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There have been a number of recent developments in the offshore Caribbean. This update covers some of the more important changes and developments in the law, with some commentary.
The British Virgin Islands has seen new legislation coming into force and a new judge for the Commercial Court following the retirement of Justice Edward Bannister QC and the appointment of his successor, Justice Leon.
Since his start in March, Justice Leon has faced a heavy case-load. In his second week sitting he heard the week-long trial of applications brought by redeemers from Fairfield Sentry Limited (the largest Madoff feeder fund) seeking to prevent the continuation of clawback claims brought against them by the Fairfield liquidators in New York. Judgment on those applications is likely to generate significant interest.
Litigators have remained very active across the offshore Caribbean. Outside the main venues of the BVI and Cayman Islands, Forbes Hare’s team has recently been involved in significant commercial disputes in Anguilla, Nevis and Grenada.
It has also been an eventful period for corporate and funds. As of 31 March 2015 there were 478,865 active BVI companies registered. Although there has been a slight decrease in the total number of incorporations over the last few years, the 12,354 company incorporations in the first quarter of 2015 shows that the BVI remains by some distance the most popular offshore jurisdiction for company incorporations. In the Cayman Islands, meanwhile, at the end of the second quarter of 2015 there were 11,061 registered mutual funds, up 306 from the end of the first quarter, consistent with the Cayman Islands’ established position as the world’s pre-eminent jurisdiction for investment funds.
Private equity continues to drive incorporations. Similarly tax reforms and regulation in various parts of the world has kept offshore corporate teams busy restructuring both corporate and personal structures. BVI companies remain very popular property holding vehicles, especially in the UK, and although we have seen some unwinding of structures and “de-enveloping”, it has not been on the scale we had expected, and commercial property-related work remains buoyant.
As competition increases from other jurisdictions, both the BVI and the Cayman Islands have continued to review and improve their products and laws. Earlier this year the BVI introduced two new regulated open-ended fund products with a lighter touch regulatory approach, designed to make the jurisdiction even more appealing to start up funds. Find out more here.
The BVI remains an important offshore jurisdiction for the Russian market. M&A and corporate finance work from the region has been hit heavily by sanctions, with a concomitant effect on work for the offshore firms. The number and size of contentious instructions continues, however, and we are confident that the BVI Commercial Court will continue to be a useful tribunal of recourse for Russia-related disputes for the time being. The Russian “de-offshorization” legislation introduced in November 2014 (with stringent CFC rules) does not seem to have had a significant impact on the BVI’s popularity so far, although we have seen some creative corporate structuring efforts to ensure that companies remain compliant.
Both the BVI and the Cayman Islands strive to stay at the forefront of co-operating with all the relevant international regulators to maintain their leading positions in the market, while at the same time resisting proposed changes which are seen as unwarranted, unfair or potentially damaging. Both jurisdictions have sought to address issues highlighted by the OECD, the IMF and other supranational and regulatory bodies, an example being the new retention of records legislation enacted in the BVI this year. Find out more here.
As is the case globally, complying with FATCA is a new challenge which is making business more costly for service providers in both the BVI and the Cayman Islands. Click here for BVI and Cayman FATCA update.
On the domestic front, the BVI has, on 11 May 2015, enacted the much debated Legal Profession Act. The Act is not yet in force, but it introduces various changes including new restrictions on persons entitled to practise BVI law, both in and outside the jurisdiction. Find out more here.
Despite world political and economic uncertainties, we remain confident about the future of the BVI and the Cayman Islands as major offshore financial centres. Ten years on, Forbes Hare has grown from a contentious boutique to a full service offshore law firm with over 50 staff. Our BVI and Cayman Islands offices were augmented by a thriving London office in 2012, and we hope to replicate that success in Singapore this year. Our focus has always been on delivering a truly excellent service to our clients, and we hope that in doing so we have remained unstuffy and approachable. We gratefully acknowledge the faith that our clients and colleagues have shown in us over the years, and we look forward to being of service in the years ahead.
If you have any questions or comments arising from this update do please get in touch.
Case Updates
- Appointment of liquidator: a “judicial” discretion
The BVI courts have often emphasised the discretionary nature of their power to appoint liquidators over companies, even where the insolvency ground has been made out. Discretion has its limits however, and the judicial exercise of that discretion lends to the conclusion that an unopposed application by a creditor who has established an unpaid debt in evidence should lead to the appointment of a liquidator, virtually as of right.
