What financial support, if any, has been offered by the State and Central Bank to businesses affected by the Covid-19 crisis? Please specify any expected timeframes by which assistance is to be provided.

The BVI Government has proposed measures to assist BVI-resident businesses through the COVID-19 crisis. The measures proposed are:

  • The Financial Services (Exceptional Circumstances) Bill was approved by the BVI Cabinet on 27 March 2020 and is to be introduced to the House of Assembly. This Bill is intended to facilitate the Government taking immediate action in respect of the BVI financial services industry and will permit relocation in BVI or elsewhere and will modify certain regulatory obligations.
  • Financial assistance to certain agricultural businesses;
  • Extending the existing three month period allowed for temporary suspension of employment by an employer to a six month period under the BVI Labour Code 2010. This is to be applied to certain business sectors in the BVI. The Government has not yet stipulated which sectors will benefit.

Press articles have indicated that the BVI Government is reaching out to the UK Government to potentially assist in implementing financial assistance measures in BVI.

Can lenders be made liable for lending at this time?

No. BVI law has no concept of liability for a lender to a company in financial difficulties (unless the lender is acting as a shadow director.

Regulatory obligations apply to BVI licensed banks and lenders in respect of their credit risk management systems.

The local BVI lending market is relatively small and most of the lending transactions are undertaken where the lenders are not BVI-resident nor BVI-licensed and are either lending to BVI business companies where that company is borrower or the BVI business companies are acting as corporate guarantor or providing security in relation to an affiliated borrower.

Can shareholders of limited liability companies incur liability at this time?

No. Under BVI law the liability of a shareholder of a limited liability company is limited to unpaid capital (again, unless the shareholder is acting as a shadow director.

What other issues are being considered in the lending market as a result of the crisis?

The broader economic impact to the BVI financial services sector and BVI business companies is being considered, together with prospective measures to protect the sector.

Lenders are analysing and seeking advice in relation to security packages and possible defaults but, to date, our experience has been that lenders have broadly been supportive in providing forbearance, repayment deferrals and/or waivers of defaults (either formally or de facto).

Directors’ duties: what are they, what are the obligations to file for insolvency and are they being varied to deal with the pandemic and economic slowdown?

The main statutory duties of a director of a BVI Company are:

  • to act honestly, in good faith and in the best interests of the company;
  • to exercise their powers for a proper purpose, which includes not contravening the BVI companies legislation or the memorandum and articles of association (M&As) of the company; and
  • to exercise their powers and perform their duties with a level of care, diligence and skill that a reasonable director would exercise in the same circumstances,.

Under BVI law, directors of BVI companies are also required to disclose to every other director on the board any “interest” in a matter or transaction entered into or to be entered into by the company.

The BVI companies legislation stipulates that any person occupying or acting in the position of director may be regarded as a director of that BVI company, irrespective of their title or position. The BVI Insolvency Act provides a wider definition and includes in addition persons who direct the actions of directors or the board or who exercises or controls the exercise of power which, apart from the M&As, would fall to be exercised by the board.

If at any time a company does not have a director, any person who manages, or who directs or supervises the management of, the business and affairs of the company is deemed to be a director.

Controlling shareholders could therefore be deemed to be de facto directors of a BVI company depending on the influence they exert over a board’s decision making, even if they have not been formally appointed as directors. Liability can therefore attach in certain cases (i.e. insolvent trading) to shadow directors as it does to directors.

The determination of whether or not lenders or investors could be construed as de facto or shadow directors will depend upon the degree of influence and control they exert over the company’s decision making.

Circumstances that can give rise to director liability include when a company has no members; any person doing business in the name of or on behalf of the company may be personally liable for the payment of the company’s debts.

Under the BVI Insolvency Act, directors may be held personally liable, particularly if the BVI company is experiencing financial difficulties. Apart from actions involving misfeasance or fraudulent trading, a director may be held liable if they engage in insolvent trading, that is, where at a time when he was a director of the company, but before the commencement of liquidation, he knew or ought to have concluded, that there was no reasonable prospect that the company would avoid going into insolvent liquidation. The court may in such an instance order a director or former director to contribute to the company’s assets.

A director will have a valid defence to a claim of insolvent trading if he can establish with admissible evidence that after he first knew, or ought to have concluded, that there was no reasonable prospect that the company would avoid going into insolvent liquidation, he took every step reasonably open to him to minimise the loss to the company’s creditors.

