Key considerations for lending under BVI law

The British Virgin Islands (BVI) plays a central role in cross-border finance, with its flexible legal framework and creditor-friendly regime making it a popular jurisdiction of choice for structuring lending transactions. While lending to or through BVI entities is generally unregulated, lenders must assess whether any activities trigger regulatory, compliance and/or registration obligations under BVI law.

The two principal statutes relevant to lending in the BVI are the Banks and Trust Companies Act (BTCA), 1990 (as amended), and the Financing and Money Services Act (FMSA), 2009 (as amended).

Both the BTCA and the FMSA specify that certain financial activities require licensing if carried on “in or from within the BVI”. Accordingly, the analysis hinges on both the substance of the activity and its territorial nexus. It is worth noting that a BVI company may be deemed to be carrying on relevant business from within the jurisdiction even if the activities are performed outside of the BVI, under certain circumstances.

Banking under BTCA

The BTCA governs “banking business”, which includes accepting deposits of money and using those deposits to make loans, advances, overdrafts, guarantees and similar facilities or investments.

It is the nature of an entity’s activities that determines whether a licence is required. Lending by an entity that does not accept deposits (such as most corporate lending) is generally not considered banking business under the BTCA. A foreign lender operating outside the BVI is typically not caught by the legislation, even when lending to a BVI company.

Lenders should, however, examine whether any part of their operations – such as personnel, solicitation or decision making – occurs in the BVI, as this could bring them within the scope of the BTCA.

Financing under FMSA

The FMSA requires licensing for persons carrying on “financing business” in or from within the BVI. This includes:

1. 1. The business of providing credit under financing agreements to BVI resident borrowers;
   2. The business of offering payday advances or consumer finance loans to borrowers in the BVI;
   3. The business of leasing property to BVI resident persons under financing leases; or
   4. Carrying on business in international financing and lending in relation to a class F licence.

Like the BTCA, this act focuses on the location of the activity and the residence of the borrower. In practice, institutional lending to BVI companies by foreign lenders is usually outside the scope of the FMSA, provided no operations or solicitation occur within the jurisdiction.

Nonetheless, each transaction should be assessed on its facts, particularly where lending is being carried out by a BVI company, or involves BVI-based borrowers or assets.

Economic substance

Lenders using BVI companies as financing vehicles should consider the Economic Substance (Companies and Limited Partnerships) Act (ES Act), 2018 (as amended). The ES Act applies to BVI companies and certain other entities that are not tax resident elsewhere, and that conduct “relevant activities”.

“Finance and leasing business” is a relevant activity and broadly includes the provision of credit facilities for consideration, including interest.

Where an entity is carrying on finance and leasing business, it must demonstrate adequate economic substance in the BVI. This includes having suitable personnel, premises and decision-making activities physically present within the jurisdiction.

Foreign lenders are not subject to the regime merely by lending to BVI entities. However, those using BVI companies as part of their group structure should review whether those companies are caught and what level of substance is required.

Security and priority

Under the BVI Business Companies Act (BCA), 2004 (as amended), there is no requirement to file a security document with any public authority to ensure its validity or enforceability. However, registration is advisable to protect priority.

Section 163 of the BCA allows a lender to register details of a charge that is granted by a BVI company in the public register of registered charges. This optional registration gives the secured party priority over any subsequent charge (whether registered or unregistered) affecting the same assets. Registration is constructive notice to third parties.

Under section 162 of the BCA, a BVI company is required to record charges granted by it in its internal register of charges.

Where shares in a BVI company are charged, the company may annotate its register of members. While this has no statutory effect on priority, it serves as a useful notice to third parties. The annotated register of members may also be filed with the registrar, making it publicly accessible. While this also has no statutory effect on priority, it could potentially put a third party that conducts a company search against the relevant entity on notice of the security interest.