- Jetivia – case update
- Jetivia Part 1
It has long been the law that the courts will not lend assistance to a party that founds its action on an illegal act (the illegality defence). However, precisely how that operates in relation to companies, which can only act through natural persons, has given rise to difficult questions. The Privy Council’s decision this year in Jetivia v Bilta [2015] UKSC 23 held that where a company’s directors (or those who have conspired with them) have caused the company to participate in a fraudulent scheme, those directors and co-conspirators cannot avoid liability by arguing that the fraud should be attributed to the company for the purposes of the illegality defence. The decision also contains some important observations on attribution of knowledge and acts to companies more generally.
Jetivia Part 2
In addition to the consideration of the illegality defence and attribution (see above), the Jetivia decision includes an important ruling on the territorial scope of insolvency legislation. In particular, certain provisions, such as the wrongful trading provisions, will have extra-territorial effect (i.e. they can apply to acts outside the jurisdiction by non-residents). The same applies to powers to examine directors and require provision of information. Although the case concerned the English Insolvency Act, the same approach is likely to apply in the BVI, because the BVI courts, like the English courts, claim worldwide jurisdiction when winding up a BVI company (Stichting Shell Pensioenfonds v Krys [2015] 2 WLR 289).
- When does a redemption occur?
The status of redeeming members from a fund can be very important in the event of a fund going into liquidation. Those who have redeemed their shares, but not yet received payment, will outrank continuing members when it comes to distribution of the net assets of the estate (Somers Dublin v Monarch Pointe (HCVAP 2011/040, 11 March 2013)).
- Nilon – case update
Earlier this year the Privy Council gave judgment in Nilon Ltd v Royal Westminster Investments SA [2015] UKPC 2. The effect of the Board’s judgment is to restrict the BVI court’s ability to exert and exercise its jurisdiction to hear disputes over the ownership of shares in BVI companies in cases against defendants who reside outside the BVI.
- Philpott – case update
In Philpott v Lycee Francais Charles De Gaulle School [2015] EWHC 1065 (Ch), the English High Court held that an arbitration clause in a contract to which a company was a party remained enforceable, notwithstanding that the company was being wound up in insolvency. Could the same result ensue in the winding up of a BVI business company by the BVI High Court? The commencement on 1 October 2014 of the Arbitration Act 2013 makes the position arguable.
Legislative Updates
- Incubator and Approved Funds
Through the recently published Securities and Investment Business (Incubator and Approved Funds) Regulations 2015, the British Virgin Islands Financial Services Commission has introduced two new regulated open ended fund products being the Incubator Fund and the Approved Fund.
- FATCA update
Relevant Financial Institutions successfully enrolled with the BVI Financial Account Reporting System (the BVI International Tax Authority’s online reporting system) needed to ensure that they submited their filings for the year 2014 by 31 July 2015 to avoid enforcement action in the BVI. The deadline for submission of reports by relevant Financial Institutions for the period 1 July to 31 December 2014 via the Cayman Islands Department for International Tax Cooperation’s automatic exchange of information portal (26 June 2015) has now also passed.
- Legal Profession Act
The Legal Profession Act 2015 introduces various changes such as a new code of ethics to be followed by BVI lawyers and a requirement that any person practising BVI law in the BVI or outside the BVI holds a practising certificate. Save for a few anomalies which need to be addressed, the general premise of the legislation is good for the jurisdiction as it seeks to restrict people with little or no experience of the jurisdiction or no continuing link with the jurisdiction from providing BVI legal advice.
- Retention of Records – clarification for BVI companies and extension to BVI trusts and all BVI partnerships
This year the BVI has seen the enactment of the Trustee (Amendment) Act 2015, the Partnership Amendment Act 2015 and the Mutual Legal Assistance (Amendment) Act 2015 relating to the retention of certain records and documents by such entities, driven by the OECD.
- The BVI Trade Marks Act 2013
is due to come into force on 1 September 2015.
News
Forbes Hare established a New Zealand trust company in 2013, and in March we were delighted to welcome Lorraine Bartlett as Private Client Counsel and Managing Director of FHNZ. We have seen a steady increase in the use of New Zealand as a mid-shore jurisdiction for both private wealth planning and corporate structuring, particularly for the Latin American market. In the linked article, Lorraine explains some of the features and advantages of NZ as a trusts jurisdiction. Find out more here.
Forbes Hare has been granted a licence to open a foreign legal practice in Singapore, and we look forward to opening for business in Singapore imminently.
Key contacts
Please do get in touch with us if you have any questions or comments.
London
Alistair Abbott, Catherine Ross or Karen Gilbert
British Virgin Islands
William Hare, Jose Santos or Robert Nader
Cayman Islands
Christopher Young or Barry Smith
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