The BVI companies legislation provides that if expressly permitted in the BVI company’s M&As, directors may act in the best interests of:

  • the company’s holding company where the BVI company is a wholly-owned subsidiary, despite the fact that the action may not be in the best interests of the subsidiary BVI company;
  • the company’s holding company where the BVI company is not a wholly-owned subsidiary, despite the fact that the action may not be in the best interests of the subsidiary BVI company, provided that prior agreement of all its shareholders (other than its holding company) has been obtained; and
  • the member/shareholder who appointed the director, in circumstances where the BVI company is carrying out a JV between the shareholders, despite the fact that the action may not be in the best interests of the subsidiary BVI company.

Based on general principles of applicable common law, a breach of a directors’ duty could be ratified by the shareholders of the company after full and frank disclosure, provided that this does not exceed the general powers of the company.

Are there any other measures (legislative or otherwise) being considered by the State or industry?

Apart from the Financial Services (Exceptional Circumstances) Bill (discussed above), we are not aware of any other immediate legislative or other measures being considered or implemented.

The BVI International Tax Authority (ITA)  has issued guidance in relation to Economic Substance (ES) requirements in the BVI and measures that are acceptable for satisfying ES requirements. The measures are:

  • where possible, appoint alternate directors in the BVI
  • all directors do not have to attend Board meetings, only as many as required to make the meeting quorate (recognising social distancing requirements)
  • not all Board meetings need be held in BVI
  • where it is still not possible to hold a Board meeting in the BVI or to meet another ES requirement, due to COVID-19, then BVI entities are to retain documents to record those reasons and the duration of time individual requests to be made to ITA for any extension of time within which to comply with Notices.

Can transactions entered into by a distressed company be set aside?

Yes, in the event that a BVI company subsequently goes into liquidation, a liquidator has various applications available to them to set aside transactions entered into during the vulnerability period (between six months and five years before the onset of liquidation dependent on the type of transaction) that have unfairly diminished the assets available to meet creditor claims.

These voidable transactions can be characterised into four types, where during the vulnerability period the BVI company enters into transactions that:

  • unfairly prefer one creditor over another;
  • are undervalue transactions, where a company gives a gift, receives no consideration or consideration is considerably less than the value provided by the BVI company;
  • it grants a floating charge that is not in return for new value or other consideration in the period prior to the entry into the formal insolvency process. Where the floating charge is granted in favour of a connected person, it is presumed, until rebutted, that the floating charge is an insolvency transaction;
  • extends credit to the BVI company but on terms that provide for grossly exorbitant payments or otherwise grossly contravenes ordinary principles of fair trading, then the transaction may be challenged by a liquidator as being an extortionate credit transaction.

Where transactions are entered into in good faith, for the benefit of the company and its creditors and new value is provided, a transaction is unlikely to be set aside.

Transactions may also constitute misfeasance by the directors that entered into them and the misapplication of funds or property may be recovered from them personally.

Further, a liquidator may seek an order from court relating to any person (not limited to directors) who, prior to liquidation, carried on the business of the BVI company with intent to defraud creditors or for any fraudulent purpose and hold them personally liable and to make them make a contribution to the BVI company’s assets.


Parties will need to be conscious of these risks in transactions they enter into during the COVID-19 crisis, particularly in group companies where assets are often transferred between companies or inter-company loans are made and repaid to move cash around a group.

These transactions are likely to be scrutinised by a subsequent liquidator if there is an insolvency.

Security for new money to enable to company to continue to trade should not be set aside.

What are some practical steps for good governance of distressed companies?

Some practical steps for good governance are as follows:

  • Regular board meetings with detailed minutes: in times of distress, situations can change rapidly and directors must keep each other informed, form a plan of either how to return the business to health, or how to otherwise achieve the best result possible for creditors, and keep that plan under review.
  • Regular updates and review of financial information: it can be difficult to define the point at which a company becomes cash-flow or balance sheet insolvent and whether that is a temporary or permanent state. Directors’ performance is judged on both their actual knowledge and what they ought to know by virtue of their post, so it is vital they keep track of the moving financial position.
  • Resolution planning and stress testing: to evidence that the directors understand the reasons for the company’s distress and have a plan as to how those issues will be dealt with. This needs to be kept constantly under review.
  • Delegation to sub-committees: the resolution plan needs putting into action and it may be time and cost effective for directors to appoint sub-committees to deal with particular areas and report back to the board.
  • Equal treatment of creditors: directors will be under particular scrutiny in a period of resolution and statutory provisions to protect creditors from unfair distribution of assets prior to a formal insolvency procedure – for example directors may incur personal liability for disposing of assets under-value or preferring particular creditors over others.
  • Communication with stakeholders: a successful resolution requires the board to work effectively with its stakeholders, to understand their perspectives and to keep them informed.
  • Shareholder approval: potentially seeking shareholder approval for any extraordinary measures or financing arrangements that the directors may deem it necessary for the company to enter into.
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