this article was originally published by cayman enterprise city.

as advancements in technology continue to enhance businesses’ ability to operate from almost anywhere in the world, legislators continue to push for modernising tax laws, increasing regulations, and seeking new ways to deal with the potential profit shifting associated with the exploitation of intangible assets. the taxation of “intangibles” (including intellectual property rights such as trademarks, patents and copyrights) is an important topic, particularly for businesses that conduct their affairs through low-tax or tax-neutral jurisdictions such as the cayman islands.

in an effort to curtail profit shifting and demand a share of the global profits generated by businesses, the 2012 g20 los cabos summit tasked the organisation for economic cooperation and development (oecd) with developing a base erosion and profit shifting (beps) action plan. the beps framework, which was adopted in november 2016, concerns tax strategies that search for gaps and misalignments in tax rules to move profits to low or no-tax locations. over 140 countries and jurisdictions are collaborating to develop a multilateral dialogue and implement measures that seek to demand a greater share of the profits generated by businesses across multiple jurisdictions. the oecd references this work as tackling base erosion and profit shifting.

the cayman islands among the first to implement economic substance legislation

the cayman islands was amongst the first to adopt the common reporting standard (crs), the foreign account tax compliance act (fatca), and to put into practice anti-money laundering regulations (aml), the countering the financing of terrorism law (cft), and most recently the international tax co-operation (economic substance) act. a british overseas territory, the cayman islands is recognised globally as an innovation-friendly jurisdiction committed to tax transparency, where anti-money laundering and anti-terrorist financing legislative regimes meet and, in many cases, exceed international standards.

to comply with cayman’s 2017 commitment and in a move to adopt new global standards, the cayman islands government passed three laws to strengthen the island’s compliance with international benchmarks: the companies (amendment) (no. 2) law, 2018; the local companies (control) (amendment) law, 2019; and the international tax co-operation (economic substance) act (2021 revision), which came into force on 1 january 2019.

since that date, cayman continues to enforce and update the international tax co-operation (economic substance) act to ensure it remains relevant and appropriate based on oecd requirements. the most recent round of updates took effect on 1 january 2026 and brought digital assets within the crs regime. this includes payment tokens, utility tokens, certain non-fungible tokens, and security tokens, as well as digital currencies and electronic money products. this mirrors the oecd’s crypto-asset reporting framework and provides certainty and stability to digital asset businesses that wish to operate from cayman on an international basis.

the 2026 updates also require entities that are subject to the crs regime to appoint a principal point of contact that has a physical presence in the cayman islands. in addition, the reporting deadlines have been consolidated, meaning that both the crs return and the crs compliance form are due by 30 june annually, further aligning the cayman islands with global oecd standards. these changes serve as a means of increasing both accountability and global coherency with other regimes.

oecd's forum on harmful tax practices and economic substance

cayman’s laws are typically passed in response to the bodies that require changes, including the oecd’s forum on harmful tax practices (fhtp), which falls under the oecd’s beps inclusive framework. cayman’s regime strives to nullify structures that facilitate offshore profit making with little or no economic substance within its tax-neutral environment.

companies that are or intend to become registered in the cayman islands and that fall within specified categories of business activity must consider how best to structure their operations if they have little or no economic substance in cayman, or face potential penalties. intellectual property businesses, commercial maritime sector businesses, and commodities and derivatives fund managers registered in the cayman islands must ensure that they maintain appropriate local substance and comply with reporting requirements.

a solution for offshore commodities and derivatives fund managers, intellectual property businesses, and the maritime sector in the cayman islands

with growing international pressures, a changing offshore landscape, and increasing focus on digital and crypto-asset activities, offshore businesses that have nominal economic substance or registrations in offshore jurisdictions, or businesses that wish to change their current bases of operations, have a decision to make.

will they relocate offshore business activity onshore? will they seek to outsource core income generating activities to third-party service providers within an offshore jurisdiction? or will they establish a genuine physical presence of their own within their offshore jurisdiction of choice to conduct core income generating activities locally?

harneys, which has been assisting businesses in the cayman islands since 2008, agrees that economic substance requirements can be complex and, in some instances, non-intuitive. according to juan pablo urrutia, regulatory & tax partner:

unique to the caribbean, the cayman enterprise city (cec) special economic zones project offers a built-for-purpose solution for global intellectual property businesses, commercial shipping businesses, and commodities and derivatives fund managers, as well as businesses in aviation, media, marketing, and technology.

through cec, businesses are able to cost-effectively and time-efficiently establish a physical presence that leverages cayman’s tax-neutral platform while also meeting globally recognised economic substance requirements. businesses are also able to access cec’s network of industry contacts within cayman, including law firms, accountants, and other service providers who can assist businesses in both becoming established and meeting their ongoing compliance obligations.

what is the cayman islands special economic zones law?

in 2011 cayman’s special economic zones law was passed and the following year cec’s award-winning development project was launched. cec is specifically designed to attract knowledge-based and specialised services businesses to establish a genuine physical presence in the cayman islands and is now home to a vibrant community of over 450 global businesses.

by establishing a physical presence with cec, global companies can not only comply with global standards but also contribute to cayman’s sustainable future and growing knowledge-based economy.

setting up a physical presence in the cayman islands

with accelerated offshore set-up and personalised services and support, cec can have special economic zone (sez) companies fully established within four to six weeks, including renewable five-year work and residency visas for any required expatriate staff. once a company is established within a cec special economic zone, work visas can be processed in as little as five working days.

while businesses established within the cec special economic zones are still required to comply with the substantive requirements of the laws governing company set-up and operation within the cayman islands, including those related to aml and cft, the sez law and certain amendments to the companies act and the immigration act ensure a fast-tracked business set-up process and reduced customs, business licensing, and work visa fees.

the special economic zone authority (seza) regulates all sez businesses in the cayman islands, oversees licensing, compliance and enforcement activities, and maintains statistical data. the administrative functions of seza are handled by the sez secretariat, which falls under the cayman islands department of commerce and investment (dci).

unlike other island nations such as the bahamas or bermuda, a minimum capital investment is not required, allowing businesses to develop at their own pace, and there are no closed or restricted job categories. permits, visas, trade certificates and turnkey office solutions are conveniently bundled into affordable serviced office packages delivered by cec’s client experience team through a streamlined and well-tested process.

cec supports innovative entrepreneurs and start-ups who are seeking to develop intellectual property, virtual asset offerings, grow commercial shipping businesses and manage commodities and derivatives focused funds in the cayman islands, as well as established businesses looking to protect and further develop intangible assets.

in this episode of chat omp, william peake, global managing partner, and ian mann, dubai managing partner, delve into the strategic launch of our dubai office, and the region's dynamic entrepreneurial ecosystem. they underscore our dedication to supporting local firms by focusing exclusively on our core offshore specialisms, avoiding competition with onshore providers. the conversation also explores the vital role of cultural sensitivity and fostering trust-based relationships for success in the middle east's distinctive business environment.

esg investing is no longer a niche interest. for trust settlors and beneficiaries, it’s emerging as one of the most talked-about topics shaping modern trust structures. at harneys, while we typically remain behind the scenes during the initial discussions on esg, we often guide clients and their advisors through the implementation process, especially in leveraging offshore jurisdictions like the british virgin islands (bvi) and cayman islands.

these jurisdictions stand out for their ability to offer flexibility and innovation while operating within the trusted framework of english-style common law. unfortunately, we’ve seen onshore advisors attempt to apply rigid, onshore-style approaches to offshore trusts where no tax requirement exists to do so. this can lead to inefficiencies, which is why we want to explore innovative approaches to esg investing: ones that can align seamlessly with offshore trust structures such as bvi’s vista and cayman’s star regimes.

here’s how the bvi and cayman islands offer both trustees and families the tools they need to implement esg investments effectively.

the prudent investor dilemma

one question holds back many professional trustees tasked with esg investing for beneficiaries—how can trustees meet their duties as “prudent investors” while pursuing esg objectives that may not always lead to the highest financial returns? the concern often lies in hindsight. what happens if esg-focussed decisions turn out to be less profitable?

fortunately, there are two effective frameworks that sidestep this issue: delegating powers through reserved structures and setting out explicit esg trust purposes.

1. allowing families to take the lead with reserved powers

offshore trust legislation allows trustees to delegate investment and management responsibilities, empowering families to directly pursue esg investments. here’s how this can work:

• vista trusts (bvi): the virgin islands special trusts act (vista) offers an innovative solution to relinquish trusteeship over certain investment decisions. through vista, trustees can delegate their investment and management duties to directors of an underlying bvi company holding trust assets, while distribution powers remain with the trustee. this structure allows family members to implement esg strategies without continuous trustee oversight.
• customised reserved powers provisions: for even greater flexibility, bespoke drafting can establish mechanisms like investment committees (often composed of family members), designated asset-holding vehicles, or specific guidance over investment directions. for example, portions of the trust fund—such as those tailored to esg investments—can operate under reserved powers, while the rest remains traditionally managed.
• partial delegation: it’s feasible to apply reserved powers over only a segment of the trust. for instance, esg investments could be confined to assets held by a bvi company, while other holdings, such as a delaware company for traditional investments, operate outside this framework. trigger mechanisms can even turn reserved powers on or off as circumstances evolve.

importantly, this approach adapts to global tax systems. while debates around vista persist in some jurisdictions (notably the uk), global families outside such jurisdictions often find vista to be a well-regarded, statute-backed solution.

2. making esg a core purpose of the trust

alternatively, esg objectives can be enshrined directly within the trust’s purposes. purpose-driven trusts align remarkably well with esg goals, combining commercial and philanthropic ambitions.

• pure purpose trusts: with explicit esg aims, purpose trusts can define objectives such as advancing corporate responsibility or supporting sustainable projects. while these trusts may dedicate returns to reinvestment or philanthropic ventures, their deeds often include mechanisms for reintegrating assets into the family’s broader structure when needed.
• cayman star trusts: unique to the cayman islands, star trusts allow a hybrid approach by combining traditional beneficiaries with specific purposes. star trusts are ideal for families incorporating esg investment strategies. provisions such as following family esg preferences, integrating reserved powers, and shifting enforcement rights to an enforcer (instead of beneficiaries) offer unparalleled flexibility and minimise the potential for future disputes over esg approaches.
• offshore charitable trusts: while less common due to the absence of tax registration numbers in the bvi and cayman islands, philanthropic families (particularly from asia and latin america) sometimes opt to include esg-focussed charitable trusts as part of their dynasty planning. structures often involve a private trust company (ptc) acting across multiple trusts, bringing the family branches together for coordinated esg efforts.

empowering families with flexible management

ptcs offer another powerful avenue for families aiming to retain active roles in trust management. however, many families prefer the security of professional trustees for asset protection and other benefits. even so, innovative offshore trust solutions like vista and star enable families to pursue impactful esg objectives while maintaining professional oversight.

at harneys, we guide families and trustees through innovative offshore trust solutions like vista and star. if you're exploring esg investing within offshore structures, feel free to reach out to the authors or your usual harneys contact—we’d be happy to help you navigate your options.

this article explores the privy council’s landmark judgment in the case of cl financial ltd, one of the most significant insolvencies in the caribbean.

originally appearing in insol world q4 2025, this article examines the decision's critical implications for insolvency practitioners worldwide. from creditor equality to fee scrutiny, discover the practical implications for both liquidators and creditors.

download the pdf to read the full article.

as an enforcement tool, receivership has gained quite a bit of traction over the past several years and more and more lenders and security holders are invoking their right under security documents to put in place one or more receivers to assist them in recouping any outstanding debt due from defaulting borrowers. with the uptick in appointments, it is important that anyone appointed as receiver understands the obligations that accompany the acceptance of such an appointment under british virgin islands (bvi).

while bvi law also permits the appointment of receivers in and out of court, most appointments are made out of court under the terms of the relevant security documentation (as any well drafted security document will provide for out of court appointment) and so this article focusses on the latter.

it is important to note that bvi law prescribes those persons who are ineligible for appointment as receiver in respect of a bvi company (and by extension, who cannot accept any such appointment). broadly speaking, the list of ineligible persons includes the following:

• a body corporate
• a mortgagee of any of the relevant company’s assets
• any officer or employee of any mortgagee of any of the company’s assets who currently holds that position or has done so within the preceding two years
• any shareholder or member of the relevant company or any related company who currently holds that position or has done so within the preceding two years
• any person disqualified by virtue of being bankrupt or otherwise subject to a disqualification order
• the official receiver

any person falling within any of the foregoing categories who accepts an appointment to act commits an offence under bvi law.

the security document under which receivers are appointed will generally include a power that permits the appointment of two or more joint receivers, an additional receiver to act jointly with a receiver in office and a receiver to succeed a receiver who has vacated office. where there are joint receivers, they may act jointly or severally unless the instrument under which they are appointed expressly provides otherwise.

once validly appointed (which must be done in writing), a receiver has 7 days to accept the appointment in writing and each receiver will have the powers expressly or impliedly conferred on him or her by the security document or other instrument under which he or she is appointed. with those powers come certain filing obligations under bvi law, including (but not necessarily limited to) the following:

1. filing of notice of appointment which includes the following:
   • the requirement to send notice of his or her appointment to the relevant bvi company (in practice, this is typically done by sending notice to the company at its bvi registered office address)
   • the requirement to file notice of his or her appointment (1) with the bvi registrar of corporate affairs (the bvi registrar) and (2) (where the company is or has been a regulated person under bvi law), with the bvi financial services commission.
2. preparation and filing of receivership accounts

the requirement to prepare and maintain accounts of receipts and payments (which can take the form of a simple extract) covering the following periods:

• • the period of twelve months following appointment
  • each subsequent period of six months
  • where the receiver ceases to act as receiver, the period from the end of the period covered by the last accounts required to be filed, or if he or she acted as receiver for less than twelve months from the date of appointment, to the date of ceasing to act; and the period from the date of appointment to the date of ceasing to act (unless filed previously).

c. filing of notice of completion which includes the following:

• • the requirement to send notice to the relevant bvi company (or if the company is in liquidation, to its liquidator)
  • the requirement to file notice of his or her appointment (1) with the bvi registrar and (2) (where the company is or has been a regulated person under bvi law), with the bvi financial services commission.

where a receiver is appointed in relation to specific asset(s), there is also a requirement for every public document issued by or on behalf of the company or the receiver in relation to the relevant asset(s) to contain a statement that reflects the appointment of a receiver. while the validity of any such document will not be affected by a failure to comply with this requirement, it does constitute an offence under bvi law on the part of anyone responsible for causing, permitting of acquiescing to the failure.

additionally, where a receiver resigns or otherwise vacates the office of receiver, there is also an obligation to (as soon as practicable) provide notice to:

• • the person who appointed him
  • the relevant company (or if it is in liquidation), its liquidator; and
  • where relevant, the members of any creditors’ committee.

he or she also has seven days to provide notice thereof to the bvi registrar or, where the relevant company is or has been a regulated person, the bvi financial services commission.

when appointed, any receiver over the assets of a bvi company would do well to seek bvi law advice to ensure compliance with their regulatory obligations under bvi law.

in this article, which forms part of md communications' navigating global growth - a playbook for independent law firms report, our global managing partner william peake explains how the firm partners with elite onshore law firms advise on some of the most complex cross-border transactions.

we don’t compete with onshore:

we flex our expertise through decades of being the market-leading firm in the bvi and are really conscious of making sure we direct our clients to the best jurisdiction for their commercial interests and requirements.

although we are based in the same locations as many of the world’s leading onshore firms, we are very much not in competition with them. the linklaters, freshfields and jones days of this world are a key source of work, and we are really lucky to work cheek to jowl with firms of that pedigree.

referrals are two-way:

we are often contacted by clients looking for onshore advice, which gives us an opportunity to refer work to the onshore firms we work with most closely.

relationships with onshore firms in new york, london and hong kong are critical to sustaining our work. their importance cannot be understated and we are very conscious that our peers also offer excellent service and the onshore firms have plenty of options. it’s why we have such a keen focus on making sure we spend as much time with those firms as possible – both on deals and socially.

branding and visibility:

the best advertising any firm can do is to perform their job to a really high standard consistently. we also use linkedin effectively to raise our profile and connect with our target market.

we are very much a global firm and have never struggled with a perception issue. this is largely due to the majority of our lawyers having had experience at magic circle or international firms.

facing the competition:

i think it’s simply the amount of choice. there are so many fantastic, high-calibre offshore firms. we need to be clear on what makes us different and what makes us a compelling partner. to my mind, it is based on us being good, decent folk to work alongside and we see ourselves in partnership with onshore firms to achieve the best possible result for a client in the most cost-effective manner.

we are asked to pitch for most major restructurings and dispute resolution matters on the basis that we have a proven track record and an exemplary global team.

