality, an application in respect of the registration of security over the assets of a limited partnerships without legal personality will be submitted to the Registrar General.
Another important distinction between BVI and Bermuda security registration regimes is that registrations can be made in respect of charges over the shares of a Bermuda company where the chargor is not a Bermuda company, whereas only BVI incorporated chargors are able to register security in the BVI. For this reason, the practise has developed in the BVI of filing a notation of the security interest in its register of members (as discussed above).
Further, whilst public registration of charges is optional in both BVI and Bermuda, each jurisdiction recognises that this is a crucial mechanism to the determination of priority and offers a straightforward and robust system for secured and interested parties to protect their interests when considering financial transactions, security and stability. In so doing both of these jurisdictions provide effective solutions to lenders and businesses in protecting their interests when entering into secured financing transactions.
The information contained in this article does not and is not intended to constitute legal advice. All information set out in this article is for general information purposes only. Should you require specific legal advice, reach out to the authors of this article at Appleby (BVI) Limited.
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