This article was first published by Global Business Magazine, March 2011.
The onset of the global financial crisis has placed increased focus on the BVI as an offshore jurisdiction. As a home to some 900,000 incorporated international business companies as well as being a major centre for mutual and hedge funds, captive insurers and wealth planning vehicles, such as trusts, the jurisdiction has been at the forefront of many recent developments, especially in the law relating to distressed securities and investment funds.
The familiarity of the legal system and a bespoke Commercial Court has heightened the BVI's reputation as a reliable and efficient centre for international dispute resolution.
English common law applies to the BVI, as do the principles of English equity, so BVI common law is largely identical to that of England (except as modified by BVI statutes).
Any decisions of the Judicial Committee of the Privy Council are binding on BVI courts. In addition, in the absence of any BVI authority, on-point decisions of English courts are of strong persuasive authority. BVI courts will often develop BVI law in line with decisions of English courts and broadly recognise the desirability of having the same common law throughout the Commonwealth.
In 2009, in response to the number of high value and complex international commercial cases coming before the High Court, a dedicated Commercial Division was opened, greatly raising the profile, efficacy and quality of reported case law, as the Court has responded to the unprecedented events of the post-Lehman world.
BVI vehicles are commonly used to hold assets or form a layer of a more involved structure. BVI law will apply to many disputes and regularly prompt urgent ancillary relief applications such as disclosure and freezing orders.
The jurisdiction to freeze the assets of a BVI company is well established and will be exercised, in broad terms, where the Court is satisfied that there is a good arguable case, there is a threat of dissipation of assets and the balance of convenience lies in favour of an injunction being ordered. A more recent development is the Court's recognition that a freezing order may be issued in support of foreign proceedings where the enforcement of a money judgment obtained might otherwise be frustrated. Ancillary disclosure orders will usually follow freezing injunctions, requiring a target defendant to give details of its assets.
A public search of the Corporate Registry will not provide details of shareholders or directors of BVI Companies. As such freestanding disclosure orders can be sought where the identity of a wrongdoer is required in order to bring an action or to assist in the preservation of assets. These applications are usually aimed at the BVI registered agent of the company that will normally hold details of a company's membership and beneficial ownership, although recent case law (currently under appeal) has made it increasingly difficult to draw in registered agents unless they can specifically be linked to any wrongdoing.
The Insolvency Act 2003 (IA) provides a balanced and effective framework in which creditors may seek redress and for companies to enter liquidation. Secured creditors enjoy statutory protection confirming that they may seek to enforce their security outside of the insolvency regime. Of note are the time limits that provide for swift recourse to the Court and leave little room for stalling tactics.
While the IA provides for a corporate rescue facility in the form of administration, this is yet is to be brought into force and there are few hurdles in place restricting the enforcement capability of a creditor.
Whilst the emphasis of the insolvency regime is largely creditor-friendly, recent Commercial Court decisions, specifically relating to the hedge fund industry, have afforded a level of protection to funds and their managers struggling to realise illiquid portfolios in the face of disgruntled investors.
The BVI Arbitration Act has been in place since 1976 however the incidence of arbitrations has been relatively low, despite the fact that many of the governing documents of BVI companies contain an arbitration clause. This may begin to change following a recent decision of the Commercial Court, which found that an arbitration agreement bit between two parties, even where the broader dispute involved other entities that did not fall within the arbitration agreement.
There has been a considerable surge in contentious trust litigation in the BVI, including Beddoe applications, applications for declarations as to the construction of settlement deeds and applications for directions by trustees. The BVI offers corporate trustees the opportunity of becoming private trust companies and in turn, the Virgin Islands Special Trusts Act provides flexible trust arrangements in relation to assets held on trust. Smooth management of a trust necessitates trustee confidence in the local court and judges to deal with complex trust and commercial arrangements. The considerable experience that the BVI Court is building up in this area can only enhance the underlying utility of the various trusts products available in the BVI.
The BVI enjoys the benefits of a high quality specialised statutory framework alongside well-established principles of English common law. Combining these with a responsive Commercial and High Court means that the BVI is able to provide tailored and effective relief for the wide ranging disputes that affect BVI entities.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.