our bench strength is deep and we work alongside our transactional teams to unravel the most complex matters imaginable. it’s exciting and fast-paced work that we do not take for granted. i am acutely aware that clients have options, and the key for us is to make sure they phone us first.

international disputes are a healthy mix:

we have seen a huge amount of minority shareholder litigation in the last five years and those valuation cases remain.

shareholder disputes also bubble up in times of economic volatility and uncertainty.

get the basics right to succeed:

i think the key is not to over-engineer. do your job well consistently, retain and recruit talent, and don’t underestimate the importance of focusing on a culture that makes your firm a good place to work.

a lot of my content on linkedin is to demonstrate that we are a firm made up of humans who will be good people to work with on matters that will inevitably have moments of acute stress. i think firms should think more about flexing the eq they have in their ranks.

the full report can be downloaded here.

join nick hoffman, global head of our litigation & insolvency and restructuring groups, as he sits down with each of our office's department heads to discover the dynamic litigation landscape.

this series will spotlight current hot-button topics, significant cases, and emerging trends within the dres space.

in this episode, nick is joined by jess williams and ben hobden, co-heads of litigation & insolvency and restructuring in the cayman islands, to explore the evolving landscape of disputes in the cayman islands. they discuss recent high-profile trials, the seamless collaboration between offices, and the current dispute trends, including appraisal actions and the impact of the china property restructuring boom. the conversation highlights the efficiency of the cayman judicial system and the importance of cross-border work in handling complex legal matters.

from the drafting of the bvi’s first modern piece of corporate legislation, the international business companies act, 1984 through to today’s bvi business companies act 2004, colloquially known as the bca, harneys is proud to have played a key role in the legislative development of the british virgin islands. today our market leading corporate practice advises on all matters of bvi corporate law concerning bvi business companies.

we are pleased to make available to clients and others an unofficial consolidation of the bca. if you have any questions on the interpretation or the application of the bca please do not hesitate to reach out to any of the key contacts listed, or to your usual harneys contact.

although every effort has been made to avoid errors, other than those in the official legislation itself, you acknowledge by viewing the material that no responsibility for the content is taken by harney westwood & riegels (bvi) lp or its affiliates. no contractual, fiduciary or lawyer-client relationship of any kind is implied to any person by our making the legislation available, and any such relationship is expressly disclaimed.

in this episode of chat omp, william peake chats with carolynn vivian, our cayman islands office managing partner, about her experiences in the role over the past year. they discuss the challenges of transitioning from legal micromanagement to broader leadership, the unique dynamics of managing a diverse workforce in cayman, and the highlights of fostering a welcoming and culturally vibrant office environment.

both the british virgin islands and the cayman islands are key and important jurisdictions for persons looking to establish a regulated trustee business. there are several reasons why these jurisdictions are favourable; this article discusses a few of the important ones.

• good regulatory oversight: in both the bvi and the cayman islands, licensed trustees operate under the supervision, monitoring, and control of well-established and regarded financial services regulators, the bvi financial services commission and the cayman islands monetary authority, respectively. this means that licensed trustees operate and adhere to strict regulatory standards and conduct of business guidelines, ensuring that clients of licensed trustee companies can place trust and confidence in both the licensed trustee and the jurisdictions when conducting their business.
• professional expertise: having a licensed trustee on board with specialist knowledge, through the management and other senior officers, ensures that clients get the best support possible in complex trust structures and compliance with regulatory legislation with which both the licensed trustee and underlying clients need to comply. licensed trustees can provide regulatory and other support to specialised and sophisticated types of trust structures eg the vista trust in the bvi and the star trust in the cayman islands.
• asset protection and estate planning: licensed trustees can facilitate asset protection and various forms of efficient and effective estate succession planning by assisting clients in avoiding delays in personal representation grants and reducing exposure to legal claims.
• tax neutrality and stable political environment: both the bvi and the cayman islands are tax-neutral jurisdictions with a framework of asset protection laws, which is ideal for allowing trustees to safeguard trust assets from creditors, circumstances where there could be forced heirship, or in situations where there is latent or patent political risk.
• regulatory safeguards: licensed trustee companies offer comfort to clients since they provide some form of continuous institutional expertise provided on a fiduciary basis. they ensure regulatory compliance, which bolsters long-term clients with complex trust arrangements. due to the regulatory rules that licensed trustees need to comply with, this ensures that trust business is handled efficiently, including compliance with both domestic and international regulatory requirements.
• english legal system: in instances where disputes arise, both the bvi and the cayman islands have the english common law legal system applicable to them ensuring a track record of precedent and decision making that is binding and known.
• privacy protections and fairness requirements: in both the bvi and the cayman islands, licensed trustee companies serve as entities that ensure procedural fairness standards are upheld therefore balancing transparency requirements against client privacy.
• consolidation of business: persons who already have trustee business split between different service providers and looking to consolidate their business into one regulated business would find both the bvi and the cayman islands worthwhile jurisdictions to establish a licensed trustee company for the various reasons set out above.

the remainder of this article provides a comparative overview of the trustee licensing regime in the bvi and the cayman islands.

1. there is also a private trust companies’ regime in the bvi under the financial services (exemptions) regulations (revised edition 2020). private trust companies in the bvi are not subject to the licensing regime under the bvi btca. however, they must comply with stringent conditions under the regulations to benefit from the safe harbour to licensing.
2. the terms “company management” and “company management business” are statutorily defined terms in the company management act (revised edition 2020). “company management business” means the provision of company management services for profit or reward. “company management” means: (a) the formation of bvi companies, including the continuation of companies as bvi companies, (b) the provision of registered agent services, (c) the provision of registered office services, (d) the provision of directors or officers for companies, whether such companies are bvi companies or companies incorporated or registered in a jurisdiction outside the bvi and (e) the provision of nominee shareholders in companies, whether such companies are bvi companies or companies incorporated or registered in a jurisdiction outside the bvi.
3. there are instances when an application can be made to exempt the licensee from the requirement to have a compliance officer under the financial services (miscellaneous exemptions) regulations (revied edition 2020). however, even if an application is successful, the senior management of the licensee will still be required to designate someone from within the licensee to undertake oversight of the compliance obligations and ensure that the reporting is complied with.

on 1 july 2025, the bvi published an important update to the law around beneficial ownership information registration and access. in technical terms this took the form of an amendment to the bvi business companies and limited partnerships (beneficial ownership) regulations 2024 (the regulations) which were passed last year but came into effect on 2 january 2025.

broadly speaking the amendments do two things. first, they respond to industry feedback and make technical updates on various matters contained in the new beneficial ownership system published earlier this year (see our earlier note here). in particular, they expand on and clarify some of the exemptions in the legislation. these changes have been expected for some time and will be very welcome, especially for investment funds and entities held by trusts with foreign regulated trustees.

second, the bvi has now finalised the legislation necessary to allow legitimate interest access to certain beneficial ownership information. this will become fully operational in april 2026. it is important to note that the amendments do not amount to the introduction of a publicly available register of beneficial ownership in the bvi. the bvi has aligned itself with the eu, several other british overseas territories and crown dependencies in adopting a legitimate interest-based framework.

the regulations implement the policy which the bvi government consulted on in january this year and which was published in final form on 23 june 2025. as discussed further below, the regulations seek to balance the fight against financial crime with the need for privacy and to protect vulnerable beneficial owners and, to that end, include a number of welcome safeguards.

the story so far

the bvi has collected beneficial ownership information on companies and entities incorporated in the bvi for some time, initially through kyc collected by registered agents and other service providers and then additionally on a centralised basis via the introduction of the beneficial ownership secure search system act, 2017 (boss act). the boss act established the boss system, a secure electronic platform designed to collect and store information on the beneficial owners of british virgin islands entities, which was held on a private basis but granted access to regulators and certain other international entities. the boss system was replaced earlier this year with a new regime to collect beneficial ownership via the virrgin system, which is used for other company filings and searches. following a recently granted extension, bvi entities and their registered agents now have until the end of the year to ensure that the information is properly updated and entered.

the bvi’s long standing position on public access to beneficial ownership information was that the jurisdiction would only grant such access if it became a global standard, and at one stage this did seem to be the general direction of travel. however, events in the last few years have made it look increasingly unlikely that publicly available registers of beneficial ownership will become a global standard in the near future. one of the most significant developments was the decision of the court of justice of the european union (in cases c-37/20 and c-601/20) which held unrestricted access to beneficial ownership information did not achieve an appropriate balance between transparency and the protection of personal information. similarly, the corporate transparency act in the us which was introduced in 2021 was suspended and then heavily curtailed by the trump administration.

accordingly, in december 2023 the bvi government confirmed it had adopted the position that it will be allowing access to beneficial ownership only to those who can demonstrate a legitimate interest (an approach broadly consistent with the approach the eu is now following in its 6th anti-money laundering directive).

this was followed in january 2025, by the publication of a draft policy on the introduction of a "legitimate interest" access regime, in response to the evolving global transparency standards and its commitment to the fight against financial crime. a final policy on rights of access to beneficial ownership information was then published on 23 june 2025 reflecting the feedback previously received which can be found here. the regulations which have now been passed seek to implement this policy.

expanding exemptions

the regulations expand existing exemptions to the requirement to provide beneficial ownership information to the bvi registrar of corporate affairs (registrar), broadly the requirement to do so does not apply to:

• a legal entity that is a subsidiary of a fund (including a foreign fund) provided the fund collects, keeps and maintains beneficial ownership information, which can be provided (if necessary) to the registrar within 24 hours of request;
• a company that is a subsidiary of a company listed on a recognised stock exchange; or
• a company which the bvi government or another foreign country or territory holds more than 50 per cent of the shares or voting rights.

the beneficial ownership regulations also introduce an exemption which applies to bvi companies whose shares are held by a trustee regulated (for aml, atf, and apf purposes) in a country other than the british virgin islands (the foreign trustee exemption).

while an exemption already applied in relation to bvi funds, the regulations have been amended to make clear that (as was always intended) provided the information can be made available within a specific period of time it does not need to be also maintained in the bvi.

legitimate interest access

legitimate interest is a demonstrable and bona fide interest in accessing beneficial ownership information, for the purposes of conducting customer due diligence when fulfilling aml/cft/cpf obligations, or investigating money laundering, terrorist financing, or proliferation financing. the requester must provide various information, including the reason for the request, their personal details and a confirmation the information will be used only for the purpose requested.

when legitimate interest access can be established, the registry will disclose ownership information only on individuals who, directly or indirectly, hold a twenty-five per cent or more ownership interest in the relevant bvi company or limited partnership. the name, nationality, month/year of birth, and the nature and extent of their beneficial interest will be disclosed.

all requests for access to beneficial ownership information must be submitted electronically to the registrar through the virrgin platform. any request for access must be accompanied by relevant information in relation to the requester, as set out in the policy. the registrar has committed to process legitimate interest requests to access beneficial ownership within 12 business days of receipt.

what protections are in place for beneficial owners?

there are two critically important protections for beneficial owners. firstly, the entity will be notified of access requests, giving them an opportunity to object. second, they can apply for a general exemption from legitimate interest access if they satisfy certain criteria.

objection

if the registrar considers a request to meet the access criteria the company will be notified giving them the opportunity to object to their information being shared on various grounds. once the registrar has received what it considers to be a valid legitimate interest access request, it shall notify the company of the request. the notification will include the purpose of the request (if an individual has made the request) and both the name of the legal person making the request and purpose of the request (if a legal entity has made the request).

the company has five business days from the date of notification to object to its beneficial ownership information being shared with the requester. the company’s objection notice must include details of the beneficial owner and the reason for their objection, such as:

• a reasonable belief in exposure to disproportionate or other serious risks, discrimination, kidnapping, blackmail, extortion, or other forms of intimidation;
• the beneficial ownership information relates to a child or an individual who lacks legal capacity;
• the beneficial ownership information will or is likely to raise or affect issues of national security (whether in the bvi or elsewhere); or
• the request is of such a nature that the registrar should consider that it is not in the public interest for him or her to accede to the request.

their objection should include supporting evidence.

if the objection is upheld by the registrar, the request for access to the beneficial owner’s information may be refused (in whole or in part). if an objection is not successful there is a possibility of an appeal, which would also suspend disclosure until the appeal is resolved.

exemption

beneficial owners may also apply (at any time) to the registrar for an exemption from having their information shared, where sharing their information would:

• in the beneficial owner’s reasonable belief, result in exposure to disproportionate or other serious risks discrimination, kidnapping, blackmail, extortion, or other forms of intimidation;
• relate to a child or an individual who lacks legal capacity;
• raise or affect issues of national security (whether in the bvi or elsewhere); or
• not be in the public interest for him or her to accede to the request.

approved exemption applications will prevent relevant beneficial ownership information from being disclosed on legitimate interest grounds, although access will still be granted to competent authorities and law enforcement agencies to enable lawful execution of their duties.

although the beneficial ownership regime will not become fully operational until april, entities will be able to apply for exemptions from 1 january 2026. as with objections, if a request for an exemption is dismissed there is an appeal mechanism.

tailored solutions

our team of experts have been working closely with the bvi government and have provided feedback on legislative development throughout the consultation. as well as being able to assist with objection and exemption applications, we are also happy to explore restructuring options for beneficial owners and legal entities.

final thoughts

the bvi has very clearly recognised the importance of ensuring regulators and others who have a legitimate need to information for the purposes of fighting financial crime can get that information quickly and easily. however, it has also recognised that there are legitimate reasons for the owners of companies to want privacy, including cases where harm could be done to vulnerable issues, or where there may be grounds to doubt the legitimacy of the request. it has sought to find a fair balance between those two competing imperatives. it is somewhat inevitable that it will not please both sides of the debate, but we generally welcome the clarity introduced by the introduction of the final policy and regulations.

what the bvi has created is in some respects more favourable to the users of bvi entities than what it had consulted on a few months earlier and demonstrates that the bvi government and regulators have listened closely to the industry feedback received. we recognise of course that some clients may still have concerns or want more specific advice, whether that is on how exactly this will impact their structures or on whether they may be entitled to exemptions. our dedicated team has been closely involved in providing feedback on the development of the legislation on behalf of our clients and the wider industry and we would be very happy to help.

do you own or control a cima regulated entity? are you ready for your cima inspection? whether you're a registered person, csp, vasp or a licensee, cima has been ramping up the volume and intensity of its inspections across all types of regulated entities in the last few years.

our regulatory and funds team have assisted many clients with these inspections and would like to share our insights so we can help others navigate potential pitfalls.

our key message: be prepared by being compliant.

some key points/what to expect:

forensic review: prepare for an extremely thorough review of all applicable policies, procedures and records and expect multiple follow-on requests for further information and documents. be prepared to allocate extensive management time.

outsourced process: cima is generally instructing the big international accountancy firms to undertake inspections. this ensures a consistent level of professionalism throughout the inspection but it can lead to different approaches between different firms. this in turn means it can be difficult to predict what issues cima may focus on.

duration: your inspection may feel like it's never-ending – our latest registered person aml/cft/cpf inspection lasted 10 months - but provided cima does not uncover material breaches which could lead to fines, cima will generally issue a formal 'closing letter' (following the issue of its final report) which helpfully draws a line under the whole process.

expect remediation requests: however compliant you think you are, be prepared for remediation requests. this could include for example being asked to update particular policy documents. you will be given deadlines by which you must complete the remedial actions, and reasonable timeframes will be given unless cima has serious concerns regarding a material breach. proactive cooperation with cima throughout and swift remediation when requested are of course key.

more severe consequences: cima’s regulatory toolkit is extensive and besides issuing fines in more serious cases it would also have the power for example to force an independent audit to be undertaken, to demand the appointment of an independent non-executive director or even demand periodic meetings with such director.

how we can help: whether you have ad hoc queries or would like a full compliance review (which could include us undertaking a full dress rehearsal of an inspection for you) please get in touch with your usual harneys contact or one of the authors.

it is impossible to ignore the shift that has taken place in the world of cryptocurrency in recent years. crypto exchange-traded funds (etfs), driven by heavyweights like blackrock, fidelity and vaneck, marked a pivotal moment in the institutionalisation of digital assets. but as institutional investors flock to these funds, it is worth questioning: are crypto etfs a necessary step toward mainstream adoption or a sell-out of the very decentralisation ideals that crypto was built upon after the financial crisis of 2008?

the success of bitcoin (btc) etfs, particularly blackrock’s ishares bitcoin trust and fidelity’s wise origin bitcoin fund, signals that the digital asset class has entered a new phase. by the end of 2024, these two etfs alone had collectively attracted over us$62 billion in net inflows, drawing in mainstream institutional investors who were once wary of crypto’s volatility. with the approval of spot ethereum (eth) etfs by the us securities and exchange commission (sec) in july 2024 as well, the success of these new products, on paper at least, seems undeniable. yet, behind these impressive figures lies an inherent paradox. while these etfs promise simpler access to digital assets, they also risk undermining the very principles of decentralisation that made cryptocurrencies appealing in the first place.

