In an era of increasing complexity in regulation globally, the BVI has carefully built a simple and clear regulatory framework that minimises the legal risk for lenders and financial markets participants dealing with BVI companies.
The BVI’s regulatory framework is structured to make the legal risk of lending or selling financial assets to a BVI entity lower than almost any other jurisdiction.
The jurisdiction’s primary laws, the BVI Business Companies Act, the Insolvency Act and the Securities and Investment Business Act, are stable pieces of legislation (albeit undergoing regular refinement), which, from their roots generally in English laws, have been optimised for the creditor-driven needs of the BVI and are used as models in the offshore world. The Insolvency Act provides a codified creditor-driven insolvency regime with no moratorium on the enforcement of security.
Insolvency set-off and the financial markets exemptions set out in Part XVII allow certainty in default situations, resulting in positive close-out opinions and optimal regulatory capital treatment.
Although the regulatory requirements for obtaining a license to carry on investment business in the BVI are tough, no requirements are likely to restrict a counterparty with no physical or legal presence in the BVI from lending or selling financial assets to a BVI company.
With strong rules on implied authority and the effective abandonment of ultra vires in relation to corporate capacity, there are rarely grounds for a BVI company to challenge transactions. Similarly, the fact that a BVI entity has failed in a regulatory obligation will not usually affect a counterparty’s rights against that BVI entity. This is not, however, an excuse to avoid due diligence entirely: a struck-off company does not have the capacity to deal with its assets, and although a company is rarely struck-off without warning, a counterparty should, at the very least, obtain regular evidence of good standing.
The BVI has the capability and experience of dealing with transactions that go wrong: information exchange agreements and a responsive regulator ensuring cooperation with regulatory authorities worldwide and an efficient court system that is accustomed to hearing complex, high value and time sensitive commercial disputes.
In theory, the commercial risk (liquidity, market, non-legal credit, operational etc) of selling financial assets to a BVI entity should be no different from that of any other entity. One might argue that a requirement for accounts to be publicly filed for all entities would reduce credit risk, but as with any other jurisdiction, a counterparty with potential exposure to a BVI entity should conduct appropriate due diligence on assets and management, regardless of their location – which in most cases is not the BVI anyway.