Are BVI companies entering a period of hyperactivity?

Statistically speaking, it has been a strange 12 months for British Virgin Islands company registrations. The Financial Services Commission (finally) published its quarterly statistics for Q1 2018, and these showed a 12 per cent year on year surge in incorporations as against the previous quarter. In fact, it was the highest rate of quarterly incorporations for nearly three years. Incorporation rates have traditionally been treated as a bellwether for the BVI finance industry as a whole (rightly or wrongly), and so enthusiastic press releases were the order of the day.

But it caps a slightly wild and wacky recent ride for BVI incorporation figures. Industry insiders might cast their minds back to 1 July 2017, when the BVI introduced the Beneficial Ownership Search System Act enabling UK law enforcement access to beneficial ownership information relating to BVI registered companies. At that time there was a huge amount of doom and gloom about how clients might react to this incursion into their privacy. And then, to the surprise of just about everybody, incorporation rates went up.

The next “big thing” that happened was Hurricane Irma. A demon from hell masquerading as a Category 5 hurricane, stormed into town on 6 September 2018 and caused enormous damage in the Territory, although to its eternal credit the Companies Registry was only down for a few days. Again, in the ordinary course of things, this might have been expected to have a strong negative effect on incorporation rates, but once again, to the surprise of most people, Q4 incorporation rates were up by nearly 12 per cent against the previous quarter, and nearly 10 per cent on the same quarter in the previous year.

And then that brings us to the latest, stellar, quarterly performance. So, it seems reasonable to ask the broader question – what gives? On the surface it looks like unmitigated good news, and a strong endorsement of the BVI product. But let’s dig a little deeper into the numbers to see what else we can find. One other fairly striking statistic is the registered agent resignation numbers for Q2 and Q3 of 2017. These were the two quarters surrounding the introduction of the BOSS system, and resignation rates were over 10,000 for each quarter. Prior to that, the highest recorded figure for a quarter was just 1,397. That points to a significant cleaning up of the book by a number of registered agents. That may or may not be connected with the higher numbers of new registrations, although it is hard to construct a narrative which links resignation of old companies to registration of new ones.

The other statistic that jumps out as an outlier is registration of security interests. As a finance lawyer this is a metric which I pay keen attention to. The more security registrations which are occurring, the more debt financing is going through BVI companies, the more commercial activity they are involved in. And the last three quarters have the three highest rates of security registrations on record. Companies are not only being formed at an enhanced rate – they are also pretty active.

Taking the mishmash of statistics together, there isn’t a single obvious narrative that jumps out, but the one which seems most likely is this: BVI companies are entering a period of hyperactivity because the global economy is racing right now. High growth rates combined with rising interest rates have caused a surge in SPV formation seeking to capitalise on lower borrowing rates before monetary conditions tighten.

Whether that means that the recent surge in incorporation rates is sustainable or whether they are more likely to fade back towards medium term trend lines is something to watch for in future quarterly statistical reports.