institutionalisation: a double-edged sword

the core philosophy of the satoshi whitepaper is rooted in decentralisation with the vision of creating a peer-to-peer, trustless system outside the grasp of traditional financial institutions. crypto was designed to sidestep intermediaries and the ethos was clear - distribute power and control away from central authorities.

some ogs in the crypto community therefore have a distinct oxymoron to wrestle with: etfs are inherently centralised. custody, management, and trading are all handled by large institutions, which creates the very intermediaries that cryptocurrencies sought to replace. moreover, etfs must adhere to stringent financial regulations, placing them firmly within the framework of traditional finance and away from the “free spirit” allure of early crypto.

the role of etfs in crypto’s evolution

despite the philosophical pushback, many others see crypto etfs as a necessary compromise. they may dilute the pure ideals of decentralisation, but they also bring a much-needed dose of legitimacy and stability to the crypto space. these products make it easier for institutional investors to gain exposure to digital assets without the complications of direct ownership, custody, or security concerns. for those in the asset management world, crypto etfs offer an accessible entry point into what is, for now, a volatile market.

beyond accessibility, etfs represent the maturation of the cryptocurrency market and a true sign that the space is evolving into the next phase. thanks to increased regulatory clarity, improved liquidity, and growing infrastructure, it is easier than ever for etfs to function effectively. the success of bitcoin etfs led to the growing interest in expanding the offering to include other digital assets like ethereum and potentially we could see other token projects like litecoin (ltc), xrp, hedera (hbar), and solana (sol) making that next step in 2025. there is even rumour of one for doge.

the risks

however, the attraction of now being able to invest in crypto through etfs does not entirely remove the significant risks of this asset class, which remain volatile and susceptible to dramatic price fluctuations amongst other more legal and technical challenges.

while the approval of bitcoin etfs by the sec was groundbreaking, the regulatory landscape for cryptocurrencies remains fragmented in the us and across the globe in sophisticated financial service centres which find that their legislation simply cannot keep up with the technological advancement. offshore domiciled etfs certainly then offer some advantages, including more flexible, predictable and stable regulatory environments and potentially quicker approval processes. however, they also carry additional risks. investors must carefully assess the jurisdictional stability and the legal framework of these funds, as well as the reception they will receive from traditional banking institutions that they will still need to interact with. it is always a part of the consideration that offshore etfs will also provide more favourable tax treatments in the relevant domicile, but this actually could add complexity to investors' portfolios, especially when considering cross-border tax implications.

moreover, the centralisation of etf management means these funds are susceptible to the same security breaches or failures as other financial products, which is a real concern in an ecosystem that has seen reliance on third-party custodians and exchanges cause some incredible wobbles when one of them fails.

then, of course, there is the risk of market manipulation. while bitcoin has matured significantly and is now at a volume that becomes very hard to control (although michael saylor is trying), smaller or less-established coins remain vulnerable to market forces with far less regulatory oversight than traditional securities. these risks are exacerbated when dealing with etfs that track smaller tokens with lower liquidity.

the future of crypto etfs

in some ways, the rise of crypto etfs reflects the inevitable convergence of cryptocurrency’s decentralised ideals with the demands of global finance. they are not the radical “stick it to the man” vehicles that bitcoin once embodied, but they offer an entry point for traditional investors, and in that sense, they are an important part of the ecosystem’s growth.

for institutional investors, however, crypto etfs are both an opportunity and a risk. for asset managers, investment committees, and fund selectors, the challenge is clear: how to embrace innovation without losing sight of the fundamental principles that make cryptocurrency so compelling in the first place.

harneys: leading the charge in digital assets

at harneys, we stand at the intersection of blockchain technology, digital assets, and regulatory expertise. our team has been at the forefront of advising asset managers and fintech companies on launching and structuring digital asset-focussed funds since 2015. with a deep understanding of the unique challenges and opportunities in this space, we guide clients on regulatory compliance, crypto asset tracing, and structuring investment vehicles. for strategic advice on cryptocurrency etfs and more, harneys is your trusted offshore partner.

on 3 june 2025, the premier of the british virgin islands published the new labour code (minimum basic wage) order, 2025, confirming the new national minimum basic wage that shall apply from 1 july 2025.

the new minimum basic wage is confirmed as us$7.25 per hour, representing an increase of us$1.25 per hour from the current rate of us$6.00. in accordance with the labour code, 2010, this rate must be paid by all bvi employers, with penalties due where an employer is convicted of not paying the rate.

last year, the bvi cabinet decided to implement an us$8.50 minimum hourly rate, which was due to take effect on 30 november 2024. however, following public feedback and concerns amongst employers about economic pressure, that plan was placed under review and the government halted the implementation of an us$8.50 minimum basic wage.

the premier, dr. natalio wheatley, confirmed that the full us$8.50 would not be implemented immediately; there would be periodic reviews and phased increases of the national minimum wage, such as the increase to us$7.25 announced this week.

moving forward, bvi employers should ensure that all employees are receiving at least us$7.25 per hour from 1 july 2025 in order to comply with the new order.

the content of this article intends to provide a general guide to increased minimum basic wage. if you require further information on the increase, or you would like our assistance with your employment matters generally, please contact the authors for more details.

the cayman islands’ statutory merger regime is set out in the companies act (the companies act) and the limited liability companies act (the llc act) which provide a process for ‘merger’ or ‘consolidation’ of companies. a ‘merger’ is where the assets, rights, obligations and liabilities of two or more companies are assumed by one of those entities and ‘consolidation’ is where the assets, rights, obligations and liabilities of two or more companies are assumed by a new company, in each case without requiring court approval.

in this guide ‘merger’ includes merger and consolidation, a ‘constituent company’ is a company (including a limited liability company established under the llc act (an llc)) participating in a merger and a ‘successor company’ is the new or existing company (including an llc) acquiring the businesses of the constituent companies.

parties to a merger

the following entities can be party to a merger:

• any cayman islands company limited by shares and incorporated under the companies act, other than a segregated portfolio company
• any cayman islands llc
• any ‘overseas company’ (being a company, body corporate or corporate entity existing under the laws of a jurisdiction other than the cayman islands) for a merger with a company
• any ‘foreign entity’ (being a company or a body corporate or corporation of any kind with legal personality, including certain trusts and any unincorporated business (including a partnership) existing under the laws of a jurisdiction other than the cayman islands) for a merger with an llc

material conditions to merger

good standing and solvency – each constituent company must be in good standing and solvent – cayman islands law applies a cashflow test of ability to pay debts as they fall due to determine solvency.

written plan – the directors (in the case of a company) or managers (in the case of an llc) of each constituent company must prepare and approve a written merger plan (merger plan).

member consent – consent is generally required from the members of each constituent company (see below for details).

regulatory conditions – any proposed merger which involves a regulated entity such as a fund, bank, insurance company or virtual asset service provider must obtain prior consent from the cayman islands monetary authority for the merger.

foreign law conditions – for any merger of a company with an overseas company, or merger of an llc with a foreign entity, the overseas company/foreign entity must be permitted to merge by applicable foreign laws and its constitutional documents.

secured creditors – the consent of secured creditors of the constituent companies is required unless a cayman islands court waives such requirements.

fee – payable to the cayman islands registrar of companies and llcs (the registrar) as prescribed by the companies act or llc act from time to time. the current filing fee for a merger plan is us$1,220 and in addition, where the successor company is an overseas entity/foreign entity, all constituent companies which are being struck off in the cayman islands need to pay a fee of three times the annual company/llc maintenance fee that would have been payable in the january prior to the filing of the merger plan.

overseas merger

for a merger of a cayman islands company with an overseas company, or a cayman islands llc with a foreign entity that has separate legal personality, the registrar must be satisfied of the validity of the merger and the good standing and solvency of the overseas/foreign constituent company. this can be satisfied by filing with the registrar a director’s declaration (or manager’s declaration for an llc) that having made due enquiry the required particulars have been met. in turn, this obligation of due enquiry can be satisfied by such director/manager obtaining an equivalent declaration from a director/manager of the overseas/foreign constituent company.

the successor company may be either a cayman islands or an overseas/foreign company. if the successor company is a cayman islands company or llc, the registrar will issue a certificate of merger or consolidation in respect of the successor company and if the successor company is an overseas or foreign entity, the registrar will issue a certificate of striking off of all cayman islands constituent companies.

our lawyers also have experience of mergers between cayman islands exempted companies and delaware limited partnerships which have been approved by the registrar on the basis that a delaware limited partnership has separate legal personality. although some practitioners disagree with this approach, merging a cayman islands exempted company with a foreign limited partnership which has separate legal personality does appear to be possible. the llc act also allows a cayman islands llc to merge with a foreign partnership which has separate legal personality.

merger between companies and llcs

the llc act confirms that an llc may merge or consolidate with a cayman islands company as long as the llc complies with the merger provisions of the llc act, the company complies with the merger provisions of the companies act and the company is not a segregated portfolio company.

shareholder/member consent

the following consents are generally required, except in the case of a merger between a parent and its subsidiary:

• a special resolution of the shareholders of each constituent company (other than llcs). a special resolution is passed by either (a) a unanimous written resolution signed by all shareholders who are entitled to vote (provided permitted by the articles of association); or (b) by two thirds of voting shareholders voting at a duly convened and quorate shareholder meeting, unless a higher threshold is set out in the articles of association either generally for all special resolutions or specifically in respect of statutory mergers
• for a constituent company which is an llc, the approval of a two thirds majority (or such higher or lower threshold as may be set out in the llc agreement) of the members of the llc
• such other authorisation, if any, as may be specified in each constituent company’s constitution

parent/subsidiary merger

the companies act provides that shareholder consent is not required for any merger of a parent with its cayman islands subsidiary company, if a copy of the merger plan is given to every shareholder of the subsidiary, unless the shareholder agrees otherwise.

the llc act includes an equivalent provision for mergers of a parent llc with its cayman islands subsidiary llc.

‘subsidiary’ is defined as a company (or llc) 90 per cent or more of whose issued voting shares (or voting equity interests for llcs) are held by the parent. the reference to voting shares only in the definition is not ideal as the voting and economic ownership of cayman islands companies is often split for tax, regulatory or ease of administration reasons. cayman islands hedge funds, for example, often have one class of voting management shares with no material economic rights and one or more classes of non-voting participating shares held by investors.

dissenting members

rights of dissenting members

the companies act provides that, subject to limited exceptions discussed below, a member of a cayman islands constituent company is entitled to be paid the fair value of its shares/llc interests (equity interests) on dissenting to a merger. the llc act contains equivalent provisions for dissenting llc members and provides that a dissenting member is entitled to such payment as is provided in the llc agreement and, if no such payment is included, then they are entitled to be paid the fair value of their llc interest. a member who intends to exercise its entitlement to dissent must provide a written objection to the constituent company before the members vote on the transaction.

if member approval is obtained, the constituent company must provide all dissenting members with a notice of authorisation within 20 days of the approval. within 20 days following the date of the authorisation notice, a dissenting member must provide the constituent company with a formal written statement of its decision to dissent, including its name and address, the number and classes of equity interests owned, and a demand for payment of the fair value of their equity interests.

a constituent company that has received any notice of dissent must make a written offer to each dissenting member to purchase its equity interests at a price that the company determines to be the fair value. if agreed by the member, monies must be paid to the dissenting member within 30 days of the offer being made. if no price is agreed, the constituent company must (and any dissenting member may) file a petition with the cayman islands court for a determination of the fair value of the equity interests of all dissenting members and any dissenting member is permitted to be involved in the proceedings.

limitation on dissenter rights

dissenter rights are not available if a member receives any or all of the following, in exchange for its equity interests:

• equity interests of the successor company, or depository receipts in respect of such equity interests, and/or
• equity interests of any other entity, or depository receipts in respect of them, that are either listed or held of record by more than 2,000 holders at the effective date of the merger, and/or
• cash in lieu of fractional equity interests or fractional depository receipts received under the two bullet points above.

only the registered shareholder of a company, ie the person who holds legal title to the shares, (including a single custodian or nominee holding for a number of beneficial owners) can exercise the right to dissent and that shareholder can only do so in respect of all and not some only of the shares legally held irrespective of underlying beneficial ownership. only a registered llc member can exercise the right to dissent to a merger of an llc, although they may do so in respect of all or any portion of the llc interests that they hold in the constituent llc.

timing

timing will depend on a number of factors including any relevant foreign law requirements, any required regulatory consents and/or the requirements of any relevant listing authority listing the equity interests of a constituent company, the specific provisions of the constitutional documents of constituent companies and any requirements to obtain secured creditor consents. all things being equal, the time it takes to effect a merger is typically less than that for a court sanctioned scheme of arrangement under the companies act.

practical considerations

although shareholder class consents are not expressly required by the companies act, in preparing any merger plan the directors of each constituent company should take into account their overriding common law obligations in relation to the respective interests of all classes of shareholders. it is therefore recommended that shareholder class consents are always obtained approving the terms of any merger plan before adoption.

it is also recommended that llc member class consents are obtained approving the terms of any merger plan involving an llc. when acting for minority shareholders or llc members, it is also recommended that an express right to approve or veto any proposed merger plan before the plan is executed or filed on behalf of the company by the directors is included in shareholder class rights in the articles of association of a constituent company or in llc member interest provisions in the llc agreement where a constituent company is an llc.

it is also important to ensure that all the obligations of the entities under the international tax co-operation (economic substance) act are discharged where applicable.

join nick hoffman, global head of our litigation & insolvency and restructuring groups, as he sits down with each of our office's department heads to discover the dynamic litigation landscape.

this series will spotlight current hot-button topics, significant cases, and emerging trends within the dres space.

in the first episode of the series, nick sits down with co-heads of litigation & insolvency and restructuring groups in the bvi, claire goldstein and christopher pease to discuss the local legal landscape, from groundbreaking crypto fraud recoveries to the unique blend of tropical paradise living. this discussion highlights the bvi’s adaptability and resilience and discovers how the jurisdiction’s specialist courts tackle urgent disputes and set global legal precedents.

in this episode, william peake and pavlos aristodemou explore leadership challenges, data utilisation, and business development in a global context. they discuss the importance of fostering trust, understanding clients' needs, and promoting jurisdictions effectively in the legal sector. pavlos highlights the value of long-term relationship-building and adapting to new tools like linkedin to enhance client engagement.

this legal guide provides an overview of how the cayman islands’ data protection regime operates and what in scope entities need to have in place to ensure they are compliant.

the data protection act (2021 revision) (the dp act) governs how a “data controller” may process, use and retain personal data.

anyone who falls within the definition of a “data controller” must comply with eight data protection principles in relation to any personal data processed by the data controller. where a data controller engages a third party (a “data processor”) to process personal data on its behalf, the data controller must also ensure that third party complies with the eight data protection principles.

the dp act also sets out the rights of individuals to control their personal data and implements a system to protect against the misuse of personal data.

the dp act is similar to the european union’s general data protection regulation (gdpr) with which many clients will be familiar.

what are the eight data protection principles?

the eight data protection principles are:

• fairness and lawfulness
• purpose limitation
• data minimisation
• accuracy
• storage limitations
• accountability and respect of rights of data subject
• integrity and confidentiality (security)
• international transfers

who must comply with the dp act?

any data controller that is a:

• cayman islands company or partnership
• foreign company registered in the cayman islands, or
• business operating in the cayman islands,

that processes personal data in the context of being established in the cayman islands must comply with the dp act.

any data controller that processes personal data in the cayman islands, regardless of where it is established, must also comply with the dp act and appoint a local representative.

the individual to which the personal data relates does not need to be in the cayman islands or a citizen of the cayman islands.

who is a data controller or processor?

a “data controller” is an entity that determines the purposes, conditions and manner in which any personal data are processed or are to be processed. processing includes obtaining, recording or holding data or carrying out any activity on personal data, such as organising, altering, using or disclosing personal data.

a local representative referred to above is also a data controller.

a “data processor” is any person, entity, public authority, agency or other body which processes personal data on behalf of a data controller (but does not include an employee of the data controller).

a business will be considered a data controller of the data it collects and processes for the purposes of its business.

a service provider which receives personal data from a business and processes that data on behalf of the business is a data processor. examples of data processors will include fund administrators, cloud or other software platform providers, payroll providers, or marketing firms with access to the business’ client lists.

what is personal data?

“personal data” is any type of data that can be used to identify a living individual, such as a name, an identification number, location data, an online identifier, or one or more factors specific to the physical, physiological, genetic, mental, economic, cultural or social identity of that individual.

the data protection regime is therefore relevant only to the extent that the data in question can be used to identify a data subject.

examples of personal data include items such as names, email addresses (business or personal), identity card numbers, or telephone numbers – ie any information which allows the data subject to be identified.

