BVI Legal Update - Autumn 2018

Over the last few months, the British Virgin Islands has introduced a number of innovative new and updated laws, enhancing the range of commercially attractive legal structures available in the jurisdiction. The next exciting chapter will be revealed on 1 October, when amendments to the BVI Business Companies Act (BCA) will come into force to expand the use of segregated portfolio companies (SPCs) beyond the funds and insurance sectors. This update looks at the expanded use of SPCs, the new Limited Partnership Act, the Micro Business Companies Act and amendments to the Anti-Money Laundering Code to allow electronic AML checks.

1. Expanded uses of segregated portfolio companies

Currently, SPCs can be registered in the BVI with the written approval of the Financial Services Commission (FSC) and they can operate as a licensed insurer or a professional, private or public fund. From 1 October, SPCs will also be available for:

• holding assets for high net worth persons
• operating multiple businesses or types of business which require segregation from the general business of the SPC
• engaging in property development and management, including in real estate, ships, aircraft and other property
• bankruptcy remote vehicles in structured finance and capital markets transactions
• incubator and approved funds, and
• performing other duties, responsibilities and investments that are not inconsistent with any restriction under the BCA.

The application process and requirements for SPCs and the creation / termination of portfolios by an SPC will vary depending on the SPC’s purpose. Excitingly, the amendments also specifically allow segregated portfolios to enter into contracts or other agreements with another segregated portfolio in the same SPC or with a segregated portfolio of another SPC.

We anticipate that the demand for these structures will be high, especially with our book of family office clients who often enquire about the availability of SPCs, but have been previously put off by the regulated nature of the structure. Given the BVI can now offer an unregulated version, this should increase the flexibility and scope for these vehicles greatly.

2. Limited partnerships

The Limited Partnership Act, 2017, came into force at the start of this year, modernising the BVI’s limited partnership laws to provide a ground-breaking new limited partnership structure. The new law draws on the popular and very successful BCA, as well as best practice for limited partnership structures from around the world. Key features of the new law include:

• the ability to have a limited partnership with or without legal personality
• the ability to register a charge against a limited partnership with legal personality on the public register in the BVI and obtain priority under BVI law over subsequent charges
• simple, quick, cost effective registration of limited partnerships
• an extensive list of safe harbours for limited partners dealing with the partnership, to maintain limited partners’ limited liability
• flexibility on the terms of the partnership agreement
• inclusion of various corporate law concepts for limited partnerships, including merger (with rights for dissenting limited partners), consolidation, plans and schemes of arrangements, redemption of minority partnership interests and continuations.

Although limited partnerships have been available in the BVI since the 1990s, the new law makes BVI limited partnerships particularly attractive for funds, especially private equity funds. Please see our recent alert on the benefits of new limited partnerships for more details.

3. Micro Business Companies

In June, the Micro Business Companies Act introduced a brand new, simpler form of limited liability company in the BVI, the micro business company or MBC. Aimed at small, non-financial sector businesses in the BVI or anywhere else in the world, MBCs will be simpler to set up and operate, with lower registration and annual fees of just US$100. MBCs can have a maximum of 10 employees and a US$2 million annual turnover / gross asset value and can convert into a BVI business company if those limits are breached.

MBCs will be able to be formed and accessed through a smartphone, with anti money laundering (AML) checks being done via an app connecting to the FSC’s IT platform. Further changes in the law are in the pipeline to allow MBCs to be set up and we will issue a detailed update when they are available for registration.

4. Anti-Money Laundering Code updates allow electronic AML checks

With effect from 1 August, the FSC amended the Anti-Money Laundering and Terrorist Financing Code of Practice 2008 (AML Code), the BVI financial services industry’s rulebook for customer verification and KYC, so that credit and financial institutions based in the BVI can rely on the latest electronic innovations to improve and speed up customer verification processes.

The amendments deal mainly with the verification of individuals, allowing the use of electronic and digital verification including proprietary software and/or programs and verification by digital, electrical, magnetic, optical, electromagnetic, biometric and photonic form. The amendments also set out factors which BVI institutions should take into account when relying on third party platforms in their verification processes and when determining the reliability and independence of electronic and digital data.

These amendments are timely given the increase in business models now relying on financial technology to conduct their operations and they also support the introduction of the new micro business company. Please see our recent alert for more details on these changes.

Harneys has worked closely with the BVI government in developing these new laws and structures and we are delighted that the jurisdiction has been able to introduce so many new initiatives despite the challenges that Hurricane Irma brought on last year. It is a true testament to both the resilience and forward thinking nature of these islands.

Please contact your usual Harneys contact if you would like more information or advice on any of these changes.