For businesses that are family-owned and run in jurisdictions such as Hong Kong, Mainland China and Taiwan, it is common for beneficial ownership and control of the business enterprise to be vested in the shareholders of a company incorporated in the British Virgin Islands (“the BVI”). Due to the benefits associated with the BVI’s corporate privacy laws and their particular attractiveness for high-net worth individuals and families, the beneficial ownership of the entire business may even be denominated in the shares issued by the BVI company at the top of the international business structure (“the BVI Holding Company”).
From an estate-planning perspective, to ensure the business remains within the control of a family or high-net worth individual, financing for the business is often injected by way of loans made by the shareholders or several key shareholders into the business. Where a business is financed by lending to the BVI Holding Company over the course of many years, the sum of debts owed by the BVI Company are potentially of very significant value. In the event the loans are registered as being owed to an individual that has passed away, a number of questions are raised over the recoverability of debts owed to a deceased by a BVI company and the correct forum for an application for their recovery.
This article clarifies some of those questions and shares some of Conyers’ guidance on the recovery of debts by a deceased’s personal representatives in the BVI.
Are Debts Considered Property in the BVI?
As in other common law jurisdictions, items of property that are “in action” include debts in the BVI. The definition of “property” in the BVI Conveyancing and Law of Property Act 1961 includes “anything in action, and any interest in real or personal property”.1
Are Debts Transmissible to a Deceased’s Estate in the BVI?
A separate question arises as to the effect of a creditor’s death on the underlying debt that is owed to the deceased. In the BVI, Section 2 of the Wills Act defines “personal estate” to include choses in action. In addition, Section 2 of the Intestates Act defines a residuary estate as every beneficial interest in real and personal estate a testator could, if of full age and capacity, have disposed of by will. Thus, choses in action form part of a deceased’s personal estate under BVI law. A debt that is owed to a deceased individual will vest by operation of law to his personal estate and is recoverable by the personal representatives of the estate.
Where Will the Debt be Located?
An important question is the country where a debt is deemed to be located for the purpose of asset recovery by a deceased’s estate. The place where a debt is recoverable will determine which jurisdiction an application for a grant of probate or letters of administration should be made by the deceased’s personal representatives.
(a) The Debtor’s Residence
Debts as choses in action are often situate in the country where they are properly recoverable or can be enforced. The general rule is that the place of the debtor’s residence will be where the debt is located as that is the place in which a creditor can enforce payment of the debt. 2
However, a related issue that arises in determining the situs of a debt is that corporations may have a presence in several jurisdictions. This may cause uncertainty as to the residence of the debtor corporation and ultimately, where the debt is located. This is especially the case in instances where a BVI company may be used, but its beneficial owners and directors are located outside of the BVI.
In Kwok Chi Leung Karl v Commissioner of Estate Duty  1 W.L.R. 1035, the deceased was resident in Hong Kong. His main assets were comprised of shares held in companies incorporated in Hong Kong. Immediately prior to his death, he transferred ownership of his shares to a company incorporated in Liberia (“the Company”) in exchange for a non-negotiable promissory note expressed to be repayable by the Company. The issue for the Privy Council on appeal from Hong Kong was whether the debt evidenced by the promissory note constituted property situated outside of Hong Kong.
The Privy Council directed itself to first consider the location of the debtor’s residence, which was a question of fact. It noted on the one hand that the Company’s management and control were all located in Hong Kong. On the other hand, the Privy Council considered that (i) all of the Company’s board meetings had taken place in Macau and thus outside of Hong Kong; (ii) the Company’s registered office and registered address for service was in Liberia; (iii) the contractual documentation governing the non-negotiable promissory note was expressed as payable in Monrovia, the Liberian capital.
Accordingly, the Privy Council held that, seeing as the Company’s registered office was in Liberia and that process could be served on it at that address, the Company should be deemed ordinarily resident in Liberia. It further held that in any event, even if one was to proceed on the footing that service was capable of being effected against the Company in Hong Kong, the final nail in the coffin was that Liberia was the place in which repayment under the note was expressed to be made.