“sensitive personal data” is defined as any personal data revealing racial or ethnic origin, political opinions, religious or philosophical beliefs, trade union membership, genetic data, medical data, data concerning physical or mental health or condition, or sex life or data relating to commission of an offence (including proceedings). where sensitive personal data is being processed the data controller must adhere to additional conditions described below.

what must a data controller do to comply with the dp act?

a data controller must ensure that it complies with the eight data protection principles when it processes any personal data.

in order for personal data to be processed lawfully under the first data protection principle, at least one of the following conditions must be met:

• the data subject gave consent
• processing is necessary for performance of a contract, or for pre-contractual steps taken at the data subject’s request
• processing is necessary for compliance with any legal obligation of the data controller
• processing is necessary to protect the data subject’s vital interests
• processing is necessary for exercise of public functions
• processing is necessary for the purposes of legitimate interests of the data controller

if a data controller is processing sensitive personal data, at least one of the following conditions must also be met (in addition to the above):

• the data subject gave consent
• the processing is necessary for the data subject’s employment
• the processing is necessary to protect the data subject’s vital interests
• the information is lawfully processed by a non-profit association
• the information has been made public by the data subject
• the processing is necessary for the purpose of legal proceedings
• the processing is necessary for the exercise of public functions
• the processing is necessary for medical purposes, and undertaken by a health professional or person owing a similar duty of confidentiality
• the processing is permitted by regulations

considerations around consent

where a data controller relies on a data subject giving consent to the processing, the data controller needs to ensure that:

• consent is given by a positive action to opt in
• consent is explicitly given
• the consent request is prominent, concise, separate from other terms and conditions, and easy to understand
• it is able to prove that consent was given
• it keeps adequate records of when and how consent was given
• there is an easy procedure to withdraw consent

‘consent’ of the data subject is “any freely given, specific, informed and unambiguous indication of the data subject's wishes by which the data subject, by a statement or by a clear affirmative action, signifies agreement to the processing of personal data relating to the data subject”.

consent is not considered a valid legal ground for the processing of personal data where there is a clear imbalance between the data subject and the controller. this is of particular relevance to the relationship between employer and employees.

consent may be withdrawn by the data subject at any time.

issues relating to consent will be most relevant in the context of the business’ marketing materials/campaigns.

transfer of data outside the cayman islands

under the eighth data protection principle, personal data must not be transferred to a country or territory unless that country or territory ensures an adequate level of protection for the rights and freedoms of data subjects in relation to the processing of personal data, subject to certain exemptions (see below).

adequate level of protection?

the cayman islands supervisory authority for the dp act, the office of the ombudsman, will consider the following countries and territories as ensuring an adequate level of protection:

• the member states of the european economic area where gdpr is applicable, and
• any country or territory of which an adequacy decision has been adopted by the european commission

for jurisdictions which do not fall within the above classification, or for transfers that are not exempt (see below), a data controller must assess the adequacy of the jurisdiction using at least all the criteria set out in the dp act.

exemptions from the eighth data protection principle

under the dp act the eighth data protection principle doesn’t apply where:

• the data subject has consented to the transfer
• the transfer is necessary for the performance of a contract between the data subject and the data controller, or for pre-contractual steps taken at the data subject’s request
• the transfer is necessary for the performance or conclusion of a contract between the data controller and a third party at the request of the data subject, or in the interests of the data subject
• the transfer is necessary for reasons of substantial public interest
• the transfer is necessary for legal proceedings, obtaining legal advice, or otherwise necessary to establish, exercise or defend legal rights
• the transfer is necessary to protect the data subject’s vital interests
• the transfer is part of the personal data on a public register and any conditions subject to which the register is open to inspection are complied with by a person to whom the data are or may be disclosed after the transfer
• the transfer is made on terms of a kind approved by the office of the ombudsman as ensuring adequate safeguards for the rights and freedoms of data subjects
• the transfer has been authorised by the office of the ombudsman as being made in such a manner as to ensure adequate safeguards for the rights and freedoms of data subjects (such as a transfer made on the eu standard contractual clauses)
• the transfer is required under international cooperation arrangements between intelligence agencies or between regulatory agencies to combat organised crime, terrorism or drug trafficking or to carry out other cooperative functions

are there any exemptions from the dp act?

there are exemptions from the requirement to comply with some or all of the data protection principles such as for the purposes of safeguarding national security, investigation of crime and legal professional privilege. any exemption must be assessed on a case-by-case basis.

what rights do data subjects have?

the sixth principle, being to process in accordance with the rights of data subjects, underscores the importance of all the rights of individuals under the dp act:

• the right to be informed
• the right of access
• the right to rectification
• the right to stop/restrict processing
• the right to stop direct marketing
• the right in relation to automated decision making, and
• the right to complain and seek compensation

looking at some of these rights more closely, a data subject must be informed of the following by a data controller:

• description of their personal data
• the purpose for processing the personal data
• the persons or types of persons to whom the personal data may be disclosed
• where the personal data may be transferred to outside of the cayman islands
• how the data controller safeguards the integrity and confidentiality of the personal data
• any other information required by the cayman islands office of the ombudsman

a data subject may request details of the personal data held by a data controller. if it is a valid request the data controller must provide such information within 30 days.

a data subject has the right to request that any inaccuracy or incompleteness in their personal data be corrected and the right to request that no automated decision making be made using their personal data.

at any time a data subject may request a data controller to cease processing their personal data for any reason, including direct marketing. the dp act sets out various time limits for when such cessation must have happened; however, this right is not absolute and there are some limited exceptions to its scope.

a data subject has the right to lodge a complaint with the office of the ombudsman.

what happens if there is misuse of personal data?

where there is a personal data breach, meaning where personal data is accidentally or unlawfully accessed, disclosed, altered, lost or destroyed, the data controller must notify the data subject and the office of the ombudsman of the breach without undue delay and in no longer than five days. a failure to do so is an offence under the dp act.

any person may make a complaint to the office of the ombudsman that personal data is not processed in accordance with the dp act and the office of the ombudsman must determine whether or not to conduct an investigation.

what powers of enforcement does the office of the ombudsman have?

the office of the ombudsman has the power under the dp act to require any person to provide information to it in order to fulfil its functions under the dp act.

where the office of the ombudsman believes the data controller is, or may be, in contravention of the dp act, it may order a data controller to take, or refrain from, certain actions. it may also make monetary penalty orders.

the office of the ombudsman also has the power to seek an inspection and seizure warrant from the cayman islands court.

other offences under the dp act

in addition to failing to notify the data subject and the office of the ombudsman of a data breach as described above, it is an offence under the dp act to:

• fail to comply with an order
• fail to provide, alter or destroy information requested by the office of the ombudsman
• make a known or reckless false statement in connection with a request for information by the office of the ombudsman
• obstruct execution of an inspection and seizure warrant

save for specific public interest exceptions, it is also an offence under the dp act to:

• obtain or disclose personal data without the consent of the data controller
• procure such disclosure to a third party
• sell personal data that was obtained unlawfully
• offer to sell personal data that was, or will be, obtained unlawfully

what are the penalties for breach of the dp act?

there are material financial penalties for persons that breach the dp act. the penalties range from ci$10,000, to ci$250,000 and there are also possible terms of imprisonment for up to five years. unlike the gdpr the penalties under the dp act are fixed rather than based on turnover.

where an offence under the dp act is committed with the consent of any director, manager, secretary or similar officer of an entity then such person may also be liable for the applicable penalty.

are there any guidance notes?

the office of the ombudsman has issued a guide for data controllers to explain how the office of the ombudsman will likely interpret various provisions of the dp act. the guide is largely based on the united kingdom’s information commissioner’s office’s guide to the gdpr and is a very useful starting point for information.

what should we do?

if you are within scope of the dp act then you must:

• prepare a privacy notice to give to individuals to explain how you will process, use and retain their personal data
• review your procedures to ensure the manner in which you process and retain personal data complies with the dp act and that you are able to retrieve specific personal data if requested to do so by a data subject or a relevant authority
• you may need to adopt a data processing, protection and retention policy
• if you engage a third party to process data on your behalf you will need to ensure there is a written contract for such engagement that addresses your obligations under the dp act, including any transfer of data outside of the cayman islands

for investment funds this means they must:

• send the privacy notice to existing investors
• update subscription documents to include a privacy notice for new investors
• update offering documents to reflect the new requirements under the dp act,

update agreements with any third parties that process personal data on behalf of the fund to ensure such processing is undertaken in compliance with the dp act especially where there is transfer of data outside of the cayman islands.

harneys’ private wealth practice advises individual and commercial clients on the establishment, administration and structuring of all types of bvi and cayman islands trusts.

our private wealth team has earned a global reputation for excellence due to our personal, commercially sensitive, and pragmatic approach. we are market leaders in estate planning, asset protection, succession planning, and international estate and probate administration.

at harneys, we are often approached by the founders of start-ups, their investors and their onshore advisors looking for a steer on whether (and where) to incorporate, or looking for advice on raising funds. in this article, we have sought to cover some of the questions we are most often asked, and to break down the key elements of offshore structuring.

we advise companies at all stages of their development, and have taken clients from first incorporation, through substantial investment, to ipo and beyond.

in this article, we will focus on the bvi and cayman, which are the most popular offshore jurisdictions for start-ups, although harneys also advises start-ups on the laws of anguilla, bermuda, cyprus, jersey, and luxembourg.

why go offshore?

one of the first stages in any start-up’s journey is setting up their legal entity. establishing an entity conveys a certain level of legitimacy and professionalism but, more importantly, until you do, the founders are personally liable for all the debts of the business.

many of our clients come to us having already incorporated a company and picked a jurisdiction, but for those that have not, we are often asked to give a steer as to where might be the best home for their business.

whether it is appropriate to go offshore will depend on where your main business will be carried out, where your investors will be and where the company will be managed from. there are several general advantages of offshore vehicles, which are common to both bvi and cayman:

1. tax neutrality – no corporate taxes, taxes on capital gains or withholding, and no stamp duty, except in limited scenarios.
2. flexible and modern corporate laws – because of the importance of the financial and legal sectors in the bvi & cayman, it is important to both jurisdictions that corporate legislation is adaptable to, and stays up-to-date with, the ever-changing demands of global business.
3. sophisticated service providers – as well as lawyers, both jurisdictions are home to a wide range of business service professionals (trust companies, fund managers, accountants) who are used to dealing with the requirements of international businesses and are familiar with a broad range of sectors as well as dealing with new trends in the market.
4. independent and respected judiciary – despite their size, both bvi and cayman are used to seeing some of the largest value litigation in the world which means invaluable experience and knowledge within the jurisdictions. our courts also allow for appeals to the privy council (the same judges who sit on the uk supreme court).

although the jurisdictions share much in common, there are some differences. in general terms, it is fair to say that the bvi tends to end up somewhat more cost effective and, in some respects, has additional flexibility. cayman, however, benefits from being the most popular choice for publicly listed offshore companies and is well-known to private equity investors who often use such vehicles for their own structuring.

choice of vehicle

both the bvi and cayman provide various options when it comes to the choice of legal vehicle and which model is appropriate will depend on a client’s needs.

in the bvi, while companies limited by shares are by far the most popular vehicles, bvi trusts^[1] and partnerships are also increasing in popularity and may be considered as alternatives depending on the client’s needs.

similarly, in cayman, exempted companies are the most commonly used vehicles but other vehicles are also available, including ‘us style’ llcs. the cayman foundation is currently a popular means for providing a “legal wrapper” to decentralised autonomous organisations (daos)^[2].

the “standard” company structure will be the one suitable for most start-ups – it provides for the benefit of limited liability, separates ownership (shareholders) from management (directors), and through the issuance and transfer of shares, is a simple structure in which to bring in new investors.

bringing in money – debt v equity v …tokens?

traditionally, the most common means for companies to raise capital in the bvi and cayman (and in the rest of the world) is through debt or equity.

in the simplest terms, debt finance involves a party providing money to a company with the expectation it will be repaid (usually, with some element of interest). this loan may come from its shareholders, a bank, or other third party lenders. the biggest advantage of debt finance from the company’s perspective is that it usually means that the equity of the company remains protected from dilution, allowing the founders to retain ownership as the company grows. lenders do not usually get a direct say over management of the company, but it may place restrictions on the company, whether that be security over assets or limitations on what the company can or cannot do, in order to protect their investment. a lender is typically entitled to be paid back the amount they advanced plus some level of interest regardless of the performance of the company (so debt can lead to cash flow issues or even insolvency) but does not get a share of profits. although the loan documents may include covenants preventing the company from doing certain things without lender consent, a lender does not usually get voting rights.

bringing in money through equity, on the other hand, means giving up a proportion of the ownership of the company (usually through the sale of shares) in exchange for funds the company can use for its operations. this will inevitably mean some dilution of founder equity in the company and, potentially, with it the sacrificing of future sale proceeds, corporate profits, and/or an element of control. however, it may be necessary to take this approach during the early stages of a business’ growth if it is not possible to secure lending because of the lack of historic financial success and identifiable value in its assets which a lender can secure their interest against. taking equity finance also has some big advantages over debt – it does not have to be repaid within a specific period (or, indeed, at all, if the company never becomes profitable) and it does not sit on the balance sheet as a liability.

in theory, there are big differences between the two, but in practice, it can be more nuanced. there are various types of hybrid options, such as debt convertible to shares, or preferred shares with a fixed return that looks similar to interest. there are even profit participating notes that do not get paid unless the company makes a profit.

at harneys, we are also used to dealing with the less traditional means of raising funds. for example, we have had a lot of experience advising on the use of special purpose acquisition companies (spacs)^[3] and the de-spac process that involves the acquisition and investment in, and taking public of, high value private companies. similarly, we have seen a rapid growth of our crypto practice^[4] and are used to advising on token issuances as a means for companies to raise investment.

as discussed above, each form of funding comes with its own risks and rewards and deciding which approach is best for the company and its founders will often depend on various considerations. for example, the willingness of the founders to sacrifice a proportion of their ownership to another party versus the availability of, or lack thereof, leverage in the company’s growth potential to convince someone to lend.

depending on where a company is in its growth cycle will affect the options that are available to a company in terms of fundraising. most start-ups go through many rounds or series of fundraising, and there are professional investors who specialise in each of these.

structuring ownership

it is critical that founders have a vision for how the business should be owned and how that ownership should be regulated as it progresses.

getting shareholdings right at the start is incredibly important as it can help avoid issues down the line. founders need to be wary of over-promising and over-issuing shares at the outset if there is an intention to use equity to raise funds later on. the terms offered to investors can also set a precedent that other investors will expect to follow (for example, if you allow a ten per cent series a investor to appoint a director, it may be hard to get the series b investor to take twenty per cent at a higher value to not insist on at least the same representation). if a business relies too heavily on equity backed funding, there is a danger of over-diluting key figures and a reduction in the potential return available to the founders should there eventually be a sale or a public offering. it is also important to keep in mind that not all shareholders will necessarily stay with the business as it grows and so consideration needs to be given to over committing shares at the outset but also to be able to retrieve shares from parties that may eventually disengage from the business.

keeping track of shareholdings and their value against the company’s overall saleability is important but just as important is a business’ governance. in simplest terms, this means how the business is run, who makes decisions and that there are procedures in place to ensure that if there is a breakdown in relationships, there is a way to resolve any issues so that the business is not detrimentally impacted.

it is vital that governance is properly documented. in the offshore world, this is usually done in the form of a written contract (usually a shareholders’ agreement, but sometimes a subscription agreement, investment agreement, or joint venture agreement). this agreement is supplemented by and mirrored in the memorandum and articles of association, which are the constitutional documents of the company from a local law perspective – integrating these documents ensuring that the provisions have maximum force and effect. these will commonly include provisions providing guidance on what the company and the shareholders should do on matters such as the issue and sale of shares, the appointment & removal of directors, the calling of shareholder, and director meetings. it still set out who can appoint directors, and what matters need shareholder approval. founders can also use these documents (where investors will accept it) to give themselves certain protections, such as enhanced voting rights or vetoes.

from a shareholder/investor perspective, understanding how and when they might be able to exit will be a priority. provisions dealing with share transfers such as drags, tags and rights of first offer/refusal can be seen as boilerplate, but it is critical for both companies and their investors that they work mechanically. equally, if the long term plan is to sell or ipo the company, the way ownership is structured needs to facilitate that eventual goal.

