One of the great attractions of the British Virgin Islands as a jurisdiction for structuring finance transactions is the simple yet thorough security registration regime applicable to BVI companies. For the most part, where a lender advances money against security provided by a BVI company, registering the security and thereby protecting its priority and giving public notice of the secured party's rights is a straightforward and effective system. The legal position becomes less clear when the company is acting in its capacity as trustee of a trust.
The question of how to deal with trust property is not new. The statutory system for registration of company charges was first introduced in the BVI in 1991. Since then, practitioners in the jurisdiction have had to consider how best to address the problem of a company creating a charge over assets which it does not beneficially own.
There has, however, been a surge in the popularity of so-called private-trust companies (a construct which arose from the Financial Services (Exemptions) Regulations, 2007), which are essentially companies which operate as trustees within certain restrictions and are thereby exempt from the normal requirements of a BVI company to obtain a trust licence. Lending against trust assets was a comparatively uncommon event but it now occurs with increasing frequency.
The old International Business Companies Act, 1984 included statutory provisions allowing a company to register a security interest which was created "over its assets." That provision was normally interpreted as referring to the assets which the company owned exclusively of others, precluding assets which were held on trust. Accordingly, until the BVI Business Companies Act, 2004 came into force, the answer was simple: security over trust assets did not have to be registered.
Things became more complex because there are now two different registration systems which need to be considered (the privately-held register of charges which the company kept at its registered office, and the public register of registered charges maintained by the Registrar of Companies at the BVI Companies Registry). The relevant statutory sections under the BVI Business Companies Act appear at first blush to be much wider. Section 162 (dealing with the private register) refers to "a charge created by the company" and section 163 (dealing with the public register) refers to "[w]here the company creates a relevant charge." Both registrations seem to suggest that the new registration regime ought to extend to property held upon trust.
It is arguably too artificial to construe those two sections alone without considering Part VIII of the BVI Business Companies Act which commences with section 161 referring to the power of a company to "create a charge over its property." Furthermore, section 166 (which expands upon the public registration regime) refers to a "relevant charge on property of a company." Accordingly, although sections 162 and 163 when read alone suggest that charges over trust property may be registrable, when read in conjunction with sections 161 and 166, Part VIII as a whole seems to suggest that the company charges registration regime should still be construed as only applicable to charged property which the company owns beneficially, and not property held on trust.
When faced with difficult questions of statutory interpretation, lawyers often resort to seeking to ascertain the purpose of the relevant provision. The registration system under Part VIII appears to serve two different purposes. The private registration under section 162 appears to be simply a matter of corporate record keeping – it is not available for public inspection, and does not affect third-party rights. Accordingly, that would suggest that charges over property held on trust should not need to be recorded because they affect neither the company's balance sheet nor the rights and interests of the company's shareholders.
On the other hand, public registration serves two purposes: firstly, to give public notice of charges over the relevant assets, and secondly to fix priority of claimants in the event that more than one security interest is created over the same property. If one accepts that charges over trust property are not registrable, then that would mean there would be no public record of them under the company charges registration system. Similarly, the mechanism for determining the higher ranking priority between competing secured creditors would be absent with respect to charges over trust property.
While those arguments do seem to suggest there would be sensible reasons for interpreting section 163 in favour of registering such charges, realistically both of those arguments are somewhat limited.
It does not appear that a clear-cut answer exists, but it is respectfully suggested that the better view is that charges created over trust property should not be regarded as registrable either under section 162 (private registrations) or section 163 (public registrations).
In common with just about everything else in this article, the above comes with a qualification. Just because a security interest over trust property may not require registration under Part VIII of the BVI Business Companies Act, that does not mean that such charges cannot be so registered or that they will not be so registered.