The Privy Council therefore concluded that the debt under the non-negotiable promissory note was situated in Liberia as that was the place in which the Company resided. As the decision in Kwok Chi Leung is a Privy Council decision decided on the basis of general common law principles, it is likely to be followed in the BVI.
(b) An Exception to the General Rule for Loans Governed by Excessive Documentation?
A relatively recent issue that arose was whether there is an exception for debts which are expressed to be repaid in a jurisdiction other than the debtor’s place of residence.
In Taurus Petroleum Limited v State Oil Marketing Company  UKSC 64, the debt concerned letters of credit which provided for payment to be made by the London branch of Credit Agricole. The documentation governing the letters of credit expressed that payment was to be effected by Credit Agricole into an account held by the Federal Reserve Bank in New York. In the circumstances, a key question for the United Kingdom Supreme Court (“the Supreme Court”) was whether the letters of credit were situated in England and Wales.
The Supreme Court began by noting that it does not ordinarily have jurisdiction to make an order in respect of debts situated outside of England and Wales. It observed however, that according to the Uniform Customs and Practice for Documentary Credits (2007 Revision) International Chamber of Commerce Publication No. 600 (“UCP”), branches of the same bank in different countries should be viewed as separate banks. The Supreme Court considered, therefore, that as the London branch of Credit Agricole had issued the letters of credit, that the debt under the letters of credit was located in England.
The respondents sought to argue that the debt under the letters of credit was situate in New York as that was the intended place for payment under the letters. They did so on the authority of Power Curber International Ltd v. National Bank of Kuwait SAK  1 WLR 1233 in which Lord Denning had previously held that an exception to the general rule that debts are situated in the residence of the debtor should be maintained for letters of credit.
In Taurus, Lord Neuberger held that he could see no reason for holding that a debt due under a letter of credit should be any differently treated from other debts for the purpose of deciding its situs.3 The Supreme Court ultimately held that it had jurisdiction to grant a third-party debt order over the letters of credit issued by Credit Agricole. The debt was deemed situate in England and Wales notwithstanding payment was expressed to be made in New York due to the London branch of Credit Agricole residing there.
Some Key Observations
- A debt will be recoverable in the jurisdiction where the debtor’s ordinary residence is located as that is the jurisdiction in which the debt can be enforced;4
- The place of the debtor’s residence is a question of fact;5
- Where dealing with a company, it will usually be ordinarily resident where its registered office is located as that is the appropriate office for the service of process against it;6
- Where a debt is governed by contractual documentation, the place in which the primary obligation is expressed to be performed will not ipso facto be the jurisdiction in which the debt is located;7 and
- The place in which payment is expressed to be made under the contract may be relevant where a company is ordinarily resident in potentially more than one jurisdiction and a choice needs to be made between the jurisdictions as to the situs of the debt.8
Debts are considered property in the BVI and will vest in a deceased’s estate. The contractual documentation governing the debt will be relevant to any analysis concerning the most appropriate jurisdiction for the bringing of an application for letters of administration or a grant of probate. However, an application for a grant of probate or letters of administration in the BVI will usually be appropriate where the debtor is a company and has its registered office in the BVI. Questions as to the appropriate forum are nonetheless difficult to determine and decisions in respect of them are heavily dependent upon the facts of each case and require the taking of specific advice.
This article is not intended to be a substitute for legal advice or a legal opinion. It deals in broad terms only and is intended to merely provide a brief overview and give general information.
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1Section 2 of the BVI Conveyancing and Law of Property Act 1961.
2New York Life Insurance Company v Public Trustee  2 Ch. 101.
3Taurus Petroleum Limited v State Oil Marketing Company  UKSC 64, 124-125.
4New York Life Insurance Company v Public Trustee  2 Ch. 101.
5Kwok Chi Leung Karl v Commissioner of Estate Duty  1 W.L.R. 1035, 1041F-G.
6Kwok Chi Leung Karl v Commissioner of Estate Duty  1 W.L.R. 1035, 1041F-G
7Taurus Petroleum Limited v State Oil Marketing Company  UKSC 64.
8Kwok Chi Leung Karl v Commissioner of Estate Duty  1 W.L.R. 1035, 1041H.