getting ready for an ipo or sale

an ipo may be a goal from the start for many founders, while for others it will only emerge later as a potential option. the benefits of an ipo for founders are numerous – it allows access to a vast pool of potential capital which can fund the further expansion of the business, it conveys a degree of prestige, and it creates a liquid market in which early stage investors (including potentially the founders themselves) can dispose of part of their equity. with certain stock exchanges allowing the dual share structures and enhanced voting rights (used by the likes of meta, zynga and alibaba) an ipo can even be achieved whilst allowing the founders to retain a high degree of control of the company’s future direction. both bvi and cayman law allow such structures to be baked into the constitutional documents. as previously noted, spacs also present an alternative route to market for some tech start-ups and harneys has assisted a wide range of businesses with this.

many jurisdictions now have specialist or junior stock exchanges which target start-ups (particularly in the tech sector) and offer a lighter touch regulatory regime but, even so, being a public company can carry with it additional burdens. some start-ups can feel frustrated by issues of governance, compliance and legal ‘niceties’ affecting their ability to be nimble and execute their vision. making disclosure of these issues in a public filing however is, at best, embarrassing. the companies that have the easiest time going public are those that have already started to make the mental adjustment and which are already operating like a public company.

while some founders may never want to sell their company, others will have that in mind as a potential exit at an early stage, and may even have a sense as to who might be a likely buyer. a potential sale, and the inevitable due diligence process, will be far easier if the company keeps adequate records. while some things may be rectifiable after the fact, complying with the law, and taking appropriate advice when issues arise, can prevent problems coming up in the due diligence process that may put off potential buyers.

economic substance

both the bvi^[5] and cayman^[6] have rules which require companies incorporated there to have economic substance in the jurisdiction if they are conducting certain activities, unless they are treated as tax resident in another jurisdiction for these purposes (in which case they may be exempt). this may involve having employees, premises, or directors in the relevant jurisdiction, but may not. advice taken at the outset, and ideally in pre-incorporation stage can head off any issues.

the detailed nature of the economic substance regime is outside the scope of this note, but there are a few things in particular that start-ups should be aware of in their structuring.

holding intellectual property in an offshore company is not a viable option unless the ip will be developed and managed in the relevant jurisdiction. we are seeing more and more clients in this space holding their intellectual property onshore.

while it is fine for companies to borrow and raise money through debt, acting as a lender, even intragroup, is likely to cause an issue (unless the loan is provided for no interest or other consideration).

care should be taken with any intercompany service arrangements where one company will be charging a fee or providing services to another company in the same group.

final thoughts and advice

structuring your business correctly at the outset is one of the most important things you can do to help prevent issues down the line and to support future success.

when you reach the point of major investment or even exiting, you don’t want to be fixing issues that could have been avoided if more attention had been given at the outset. as the adage goes, prevention is cheaper than cure.

offshore may not be right for you but you’ll only know if you speak to us and, with our wealth of international experience, we are sure we can point you in the right direction and assist in making your business a success.

^[1]https://www.harneys.com/insights/bvi-trusts-purpose-trusts/

^[2]https://www.harneys.com/insights/daos-a-note-of-caution/

^[3]https://www.harneys.com/insights/a-snapshot-on-spacs/

^[4]https://www.harneys.com/expertise/digital-assets-blockchain/

^[5]https://www.harneys.com/expertise/regulatory-tax/economic-substance-in-the-british-virgin-islands/

^[6]https://www.harneys.com/expertise/regulatory-tax/economic-substance-in-the-cayman-islands/

the grand court has recently had cause to consider the interplay between the cayman islands restructuring officer regime, which was introduced following legislative changes in 2022, and the traditional "light touch" provisional liquidator regime: in re oakwise value fund spc.

this article first appeared in volume 22, issue 2 of international corporate rescue and is reprinted with the permission of chase cambria publishing.

download the pdf to read the full article.

in this episode, rachel discusses managing her multifaceted role, from mentoring junior lawyers and leading the transactional practice in the emea region to balancing life as a working parent. she reflects on becoming a more trusting leader, the value of collaboration across practices and our offices, and the importance of accepting imperfection when managing work-life balance. she also highlights london’s dynamic role in global offshore legal services, underscoring our ability to adapt to diverse client needs.

the judicial committee of the privy council in tianrui v china shanshui has held that a shareholder has a personal right of action against a cayman islands company to challenge the improper issue and allotment of shares by that company's directors.

tianrui (international) holding company v china shanshui cement group ltd

the judicial committee of the privy council in tianrui v china shanshui has held that a shareholder has a personal right of action against a cayman islands company to challenge the improper issue and allotment of shares by that company's directors. in doing so, the board has reversed the decision under appeal and has changed what the position on this issue was previously, as a matter of cayman islands law. the board has also provided a detailed analysis of the juridical basis for shareholders' standing to bring personal claims, which it noted had not been decided and had "barely been discussed" in most previous cases.

this is a significant decision for the cayman islands and likely other common law jurisdictions where the principles of company law are not materially different to those in force in the cayman islands.

factual background

the decision arose out of a prolonged battle for control of the respondent company, china shanshui. the company and its shareholders are competitors in the cement production industry in the people's republic of china. the company issued convertible bonds in two tranches, the proceeds of which it claimed were primarily used to repay loans. at an egm, a majority of shareholders passed a resolution mandating the directors to allot and issue shares to certain bondholders. the company claimed this was a response to events that had led to the hong kong stock exchange suspending trading of the company's shares.

the appellant, tianrui, issued a writ claiming that the bondholder allottees were acting in concert with the majority shareholder group and the company's directors to consolidate the majority shareholders' control over the company. specifically, tianrui alleged that the issue of bonds and allotment of new shares were an improper exercise of the company's power to issue and allot shares, on the basis that the purpose of the issuance of shares was to dilute tianrui's shareholding from 28.16 per cent to 21.85 per cent so that tianrui could no longer block special resolutions. if valid, tianrui would not be able to prevent a merger with another company and might instead have to have its shares bought out under section 238 of the companies act.

the company sought to strike out the writ on the basis that it was an abuse of process, alleging that tianrui did not have standing to sue the company for what are essentially claims arising out of breaches by directors of fiduciary duties that were owed to the company (not to individual shareholders).

decisions below

at first instance, segal j rejected the challenge and concluded that the minority shareholder had a personal claim against the company. he held that it followed from the characterisation of the shareholder's claim as a personal right that other shareholders should not ratify the acts of the directors. in addition, he rejected the argument that a shareholder had no personal claim because they could obtain redress by a derivative action. segal j's decision marked a departure from an earlier first instance decision of the cayman islands grand court in gao v china biologic products, in which the court struck out a writ action by a minority shareholder on the basis that the plaintiff lacked standing to sue the company for breach by the directors of their fiduciary duties.

the cayman islands court of appeal subsequently overturned the decision of segal j and held that an aggrieved shareholder had no personal right of action against the company for a diminution of their voting power caused by the issue of shares in breach of a fiduciary duty owed to the company. the cica held that a shareholder must instead bring a derivative action consistent with the rule in foss v harbottle or the fraud on the minority exception to that rule (discussed below).

the key feature of the cica's decision (and the earlier decision of kawaley j in gao) was the reasoning that shareholders did not have standing to bring a claim in their own right in relation to a fiduciary duty owed by directors solely to the company. the proper plaintiff in such cases would be the company itself. in those circumstances, shareholders could only bring a claim by way of a derivative action.

this reasoning arises out of the principles in foss v harbottle. in summary:

• where a wrong has been done to a company, only the company and not an individual shareholder can take action. a breach of duty by a director, who owes duties to the company, is a wrong done to the company. this is known as the "proper plaintiff" principle.

• however, where: (i) a step or action has been taken by the directors in breach of their fiduciary duties; (ii) the resulting transaction can be made binding on all shareholders by a simple majority of shareholders; and (iii) the majority does not wish to take action against the directors, the relevant decision can be ratified. this is known as the "majority rule" principle.

there is an exception to the operation of these principles where the wrongdoers have acted dishonestly or have attempted to appropriate the company's property and the wrongdoers themselves are in control of the company. this is known as the "fraud on the minority" exception. in that case, any purported ratification would not be effective. in such a case, the aggrieved shareholder may bring a derivative action seeking relief on behalf of the company in whom the cause of action is vested.

the board's decision and analysis

the board held that a shareholder whose holding is diluted by an improper allotment of shares by the directors may bring a personal claim against the company, challenging the validity of that allotment founded on the corporate contract between the shareholder and the company. in certain circumstances, the claim may be defeated by ratification of the allotment by a majority of the shareholders (other than the allottees) at a general meeting. those circumstances did not apply to the assumed facts. gao was wrongly decided, and the cica was wrong to follow it.

the board reviewed a number of well-known decisions from other common law jurisdictions. previous english and australian decisions have recognised the right of shareholders to bring a personal action against the company, rather than a derivative action, by way of a challenge to the validity to an allotment of shares by its directors on the basis that the directors acted for an improper purpose. however, there had been limited, if any, discussion in those decisions regarding the jurisdictional basis for the standing of shareholders to bring such claims.

the board approached the issue from first principles.

• the registration of a person as a shareholder brings with it a bundle of rights. that which benefits or harms the company will correspondingly increase or reduce the value of the person's shares. subject to class restrictions, shareholders have a collective power to influence or control the general direction of the company through their ability to attend and vote at general meetings. the active power of a shareholder is critically dependent upon the proportion of shares held. possession of more than 25 per cent of shares confers what is sometimes referred to as negative control through the ability to block steps requiring a special resolution and is critically sensitive to dilution.

• the power to allot and issue shares is conferred on directors and is necessarily a fiduciary power. it must, therefore, be exercised only for proper purposes, not (for example) to deliberately alter the balance of power between shareholders other than for a legitimate purpose. this will exclude an allotment of shares deliberately aimed at altering the balance of power between shareholders so as to advance the power of one group at the expense of the other.

• it is implicit in the contract constituted by the memorandum and articles of association that the company's power to allot and issue new shares – which power is delegated to the directors by the company's articles – will be exercised by the directors properly in accordance with their fiduciary duties including the 'proper purpose' duty. a failure to do so amounts to an actionable harm by the shareholder because the impropriety in the exercise of the power contravenes the corporate contract binding on the shareholder and the company, even though the relevant fiduciary duty is owed to the company, not the shareholder.

• while the claim is based upon the fact of a commission of a breach of fiduciary duty by directors, the cause of action is the breach of contract between the shareholder and the company.

the board also held:

• the right of a shareholder to sue the company is not dependent on the alteration in the balance of power being adverse only to a minority of shareholders, the claiming shareholders being, or being part of, a majority. the size of the claimant's shareholding is, in principle, irrelevant. what matters is that the claiming shareholders have suffered an interference with their rights as shareholders brought about by the improper issue and allotment.

• it is, in principle, irrelevant whether the company itself, separately, has a cause of action against the directors for the breach of fiduciary duty owed to it. the shareholder's action against the company may coexist with an action by the company in respect of the same duty, so that the availability of the latter does not exclude the former.

• the mere theoretical possibility of ratification is not sufficient to deprive the claimant shareholder of a cause of action. there will always be cases where a personal claim by a shareholder may be defeated by ratification either before or after proceedings have begun, where it does not amount to oppression on the minority. there will also be cases where the nature of the breach of duty is such that ratification will not be possible. for example, a breach constituted by the directors having the improper purpose of assisting an existing majority to oppress a minority could not be ratified by the majority without falling foul of the constraint against majority oppression.

the board ultimately held, on the assumed facts of the case, that this was a strong case for the availability of a personal shareholder's action. the effect of the dilution on tianrui's shareholding would be to deprive it of negative control of the company. it would, therefore, be an interference with tianrui's rights as a shareholder to have a say in the collective control of the company's affairs. the directors would therefore be acting for an improper purpose by exercising their power to issue and allot the disputed shares. any purported ratification would also be intended to oppress tianrui as a minority shareholder. the recipients would be unlikely to be able to resist the setting aside of the allotments if it is proved that they were acting in concert with the majority.

effect and impact of the decision

the decision clarifies the standing of shareholders of cayman islands companies to bring personal actions against the company for an improper allotment of shares by directors. shareholders will now be able to pursue claims falling within the scope of the decision without being required to satisfy the procedural steps and requirements for derivative actions. the decision is therefore favourable to shareholders.

it is likely that future shareholder claimants will seek to apply this decision to claims for breaches of other types of fiduciary duties. the extent to which the principles in this decision apply in a wider context is not expressly addressed by the board and would therefore need to be considered on a case-by-case basis. claimant shareholders will, however, need to demonstrate that the particular complaint in issue is founded on a cause of action arising out of the corporate contract between the company and its shareholders, and that the shareholder has suffered an interference with their rights as shareholders brought about by the exercise of that power or step.

as published by ifc review, 28 january 2025.

since their introduction, cayman star (special trust-alternative regime) trusts have been known for their innovative approach to longstanding trust law principles, and this applies also to the key roles contained in them: trustees, enforcers and (to a lesser extent) beneficiaries. in this article, we shall focus in on the star understanding and developments in these roles, with our watch-phrase coming from a seminal article from antony duckworth: ‘under star the trust is a matter of obligation, not ownership’ ((1841) cr & ph. 240).

the starring idea: introduction to the concept

although it sometimes comes as a surprise, star trusts are not actually the cayman islands’ only form of trust offering, just as vista is not the only british virgin islands trust. cayman trusts can cover the full range: discretionary or fixed interest, beneficial or purpose, reserved powers or fully managed, innovative or entirely traditional depending on settlor requirements.

but star trusts are the most famous. aside from existing indefinitely with no compulsory trust/perpetuity period, in a star trust:

• the objects can be beneficiaries, or purposes, or both.
• the beneficiaries have no right to information or to bring proceedings against the trustee concerning the trust’s administration. instead, one or more enforcers must be appointed, which will have such rights and which is usually defined as a fiduciary role.

these features derive from the argument, pioneered by the hon justice david hayton and others, that modern trusts are better thought of in terms of obligations attached to property, rather than a hazy concept of ownership still in some way attaching to the beneficiaries. the latter is often not appreciated by settlors from civil law backgrounds, and produces logical but odd results such as the rule in saunders v vautier ((1841) cr & ph. 240) which can come as a shock when discovered. such settlors tend to think of a trust as a quasi-contractual obligation with the trustee (albeit with heightened duties), and that is what a star trust represents in that the tasks a trustee can be asked to do are more varied than simply investing assets for the benefit of beneficiaries.

certainly, a star trust can be set up with an equal intention to benefit purposes as it does its beneficiaries. an ultra high net worth (unhw) individual may set up a trust to benefit his family, but also non-charitable interests such as, say, encouraging young entrepreneurs.

but many other star trusts are founded with the expectation that in the actual administration of the trust, only beneficiaries will benefit. in such trusts, the purposes may be instead drafted as ways to resolve the longstanding ‘prudent investor’ principle, that is in summary, a trustee, if fully responsible for the investment and management of the trust assets, is constrained by its fiduciary duties to in practice take a conservative investment approach. we see star trusts used to solve this in two principal ways:

• the approach of reserving the trustee’s powers and duties over investment and management to a third party. different jurisdictional trust laws do this in different ways, but in star a purpose may be, for example, that the trustee leaves the investment and management of the trust assets to certain persons, or that the trustee shall not sell certain designated assets.
• a more unusual and innovative approach, that of keeping such powers and duties with the trustee, but making one of the purposes to invest in cryptocurrency, or whiskey, or property developments in high-risk areas, etc.

in this second way, a star trust can even be drafted reasonably ‘traditionally’ if the client wishes, with the phrasing making it clear that the only objects for distributions will be its beneficiaries, and full powers given to the trustee, save that the trustee has actually expanded powers to invest in asset classes which it would normally feel obliged to avoid.

that said, a star trust is clearly untraditional as regards the powers of the beneficiaries to receive information and enforce the trust, which are instead given to a third-party enforcer (albeit that enforcer can be anyone, including a beneficiary themselves). and in this regard, we turn to the duties of the trustee and enforcer themselves.

all-stars: how the roles of a star trust play out in practice

the part of cayman legislation that deals with star does not define a star trustee’s fiduciary duties differently to those of non-star trustees, so we may assume they are the same, except that they will need to be exercised not in the best interests of the beneficiaries, but of the ‘objects of the trust’ (which include beneficiaries, purposes or both). the enforcer’s powers and duties regarding the enforcement of the trust are drafted similarly widely as per section 101(2) cayman trusts act (2021 revision): ‘subject to evidence of a contrary intention, an enforcer is deemed to have a fiduciary duty to act responsibly with a view to the proper execution of the trust.’

the wording as regards the enforcer, and the expanded objects to which the trustee owes its duty, both emphasise the fundamental nature of the star trust as being one of obligation and the exact terms of the instrument.

section 101(2) was also fundamental to the most recent case regarding the duties of a star enforcer, that of aa v jtc (cayman) limited (fsd 12 of 2024 (ikj)), because it allowed the court to confirm that an enforcer has standing to apply for the court’s ‘blessing’ (confirmation) of a ‘momentous’ decision on the same legal basis as a trustee, and to set out how the court will approach such an application.

