One of the key roles of BVI vehicles in international finance transactions is the provision of security (either BVI entities granting security over their own assets or security being granted over the shares of a BVI company). The process for granting and registering security in the BVI is straightforward and will not negatively impact the timeframe of a proposed transaction. In this article we address some of the key issues and processes regarding security over the shares or limited partnership interests of a BVI entity.
Form of security interests
By far the most common form of security interest in relation to the shares of a BVI company is an equitable mortgage or share charge. An equitable security interest does not involve the transfer of legal title of the shares of a BVI company, although its terms should provide that in certain circumstances (typically not until the occurrence of an agreed enforcement event) the equitable mortgage or share charge can be converted to a legal mortgage.
In keeping with one of its overall aims to give flexibility for corporate transactions and structuring, the BVI Business Companies Act, as amended (the “BC Act”) specifically allows the governing law of an equitable mortgage or share charge to be either BVI law or foreign law. We would generally recommend, in the case of security over the shares of a BVI company, that the equitable mortgage or share charge is governed by BVI law.