we noted above that some star trusts reserve the trustee’s powers and duties over investment and management to a third party. aa v jtc involved one such trust. the enforcer of that trust wished to obtain the court’s blessing over an instruction to the trustee to exercise certain rights attached to shares it held. the exercise of these share rights was central to the purpose of the trust.

blessings are sought through section 48 of the cayman trusts act which has essentially codified what is generally known as public trustee v cooper [2001] wtlr 901 applications. section 48 itself only mentions applications by trustees or personal representatives. however, following discussion, the court agreed that the part of the act dealing with star trusts, in particular sections 98 and 101-102, serves to modify the general parts of the act so far as they relate to such trusts.

in its decision the court thought section 101(2) particularly important, again: ‘subject to evidence of a contrary intention, an enforcer is deemed to have a fiduciary duty to act responsibly with a view to the proper execution of the trust.’

this was because, like other offshore courts, the cayman court is determined to ensure the proper exercise of fiduciary powers. this focus was in evidence when justice kawaley considered the application itself. he classified it as a ‘category 2’ case under cooper “where the issue is whether the proposed course of action is a proper exercise of the trustees' powers where there is no real doubt as to the nature of the trustees' powers and the trustees have decided how they want to exercise them but, because the decision is particularly momentous, the trustees wish to obtain the blessing of the court for the action on which they have resolved and which is within their powers.”

how did the cayman court approach the enforcer’s application? the cayman court applied, as it has done in other such cases before it, the following tests:

1. does the trustee (or enforcer) have the power to enter into the proposed transaction?
2. is the court satisfied that the trustee (or enforcer) has genuinely concluded that the proposed transaction is in the interests of the trust and the beneficiaries, and/or in furtherance of its purposes?
3. is the court satisfied that a reasonable trustee (or enforcer) would arrive at the relevant conclusion?
4. does the trustee (or enforcer) have any conflict of interests which prevents the court from granting the approval sought?

once again, in the court’s reasons for deciding to grant the application, we see the heavy imprint of section 101(2) fiduciary duty. section 48 already cancels any protection provided by an application where “any fraud, wilful concealment or misrepresentation was committed” in obtaining it. in other words, full and frank disclosure (one of the basic elements of a fiduciary duty) is expected. in applying these tests, the court was particularly pleased that the enforcer had “genuinely decided that the proposed instruction to the trustee was in the best interests of the trust and in furtherance of the purposes for which it was established”, and that the decision “followed careful deliberation and receipt of appropriate legal advice”.

the fourth test regarding conflict of interests is very apposite, because enforcers will often be family members or advisors of the settlor, and even be a beneficiary themselves, and hence more often have a conflict of interest. here, the enforcer may have had arguable potential conflicts, but properly disclosed them, and the court considered that they were not impeded by those potential conflicts from concluding that it was appropriate to give the relevant instruction.

therefore, the case of aa v jtc (cayman) limited not only shows that star enforcers can make cooper applications to the cayman court in the same way as trustees, it also repeats that the court, although not placing onerous demands on applicants, will not act as a mere rubber stamp. it expects to see the same careful deliberation and proper motives from star enforcers as we would expect from any fiduciary role. once again, we see the emphasis on obligation, and upholding of high standards.

this guide outlines the procedure for a voluntary liquidation of a solvent cayman islands exempted company and the duties of its liquidator. it also sets out the process for striking an exempted company off the register of companies in the cayman islands.

voluntary liquidation

a cayman islands exempted company can be wound up voluntarily:

• when the period, if any, fixed for the duration of the company by its memorandum or articles of association (the m&a), expires
• because a specific event has occurred, on the occurrence of which its m&a provide that the company shall be wound up
• by a special resolution passed by the shareholders of the company (majority of at least two thirds of the voting shareholders at a general meeting unless a greater majority is specified in the m&a, either generally or for particular matters), or, if authorised by the m&a, a written resolution signed by all voting shareholders
• by an ordinary resolution passed by a simple majority of the shareholders of the company if the company is unable to pay its debts as they fall due

liquidator

a cayman islands exempted company can appoint one or more persons to act as the company’s liquidator, including a director or officer of the company, the company’s auditors or another appropriate third party. there are no qualification requirements for appointment as a voluntary liquidator.

cayman legislation codifies various requirements of the voluntary liquidator regarding notices, meetings, reports and prescribed forms.

the liquidator has a legal duty to wind up the company’s affairs in an orderly and timely manner and in accordance with all legislative requirements and must ensure that the company’s assets are properly realised and distributed to creditors and investors.

procedure

when a company which is otherwise unregulated under cayman islands law is to be wound up by passing a special resolution, subject to any specific provisions in its m&a, the procedure is generally:

• a meeting of the directors of the company is held to consider and, if thought fit, approve the appointment of the proposed liquidator, the giving of notice to the shareholder(s) that the company should be placed into voluntary liquidation and that an extraordinary general meeting of the shareholders of the company (egm) should be called to consider passing a special resolution to place the company into voluntary liquidation or a written resolution can be signed by all of the shareholders
• an egm is convened or written resolutions are circulated pursuant to which the shareholders are asked to pass a special resolution covering the following:
  
  • noting that the company has ceased to trade (or has not traded since incorporation)
  • resolving that the company be voluntarily wound up
  • approving the appointment of a liquidator, its remuneration and the granting of an indemnity to the liquidator
• the liquidation commences from the date of the special resolution. at that time, the powers of the directors cease except to the extent required for beneficial winding up of the company's business and except to the extent the shareholders of the company may, by resolution, allow certain powers to continue. the voluntary liquidator assumes all powers in relation to the management of the company. shares in the company can also only be transferred with the consent of the liquidator.
• within 28 days of the commencement of a voluntary liquidation, the following notices must be filed with the cayman islands registrar of companies (the registrar) together with the applicable filing fee (please contact us for details of current fees payable):
  
  • a winding up notice
  • the liquidator’s consent to act
  • directors’ declaration of solvency
• the directors’ declaration is a declaration or affidavit in a prescribed form which confirms that a full enquiry into the company’s affairs has been made and that, to the best of the directors’ knowledge and belief, the company will be able to pay its debts in full, together with interest at the prescribed rate, within a period not exceeding 12 months from the commencement of the winding up. the declaration must be signed by all the company’s current directors. any person who knowingly makes a declaration of solvency without having reasonable grounds for the opinion that the company will be able to pay its debts in full, within the period specified, commits an offence and is liable, if convicted, to a substantial fine and/or to imprisonment.
• if a directors’ declaration of solvency is not filed within 28 days of the commencement of the voluntary liquidation, the liquidator must apply to the grand court of the cayman islands (the court) to have the liquidation continue under the supervision of the court.
• the liquidator must also publish a notice of the voluntary liquidation in the cayman islands gazette (the gazette) within 28 days of the commencement of the voluntary liquidation and if the company is carrying on a regulated business in the cayman islands it must file notice of the winding up with the cayman islands monetary authority (cima). the gazette notice advises creditors of the proposed voluntary winding up of the company and calls for submissions and proofs of debt in relation to monies due to creditors. creditors are usually provided with three weeks in which to file details of their claims to the liquidator.
• the liquidator must collect in all assets of the company, apply them in satisfaction of all liabilities of the company, and verify all creditors (if any), as well as all shareholders who are entitled to a distribution. there is no set time frame for this process, and it can be very quick, for example where there are no creditors, and only a few easily realisable assets. the process may take longer where there are numerous creditors and multiple assets.
• assignments of assets in kind may be required in respect of final distributions by the liquidator. any surplus assets may be assigned in a final distribution made by the liquidator, based on instructions from the shareholders and the provisions of the m&a.
• as soon as the affairs of the company are fully wound up and the company no longer has any assets or liabilities, the liquidator must make a report and account of the winding up, showing how it has been conducted and how the property has been disposed of. the liquidator must then publish a second notice in the gazette, specifying the date, time, place and object of the final general meeting of the shareholders of the company (fgm).
• the liquidator convenes the fgm for a date at least 21 days after the notice of the fgm appears in the gazette.
• at the fgm, the liquidator provides a general report on the liquidation process. the liquidator lays the final accounts of the company which the liquidator has prepared before the fgm showing the manner in which the winding up was conducted. at the fgm the liquidator will ask the shareholders to pass resolutions approving the liquidator’s accounts, its remuneration and authorising the destruction of the company’s books and records after a specified time, typically five years from the date of dissolution of the company.
• within seven days of the fgm, the liquidator must file its report and a return with the registrar confirming the date of the fgm and details of the resolutions passed. the liquidator also requests a certificate of dissolution to be issued by the registrar and pays the applicable filing fee. please contact us for details of current fees.
• the registrar delivers the certificate of dissolution to the liquidator. termination of the company is the date of the certificate of dissolution.

timing

a straightforward voluntary liquidation of an exempted company which does not have extensive creditors/shareholders can be expected to be completed within three months from the start of the process to the date of the liquidator’s filing following the fgm. if a voluntary liquidation continues for more than one year, the liquidator must call a general meeting of the company at the end of the first year, with the liquidator laying before the meeting a report and account of its acts and dealings and the conduct of the winding up during the preceding year.

all the obligations of the company under the international tax co-operation (economic substance) act must be discharged before commencing a voluntary winding up.

if the company is carrying on a regulated business, it will need to de-register from cima, following the procedure for the relevant category of registration, before commencing a voluntary winding up. please contact your usual harneys representative for further details of the procedure to follow.

striking off

an alternative to liquidation is striking off. the strike off method is best suited to a company that is inactive with no assets, liabilities or creditors.

on the request of the company, the registrar has the power to strike off a company from the register of companies where the registrar has reasonable cause to believe that the company is not carrying on business or is not in operation. on striking off, the company is dissolved. the registrar will require a resolution of the shareholders of the company requesting the striking off and an affidavit of a director confirming that the company has no assets or liabilities. following the striking off, the registrar will immediately publish a notice in the gazette advertising that the company has been struck off, the date of strike off and the reasons for the strike off.

although a striking off is a less expensive form of dissolution, it differs fundamentally from a liquidation or winding up. in particular, the following points should be noted:

• if any member or creditor of the company feels aggrieved at a striking off, they may make an application to the court for the company to be reinstated. the time period allowed for an application to reinstate is generally two years, although it may be extended to a maximum of ten years if the cabinet allows.
• in order to reinstate the company, it must be shown that the company was in operation at the time of the striking off, or the court must deem it just that the company be reinstated.
• on reinstatement, the company must pay a reinstatement fee equivalent to the original incorporation or registration fee. the court also has the discretion, either on reinstatement or subsequently, to award damages to any person, in order to place them in the position they would have been in if the company had never been struck off. the application to the court can be made on paper and if there are no problems, will be granted by the clerk of the court without the need for a court hearing.
• the striking off does not affect the liability, if any, of any director, manager, officer or member of the company, and such liability continues and may be enforced as if the company had not been dissolved.
• where the strike off method is used to dissolve a company, it is vital that all of the assets and liabilities of the company are discharged. if assets are not discharged following strike off they will cease to be the property of the company and will automatically vest with the financial secretary for the benefit of the cayman islands.
• it is also important to ensure that all the obligations of the company under the international tax co-operation (economic substance) act are discharged.

where a company has been conducting business on a regular basis or has assets and liabilities, unless its assets and liabilities have been discharged, it is inadvisable for the company to be dissolved by strike off. in those circumstances, liquidation is the preferred route for dissolving the company.

one of the reasons why the cayman islands is a leading offshore jurisdiction is the flexibility of its companies and partnership legislation. this includes the ability of vehicles formed or registered outside of the cayman islands to transfer into the cayman islands by following a simple transfer procedure.

transfer in by way of continuation as an exempted company or llc

under the companies act, a body corporate that exists in a jurisdiction outside the cayman islands (an overseas company), with limited liability and a share capital, can apply to be registered in the cayman islands as an exempted company by way of continuation.

under the limited liability companies act (llc act), an overseas company and any corporation of any kind, a statutory trust, a common law trust and any unincorporated business (with or without legal personality) (a foreign entity) can apply to be registered in the cayman islands as a limited liability company (llc) by way of continuation.

what is the process?

leaving aside any requirements in the home jurisdiction, the overseas company or foreign entity will be registered, respectively, as either an exempted company or an llc in the cayman islands if:

• it is incorporated or existing in a jurisdiction which permits or does not prohibit the transfer
• in the case of an overseas company applying to be registered as an exempted company, it is constituted in a form which could have been incorporated as an exempted company limited by shares under the companies act
• the application fee is paid (for an overseas company registering as an exempted company, the fee depends on the authorised share capital of the company at the point of transfer)
• the relevant documents are filed, including declarations as to solvency and related declarations to the effect that the intention of the transfer is not to prejudice creditors
• the proposed name is acceptable to the cayman islands registrar (it cannot be identical to or very closely resemble an existing company’s name and must not include certain prohibited words eg royal, chartered, assurance, without the cayman islands registrar’s approval)
• to the extent that it carries on a regulated or licensed activity, it has applied for and obtained any licenses or registrations it may need to carry on its business in or from the cayman islands, eg if it is a mutual fund or private fund it must have registered with the cayman islands monetary authority (cima). please see our guide to mutual funds in the cayman islands and guide to private funds in the cayman islands for details
• the cayman islands registrar is not aware of any other reason why it would be against the public interest to register the overseas company or foreign entity as an llc or the overseas company as an exempted company, as the case may be

what happens once the registration by way of continuation is confirmed?

on registration in the cayman islands, the cayman islands registrar will issue a certificate confirming registration by way of continuation and the date of registration. if the application was made on an express basis the certificate can be issued on the same day as the application is made. the express procedure is typically used to evidence that the overseas company or foreign entity has been registered in cayman on the same day as it de-registered from its original jurisdiction, as is sometimes required by the registrars of other jurisdictions.

from the date of registration, the overseas company or foreign entity continues as an exempted company or llc (as the case may be) in the cayman islands as if it had originally been incorporated and registered under the companies act/llc act. the cayman islands registrar publishes a notice of the continuation in the cayman islands gazette confirming the overseas company’s or foreign entity’s previous jurisdiction of incorporation/domicile/registration and previous name, if it is different to its name at the time of registration in the cayman islands.

within 90 days from the date of registration as an exempted company or llc, the overseas company or foreign entity must amend its constitutional documents so that they comply with the companies act or llc act and make the relevant filings. this is usually done at the same time as the continuation application is made to allow the overseas company or foreign entity to operate fully as a cayman exempted company or llc (as the case may be) from the date of its registration.

the continuation of an overseas company or foreign entity does not create a new legal entity, affect the property of the entity, affect any resolutions passed or any rights or obligations it enjoyed before it continued into cayman or affect any legal proceedings to which it is a party.

please see our guide to cayman islands exempted companies and our guide to cayman islands limited liability companies for an overview of the key features of exempted companies and llcs.

transfer in as an exempted limited partnership

a pre-existing partnership which has been established under the laws of any jurisdiction other than the cayman islands may apply to be registered as an exempted limited partnership under exempted limited partnership act (elp act).

leaving aside any requirements in the home jurisdiction, this involves:

• amending the partnership agreement as necessary to comply with the elp act (including changing the governing law to cayman islands law)
• paying the relevant registration fee
• filing a standard registration statement with the cayman islands registrar. this statement contains the name of the exempted limited partnership, a general description of its business, its registered office address in the cayman islands, the term (if any) for which the partnership is entered into and details of its general partner. the statement also includes a declaration made by the general partner that the exempted limited partnership will not carry on business with the public in the cayman islands other than to the extent necessary to facilitate its overseas business

on registration, the cayman islands registrar will issue a certificate of registration for the partnership, typically within three to five (3-5) working days of the application being made, or within 24 hours if the application is made on an express basis. the partnership is then governed as an exempted limited partnership under the elp act from the date of its certificate of registration.

registration as an exempted limited partnership does not create a new legal entity, affect the property previously acquired by the partnership, affect any act or thing done before registration or the rights or obligations of the partnership or its partners before registration or affect any legal proceedings by or against the partnership or its partners.

please see our guide to exempted limited partnerships for more details.

one of the reasons why the cayman islands is a leading offshore jurisdiction is the flexibility of its companies and partnership legislation. this includes the ability of cayman entities to transfer out of the cayman islands and move to another jurisdiction, by following the relevant procedure. this guide looks at the process for transferring exempted companies, limited liability companies (llcs) and exempted limited partnerships out of the cayman islands by way of continuation.

which entities can de-register and transfer out of cayman?

under the companies act, an exempted company incorporated in the cayman islands, with limited liability and a share capital, can apply to be de-registered from the cayman islands and transfer to another jurisdiction by way of continuation.

an llc registered under the limited liability companies act (llc act) which proposes to be registered by way of continuation as a foreign entity in a jurisdiction outside the cayman islands, can apply to be de-registered from the cayman islands.

the general partner of an exempted limited partnership under the exempted limited partnership law (elp act) which proposes to be registered by way of continuation as a partnership, body corporate or any other form of entity under the laws of a jurisdiction outside the cayman islands, may apply to be de-registered as an exempted limited partnership in the cayman islands.

what is the process?

the process is very similar for exempted companies, llcs and exempted limited partnerships. the cayman islands registrar (registrar) will de-register an applicant if:

• it proposes to be registered by continuation in a jurisdiction which permits or does not prohibit the transfer
• the application fee of three times the applicant’s annual fee is paid. for an exempted company, the level of annual fees depends on the authorised share capital of the company (please contact us for details of the current government fees)
• the applicant has filed notice of any proposed change in its name, change in the partnership (for an exempted limited partnership) and its proposed registered office in the jurisdiction it is transferring into
• the applicant has filed a declaration or affidavit by a director (for exempted companies)/authorised signatory (for llcs and exempted limited partnerships) confirming that:
  
  • it is solvent and able to pay its debts as they fall due
  • the application for de-registration is not intended to defraud its creditors (or creditors and limited partners for exempted limited partnerships)
  • any contractual consent to the transfer has been obtained, waived or released
  • the transfer is permitted by and has been approved in accordance with the applicant’s constitutional documents (memorandum and articles of association for an exempted company, llc agreement for an llc, partnership agreement for an exempted limited partnership)
  • the laws of the jurisdiction where the applicant is transferring to have been or will be complied with and the applicant will on registration in the relevant jurisdiction continue, and
  • if the applicant is licensed or registered with the cayman islands monetary authority (cima) it has obtained cima’s consent to the transfer
• the applicant has filed a statement of the assets and liabilities of the applicant, with the declaration or affidavit, made up to the latest practicable date before making the declaration
• the applicant has filed an undertaking confirming that notice of the transfer has been or will be given within 21 days to its secured creditors, if any
• where the entity is licensed or registered with cima, the consent of cima has been obtained
• the registrar is not aware of any other reason why it would be against the public interest to de-register the applicant

other considerations

if a director/authorised signatory makes a declaration without reasonable grounds, they commit an offence and are liable on conviction to a substantial fine and/or five years imprisonment.

the llc act and elp act also require that the applicant must be in good standing with the registrar, having paid all outstanding fees. in practice exempted companies applying to de-register under the companies act must also be in good standing with the registrar.

it is also important to ensure that all the obligations of the entity under the international tax co-operation (economic substance) act are discharged prior to making the application.

what happens once de-registration is confirmed?

on de-registration, the registrar will issue a certificate confirming de-registration as an exempted company/llc/exempted limited partnership and the date of de-registration. if the application is made on an express basis (and an express fee paid) the certificate can be issued on the same day as the application is made, to provide comfort that the applicant has been de-registered in cayman on the same day as it is registered in its new jurisdiction.

from that date an applicant which is an exempted company ceases to be a company under the companies act and continues as a company under the laws of its new jurisdiction, an llc ceases to be an llc under the llc act and continues as a foreign entity under the laws of its new jurisdiction and an exempted limited partnership ceases to be such under the elp act and continues as a partnership, body corporate or other entity under the laws of its new jurisdiction.

the registrar gives notice of the de-registration in the cayman islands gazette confirming the jurisdiction that the entity has transferred to and its new name, if it has changed.

de-registration of an exempted company/llc/exempted limited partnership does not create a new legal entity, affect the property of the applicant, affect any resolutions passed or any rights or obligations it enjoyed while it was an exempted company/llc/exempted limited partnership in the cayman islands or affect any legal proceedings to which it is a party.

next steps

as well as compiling and filing the documents described above, good coordination between the lawyers in the entity’s proposed new jurisdiction and the cayman islands is key to a successful continuation out of the cayman islands.

william and henry explore bermuda’s growing success, fuelled by its balanced regulatory framework, easy access to new york, and a local environment that fosters opportunity. henry introduces his "pick up a shovel" philosophy, championing decisive action and practical problem-solving to deliver the best results. they also highlight the importance of questioning conventional wisdom in law firms, advocating for fresh, innovative approaches to tackle complex challenges.

as business and commerce grow there is a need for primary service providers to rely on and use secondary service providers to support their business needs from an operational perspective. essentially, outsourcing is a business practice in which businesses use external providers to assist with carrying out business processes that would otherwise be handled internally.

under both the british virgin islands (bvi) and cayman islands regulatory regimes, outsourcing is a recognised practice. however, entities that are subject to the regime in both jurisdictions need to be conscious of the parameters within which they are allowed to operate their business while using and relying on outsourced practices.

below is a comparison of the outsourcing rules in the bvi and the cayman islands.

should you require any assistance with legal advice, reviewing or drafting outsourcing agreements, putting in place any outsourcing policies and procedures, etc please feel free to get in touch with the author or your usual harneys contact.

on 2 january 2025, the british virgin islands limited partnership (amendment) act, 2024 was brought into force, implementing a series of amendments to the limited partnership act of 2017 (the amended act). these updates reflect the jurisdiction's ongoing commitment to international best practices and regulatory compliance. below, we summarise the key changes introduced by the amended act.

key changes

the key changes to the law include the following:

• limited partnerships (partnerships) must now file their register of limited partners with the registrar of limited partnerships (the registrar) on a private basis.
• partnerships will be required to file a register of beneficial owners, except in the case of partnerships which are regulated funds in the bvi. beneficial owners of a partnership will include any natural person who owns or controls (directly or indirectly) 10 per cent or more of shares of the capital or profits of the partnership or 10 per cent or more of the voting rights in the partnership; or who otherwise exercises control over the management of the partnership.^[1]
• an obligation for partnerships to file a financial annual return (far) has been introduced, aligning partnerships with similar requirements introduced recently for bvi companies.
• partnerships registered prior to the introduction of the limited partnership act 2017 have now been automatically re-registered under that legislation.

the amendments are being introduced to ensure the bvi keeps pace with international best practices and with international standards established by standard-setting bodies such as the global forum on transparency and exchange of information for tax purposes and the financial action task force. in particular, with these amendments the bvi has taken steps to ensure the jurisdiction moves quickly to address the recommendations made in the mutual evaluation report published earlier in 2024. the bvi remains committed to having a robust, modern corporate and regulatory framework and to fighting financial crime in all its forms.

filing of registers

limited partnerships (partnerships) must now file their registers of general and limited partners with the registrar.

• access: a partnership’s register of limited partners will be filed on a private basis only, and will only be accessible to an extremely limited set of parties as follows: (i) the partnerships itself; (ii) the partnership’s bvi registered agent (who will have access to the register of partners anyway and would most likely have been responsible for making the filing) (iii) competent authorities; or (iv) law enforcement agencies with suitable jurisdiction. the partnership’s register of general partners will be accessible on the same basis, and in addition will be accessible to any other person on request.^[2]
• transitional period: existing partnerships (i.e. those formed prior to 2 january 2025) have a six-month transitional period (which may be extended by the registrar for a further six months) to comply.
• timing for new partnerships: newly registered partnerships must adhere to these requirements immediately, and filings of the registers must be made within 30 days of registration or continuation into the bvi. any changes to the registers must also be filed within 30 days of such changes.
• exemptions: regulated funds, such as private investment funds, private, professional, approved and incubator funds, are exempt from filing registers of limited partners. however, they must still file registers of general partners.

beneficial ownership filing

partnerships are required to file beneficial ownership (bo) information with the registrar.

• exemptions: regulated funds will not be required to file bo information, subject to satisfying certain criteria. we expect that regulated funds seeking to rely on this exemption will need to ensure their beneficial ownership information is maintained by a suitable licensed entity and can be provided to the registrar within 24 hours upon request. we anticipate that for the majority of regulated funds, which will engage a suitably qualified third party fund administrator, reliance on their ability to provide information to the registrar within 24 hours upon request will be suitable.^[3]
• transitional period: existing partnerships (i.e. those formed prior to 2 january 2025) have a six-month transitional period (which may be extended by the registrar for a further six months) to comply.
• timing for new partnerships: newly registered partnerships must adhere to these requirements immediately, and filings of the beneficial ownership information must be made within 30 days of registration or continuation into the bvi.

annual return requirements

for the first time, partnerships are required to submit an annual return to the registrar. this return will include basic information about the partnership’s activities and compliance, and closely tracks similar provisions introduced recently for bvi business companies.

as with many of the other new requirements, regulated funds which are already required to file financial statements with the bvi financial services commission will be exempt from the requirement to file an annual return.

continuation of partnerships

partnerships seeking to continue their existence outside the bvi will need to confirm there are no ongoing regulatory investigations, pending requests from a competent authority to produce documents or provide information (which may include, for example, reporting on economic substance), pending legal proceedings, or receivers appointed over their assets. these safeguards aim to prevent entities from using the continuation process to evade legal or regulatory scrutiny.

cooperation with authorities

the amended act introduces an express duty for partnerships to cooperate with competent authorities, including the registrar and law enforcement agencies. this measure ensures quick access to information necessary for regulatory oversight.

it is also worth noting that partnerships will need to have filed registers of general and limited partners, register of beneficial owners, and not be in penalty with respect to their far filing in order to obtain a certificate of good standing.

1996 act partnerships

• partnerships registered under the partnership act 1996 act (which will fundamentally be any bvi partnerships formed prior to 12 january 2018) are now subject to a reduced transitional period. any such partnerships will now have been automatically re-registered under the act on 13 january 2025.
• partnerships re-registered automatically will have been registered without separate legal personality.

partnerships automatically re-registered on 12 january 2025 will have a six-month period to adopt a suitable limited partnership agreement (lpa) which complies with the act. any relevant partnerships should reach out to their bvi legal counsel to begin the process of updating their limited partnership agreements.

[1] in most instances, this will most likely mean in practice anyone holding 10 per cent or more of the voting rights or control in the general partner of the partnership (in accordance with the constitution of the general partner entity; and any limited partner (or ultimate beneficial owner of a limited partner) holding 10 per cent or more of the limited partnership interests.

[2] note that the ability to access the register of general partners “on request” does not fundamentally change the existing accessibility. any such person would need to instruct a limited partnership search report and pay associated fees for the service, and details of the general partner would always have been included in such a search report.

[3] it is important to note that the exemption here does only apply to regulated fund vehicles. there may be a number of partnerships which operate as closed-ended fund vehicles such as spvs or feeder funds in reliance on certain carve-outs from requiring regulation. such vehicles will be subject to beneficial ownership filing requirements, even where a third party administrator is engaged, unless steps are taken to become a regulated fund.

this concise guide discusses the bvi business companies act as it relates to the registration of security interests granted by a bvi business company.

where a company creates a security interest over its own assets, there are two different registrations which need to be considered under the bvi business companies act (no 16 of 2004)(the act):

• there is a public registration in the register of registered charges maintained by the registrar of corporate affairs under section 163 of the act; and
• there is a private registration in the register of charges maintained by the company (or its registered agent) at its registered office or the office of its registered agent under section 162 of the act.

under bvi law, only the private registration is mandatory. if a company fails to enter particulars of a security interest in the register of charges which it must keep at its registered office or the office of its registered agent, then it can potentially be subject to a fine of us$5,000.

however, notwithstanding that it is not mandatory, it is the public registration which has the principal effect of determining the priority of security interests under bvi law. an application to enter particulars of a security interest in the public register may be made by the company or by the person to whom the security interest is granted (or, in each case, their agents). an application is made by submitting a form r401 to the registry of corporate affairs together with the applicable filing fee (currently us$100 per document). this is usually done electronically.

registering a security interest in the public register will give it priority over:

• all security which is registered against the company in the public register subsequently; and
• all security which is created by the company after the “commencement date” (as is more particularly described in the act) which is not registered.

however, please note that:

• priority of security interests can be varied with the consent of the holders of the relevant charges; and
• the priority of a registered floating charge is postponed to a subsequently registered fixed charge (but not an unregistered fixed charge) unless the floating charge contains a restriction (a “negative pledge”) on the power of the company to create any future charge ranking in priority to or equally with the floating charge.

there is no express time limit within which a security interest must be registered in the public register. generally speaking, security interests should be registered promptly after they are created since priority is determined by the date and time of registration. however, if you are considering registering an older security interest which was created before the company was registered under the act, you should take advice, as in some cases the security may have better priority if left unregistered.

registration of security under bvi law only affects priority of security interests. a failure to register security under the act will not otherwise affect the validity of a security interest. nor is registration necessary under the act to “perfect” a security interest.

this note relates only to registration under the act. where the security interest is created over specific types of asset (the principle examples being bvi registered ships and aircraft, and land within the bvi) there are also separate asset based security registration regimes which must also be complied with.

it is not possible for a foreign company to register security under the act unless it re-registers as a company under the act.

for assistance on security registrations in the bvi, please contact the authors or your usual harneys contact.

below is a list of ten of the most frequently asked questions which we encounter in connection with security granted by bcs:

in a recent groundbreaking judgment, the bvi commercial court ordered, for the first time, a mandatory injunction compelling the repatriation of wrongfully dispersed monies in support of the enforcement of an arbitral award (which had been recognised in the bvi).

the underlying arbitration concerned a dispute between the shareholders of a bvi company, soremi investments ltd (sil). its shareholders, global mining development lp (global) and gerald metals llc (gerald) sold a 65% stake in sil to china national gold group hong kong ltd (cng) and entered into a shareholders' agreement (sha).

global exercised a right of first refusal under the sha to purchase cng's shares in sil. cng refused to effect the transfer and so global commenced arbitration in hong kong. by a first partial award (fpa), the tribunal found that global was the rightful owner of 100% of the shares in sil and ordered cng to transfer its 65% shareholding in sil to global for usd86.32 million.

cng did not comply, and gerald obtained an order for specific performance from the tribunal (spa). global and gerald applied to the bvi commercial court for orders recognising both the fpa and spa as orders of the bvi courts. these orders were granted. cng applied unsuccessfully to set aside these orders.

in breach of an undertaking given to global, cng caused around usd200 million to be transferred out of certain paris accounts in the name of sil to an account in china, held by an sil subsidiary. global and gerald applied to the bvi commercial court for, and were granted, both a freezing injunction against cng's assets and a mandatory order requiring that the monies transferred be repatriated to sil's french bank account. global argued that the court had power to grant the order sought where global was the beneficiary of two arbitration awards and the beneficial owner of 100% of the shares of sil.

while the discharge application for both the freezing and mandatory injunctions is still to be heard, the making of the orders demonstrates the pro-enforcement attitude of the bvi court and the measures it is prepared to grant in support of enforcement of foreign arbitral awards in the bvi.

global and gerald were represented in the bvi by harney westwood & riegels (bvi) lp.

reproduced from practical law with the permission of the publishers. for further information visit www.practicallaw.com.

in this episode of chat omp, william peake, our global managing partner, and nicola roberts, our jersey managing partner, discuss her professional journey across continents, her strong connection to jersey, and her pivotal role in establishing our new office there. they reflect on the firm’s successful entry into the market and examine why jersey remains a stable and highly trusted jurisdiction.

in this episode, william and lishi explore her legal career path, highlighting her decision to study in london, which shaped her adaptability and professional growth. they discuss the challenges and nuances of being a managing partner, including balancing approachability with authority, handling responsibilities beyond legal work, and the daily realities of leadership.

the securities investment business act of the cayman islands (the sib act) is the primary securities statute in the cayman islands and regulates the conduct of securities activities in or from within the cayman islands. if the sib act applies to the activities of an entity or person then the entity or person must apply to the cayman islands monetary authority (cima) for a licence or registration under the sib act unless one of a limited number of exemptions applies.

download the pdf to read more.

given the sheer volume of british virgin islands business companies (bcs) in existence, there is at any given time in some part of the world a transaction involving a bc. pursuant to the bvi business companies act (the act), the business and affairs of that bc shall be managed by or under the direction or supervision of an individual or corporate entity that consented to and was appointed to act as a director. this guide provides an overview of the salient points that should be borne in mind by a director of a bc (which is restricted herein to mean a non-regulated company limited by shares) when undertaking the decision-making process.

the basics

in order to become a director of a bc, the act states that you cannot be:

• an individual under 18 years
• a disqualified person under section 260(4) of the insolvency act 2003 (meaning a person subject to a disqualification order under the insolvency act)
• a restricted person under section 409 of the insolvency act (meaning a person subject to a bankruptcy restriction order or undertaking)
• an undischarged bankrupt

the memorandum or articles (the m&a) of the bc can go further and disqualify other categories of persons from being directors in relation to that bc. however, there is a proviso in the act which deems a person to be a director where a person who is disqualified acts as a director in relation to any provision of the act and imposes a duty or obligation on such a deemed director.

there are a couple of tangentially interesting features that directors have under the act that are worth mentioning here:

• there is no general requirement for any of the directors of a bc to be residents of the bvi. however, the economic substance regime which has been in place since the end of 2018 now requires companies which undertake one or more “relevant activities” (as such term is defined in the bvi economic substance (companies and partnerships) act 2018) to ensure management and control in relation to those activities takes place in the bvi.
• corporate directors are permitted.
• a director of a bc may (and as always, subject to its m&a), appoint someone to act as their alternate. the alternate may be another director or any other person of that director’s choosing (provided they are not disqualified as set out above). once appointed, and in the absence of the appointing director, the alternate is entitled to attend meetings and to vote in place of the director who appointed them.
• it is usual (but not a good idea) for a bc to have only one shareholder who is an individual, with that shareholder also being the bc’s sole director. this structure creates a significant problem when the sole shareholder/director dies as there is no one left who can deal with the day to day affairs of the business. the act has a unique option which can avoid this outcome by allowing the sole director/shareholder, during their lifetime to nominate another person as a “reserve director” of the bc. this reserve director is only able to act in the place of the sole shareholder/director in the event of their death, allowing for the smooth continuation of the business until probate and the share transfer are resolved.

in or out? appointment, resignation and removal

appointment

the registered agent of the bc must appoint its first directors within 15 days of the bc’s incorporation. it should be noted that a person shall not be appointed as a director or an alternate director or nominated as a reserve director unless that person has consent to do so in writing prior to their appointment. after this initial phase, any additional directors would be
appointed by resolution of members or resolution of directors as per the requirements of that bc’s m&a.

resignation

a director can resign by giving written notice to the bc of their resignation, which takes effect from the date the notice is received by the bc or a later date if set out in the notice. if at any time during their appointment the director falls within one of more of the categories of disqualification set out above or contained in the bc’s m&a, then that director must resign immediately.

removal

a director may be removed with or without cause by way of a resolution of members passed at a meeting for the sole or one of the purposes being removal of that director. any notice for such a meeting of members must state that the removal is the purpose (or one of the purposes) of the meeting. alternatively, a director can be removed by a written resolution of members approved by at least 75 per cent of the votes of members who are entitled to vote. additionally, and again subject to the nc’s m&as, the other directors may also be able to remove one of their own at a directors’ specifically called to remove that director, or by way of a written directors’ resolution approved by a majority of 75 per cent or more.

*in terms of a reserve director, their appointment, resignation and removal are slightly different in that the nomination of the reserve director would cease to have effect where, before the death of the sole member/director who nominated the reserve director; that person resigns as the reserve director; the sole member/director revokes the nomination in writing, or the sole member/director who nominated the reserve director ceases to be the sole member/director for any reason other than their death.

decisions, decisions …

in making decisions relating to the business and affairs of the bc, the directors are bound not only by the codified duties contained in the act, but also by common law and equitable duties.

duties under the act

the main duty of a director under the act is to act honestly and in good faith and in what the director believes to be in the best interests of the bc. the first element of this duty, to act honestly and in good faith, is an objective test. this objective test is then extended to include a subjective element of what the director believes to be in the best interests of the bc. following on from this, directors have a duty to act for a proper purpose and not act or agree to the bc acting in a manner that contravenes either the act or the bc’s m&a.

the act also deals with the potential for conflict that may face directors when performing their duties. a director of a bc is required, forthwith after becoming aware of the fact that they are interested in a transaction entered into or to be entered into by the bc to disclose their interest to the full board of the bc and/or to the shareholders of the bc. however, a director of a bc may not be required to comply with this duty where:

• the transaction or proposed transaction is directly between the director and the bc
• the transaction or proposed transaction is or is to be entered into in the ordinary course of the bc’s business and on usual terms and conditions

the act also provides guidance as to the standard of care which is expected of a director when exercising powers or performing duties as a director to the extent that they must exercise the care, diligence and skill that a reasonable director would exercise in the same circumstances taking into account, but without limitation (i) the nature of the bc; (ii) the nature of the decision; and (iii) the position of the director and the nature of the responsibilities undertaken.

in exercising this standard of care, the act recognises that directors must be able to access information that would aid in their decision-making processes. as such the act expressly provides that directors are entitled to rely upon the register of members and books, records, financial statements and other information supplied and/or professional or expert advice given by: (i) an employee of the bc, but only where the director believes on reasonable grounds that the employee is reliable and competent; (ii) a professional adviser or expert, where the director believes on reasonable grounds that the matter is within their professional or expert competence; and (iii) another director, or a committee of directors in which the director did not serve, in relation to matters within the director’s or committee’s designated authority.

duties under common law

there are few decided cases from the eastern caribbean supreme court (of which the high court of the bvi is a member) which affect directors' duties and these, taken along with applicable decisions from the english high court, may be condensed to the following duties:

• to act bona fide in what the director considers to be in the best interests of the bc as a whole and not for a collateral purpose
• to act for a proper purpose and to exercise their powers for the purposes for which they are conferred
• to avoid conflicts of interest (both actual or potential conflicts)
• to disclose personal interests in contracts involving the bc
• not to make secret profits from the director’s office
• to act with skill and care

under the common law, the degree of skill and care required to satisfy the proper execution of these duties was looked at from a subjective standpoint. here a director only needed to show a degree of skill that would be reasonably expected from a person of like knowledge and experience. in recent times however, english case law has moved towards a more objective test, similar to that set out in the act. the statutory conduct required of a director is that of a reasonably diligent person having general knowledge, skill and experience that may reasonably be expected of a person carrying out the same functions carried out by the relevant director with the general knowledge, skill and experience of that particular director. this means that the common law is drawing closer to an objective standard for directors which places a heavier burden on a director that has specialist knowledge, skill or experience or if they are being remunerated for providing specific professional services.

breaches

it is important to note that the consequences of breaching the duties of directors are not specified in the act in every case. accordingly, the positions at common law, and in equity, need to be considered. in relation to duties derived from common law, compensation for damages resulting from the breach would usually be the remedy sought. in some instances under common law, a breach of a directors’ duty could be ratified by the shareholders of the bc after full and frank disclosure, so long as this does not go beyond the general powers of the bc.

liability

generally, no director of a bc may be liable for any debt, obligation or default of the company, unless such a liability is specifically provided for pursuant to the act and except to the extent that they are liable for their own acts or conduct. however, a director who vacates office remains liable under any provision of the act which imposes a liability on them in respect of any acts or omissions or decision made whilst they were a director. the acts of a director are valid even if there was a defect in their appointment or where they acted at a time when disqualified to act as a director under the act.

indemnity

a bc (subject to its m&a) may indemnify current directors, former directors or other persons who acted in such a capacity of the bc or who at the request of the bc, served in a similar capacity for another company or a partnership, joint venture, trust or other enterprise, against all expenses (including legal fees and all judgments, fines and amounts incurred). none of the persons may be indemnified by the bc unless they acted honestly and in good faith and in what they believed to be in the best interests of the bc (in the case of criminal proceedings, where the director had no reasonable cause to believe that their conduct was unlawful). a purported indemnity in breach of the honesty and good faith requirement is void. furthermore, such a person must be indemnified by the company if they have been successful in the defence of any proceedings. additionally, the bc may advance expenses (including legal fees) incurred by a director or former director in defending proceedings prior to the final determination of proceedings, provided that the director or former director provides an undertaking to repay the company if it is determined that they are not entitled to be indemnified.

one should exercise caution when considering the availability of an indemnity as the m&a of the bc could be amended to remove the ability to indemnify or advance expenses to directors and/or former directors. a prudent director should therefore consider entering into a separate agreement with the bc dealing with the provision of an indemnity by the bc. this would allow the director to have some degree of control over the indemnification process and not subject to changing directives of the bc after they have left the bc.

conclusion

directors of bcs have significant levels of responsibility placed on them both by the act and under the common law when they engage in the process of making decisions on behalf of that bc. in this light, they need to be mindful of the circumstances under which they are asked to consider and their abilities before making a decision. as such directors need to understand and seek out all the protection the law can afford them and any additional guarantees that they can obtain from the bc as it would be a serious error for them not to weigh their position both before and after they cease to be a director.

singapore amended its companies legislation in 2017 to introduce an inward redomiciliation regime allowing foreign companies, including companies incorporated in the british virgin islands (bvi), to transfer their registration to singapore. further, amendments were passed to the bvi companies legislation in on 2 january 2025 expanding the conditions for transferring out of the jurisdiction and which is covered in this guide.

while the singapore regime now provides multinationals with greater flexibility to reorganise their corporate group structures, once a foreign company re-domiciles in singapore the process is irreversible and there is no ability to continue back out should the company determine that the jurisdiction no longer suits its needs.

in contrast, the bvi business companies act 2004 (as amended) (the bvi act) provides a more flexible regime permitting:

• a foreign entity to re-domicile into the bvi (referred to as a continuation or continuation in) as a bvi business company (a bvi company); and
• a bvi company to continue out of the bvi under the laws of another jurisdiction (referred to as a discontinuation or continuation out).

this guide provides an overview of the process and requirements for a discontinuation out of the bvi and into singapore.

continuation out of the bvi

eligibility to continue out of the bvi

the bvi act permits a bvi company to continue out of the bvi to a foreign jurisdiction if:

• it is in good standing (that is, it is up to date with payment of its government fees and is not dissolved);
• its memorandum and articles of association do not prohibit it from doing so;
• it has complied with any requirements in its memorandum and articles of association in respect of the continuation (typically, the passing of a board or shareholders’ resolution); and
• the laws of the relevant foreign jurisdiction permit the continuation and the bvi company has complied with those laws.

procedure

the procedure, documentation and timing for discontinuing a bvi company out of the bvi will be largely driven by the requirements of the foreign jurisdiction. the bvi company must take all steps necessary for it to continue into the foreign jurisdiction and it will not cease to be incorporated under the bvi act until it has done so.

for the purposes of the bvi act, the bvi company must:

• pass board or shareholders’ resolutions approving the discontinuation in accordance with its memorandum and articles of association;
• if a charge or other security interest is registered publicly in the bvi in respect of the bvi company’s property which has not been released or satisfied and the security document does not prohibit the bvi company continuing to the foreign jurisdiction, the bvi company must file a written declaration (security interest declaration) with the registrar of corporate affairs (the registrar) stating that:
  • a notice of satisfaction or release of the security interest has since been filed and registered; or
  • the chargee has been notified in writing of the intention to discontinue and has consented or not objected to it; or
  • having notified the chargee in writing of the intention to discontinue, the chargee has neither consented nor objected, but that the charge will not be diminished or compromised by the discontinuation, and, the bvi company will continue to be liable for the debts secured by the charge;
• advertise notice of such intention in the bvi official gazette and on the bvi company’s website (if any) and specify the jurisdiction to which it intends to continue;
• notify the bvi company’s members and creditors in writing of such intention;
• file with the registrar a notice in the approved form which includes a declaration confirming that the bvi company (a) has complied with the above advertising and notification obligations, (b) does not have any pending request from a competent authority to produce documents or provide information which has not been satisfied, (c) a receiver has not been appointed over it or its assets, and (d) is not aware of any legal proceedings, whether civil or criminal, pending against the company, or any of its member, director, officer or agent as it directly pertains to the affairs of the bvi company (the conditions compliance declaration); and
• make a written declaration confirming that the laws of the foreign jurisdiction permit the continuation and that the bvi company has complied with those laws (the foreign jurisdiction compliance declaration).

the bvi company’s registered agent must then file with the registrar:

• a notice (in the prescribed form) of the bvi company’s continuation to the foreign jurisdiction;
• the security interest declaration (where relevant);
• the conditions compliance declaration;
• the foreign jurisdiction compliance declaration; and
• proof that the bvi company has continued into the foreign jurisdiction. such proof is typically in the form of a certificate of continuance together with an extract of the foreign law relied upon or, where you have a chicken and egg scenario, that is, where the bvi company’s continuation to the foreign jurisdiction is dependent on the registrar issuing a certificate of discontinuance, the registrar may issue a certificate of discontinuance on the basis of a
  provisional certificate of continuance issued by the foreign jurisdiction. if a provisional certificate is relied upon, the registered agent must subsequently file the final certificate of continuance once issued.

if satisfied that the requirements of the bvi act have been complied with, the registrar will:

• issue a certificate of discontinuance (which will usually be dated the date the notice in the prescribed form is filed by the registered agent);
• strike the name of the bvi company off the register of companies with effect from the date specified in the certificate of discontinuance; and
• publish a notice of the bvi company’s striking off in bvi official gazette.

the certificate of discontinuance is prima facie evidence that all requirements of the bvi act have been complied with and the bvi company is discontinued on the date specified in the certificate.

inward re-domiciliation into singapore

eligibility to re-domicile into singapore

in order to give the foreign jurisdiction compliance declaration in the bvi, the bvi company needs to consider whether it meets the criteria for re-domiciliation into singapore.

in singapore, the minimum requirements that the bvi company seeking to re-domicile must meet are:

• it must be a body corporate that is capable of adapting its legal structure to the companies limited by shares structure under the singapore companies legislation;
• it must meet any two of the following:
  • the value of its total assets exceeds s$10 million;
  • its annual revenue exceeds s$10 million;
  • it has more than 50 employees;
• it must meet all of the following solvency criteria:
  • there is no ground on which it could be found to be unable to pay its debts;
  • it is able to pay its debts as they fall due during the period of 12 months after the date of the application for redomiciliation;
  • it is able to pay its debts in full within the period of 12 months after the date of winding up (if it intends to wind up
    within 12 months after applying for re-domiciliation); and
  • the value of its assets is not less than the value of its liabilities (including contingent liabilities);
• it is authorised to transfer its incorporation under bvi law (which it is so permitted);
• it has complied with the requirements of bvi law in relation to its discontinuation out of the bvi;
• the application for re-domiciliation by the bvi company is:
  • not intended to defraud its existing creditors; and
  • made in good faith;
• as at the date of the application, its first financial year end in the bvi has passed; and
• it is not under judicial management, not in liquidation or being wound up etc.

effect of discontinuations from the bvi into singapore

bvi side

it is a commonly held misconception that the process of re-domiciliation to another jurisdiction may be disruptive to the company’s business operations. under the bvi act, a discontinuation out of the bvi will not change the company’s legal personality nor will it affect any of the company’s assets, rights or liabilities. broadly, the bvi act provides that:

• the company will continue to be liable for all of its obligations and liabilities that existed prior to its discontinuation;
• no conviction, judgement, ruling or order against the company or any member, director, officer or agent is released
  by its discontinuation;
• no proceedings, whether civil or criminal, by or against the company, any member, director, officer or agent will be
  impaired by the discontinuation, and such proceedings may be enforced, prosecuted, settled or compromised; and
• any security interest declaration will not operate as a bar to any legal action a creditor is entitled to take.

it should be noted that, in the case of a bvi company that has been discontinued, service of process may continue to be effected on its bvi registered agent in respect of any claim, debt, liability or obligation of the company during the period of its existence under the bvi act.

singapore side

the position in singapore is consistent with the bvi. under the singapore legislation the re-domiciliation of a foreign company as a singapore company does not:

• create a new legal entity;
• prejudice or affect the identity of the body corporate constituted by the foreign corporate entity or its continuity as a
  body corporate;
• affect its property, or its rights or obligations; or
• render defective any legal proceedings by or against it,

and any legal proceedings that could have been continued or commenced by or against the foreign corporate entity before its re-domiciliation into singapore may be continued or commenced by or against the company after its redomiciliation.

conclusion

the bvi is the world’s leading incorporation jurisdiction due to the clarity and flexibility of its modern company law. it also provides the flexibility to move your company to another jurisdiction, such as singapore, should this be necessary for your investment or organisational objectives. the continuation regime, which allows a company to preserve its corporate history, branding and goodwill, provides a valuable alternative to setting up a new subsidiary which may have regulatory, strategic and organisational implications.

when conducting such an exercise, timing of applications in both jurisdictions is critical to ensuring the process runs smoothly. harneys would be pleased to assist you with re-domiciling your bvi company to singapore (or any other jurisdiction). harneys will only advise on the bvi discontinuation and you will need to engage singapore legal counsel to advise on the inward re-domiciliation.

on 24 december 2024 several legislative updates dropped down the chimney in the bvi. these include significant changes to bvi company law and regulatory practice taking effect from 2nd january 2025 of which owners and operators of bvi business companies and their bvi registered agents should be aware.

most of these legislative changes have been anticipated for some time. the principal driver is to ensure the bvi remains at the forefront of international best practice in the battle against financial crime and complies with global standards. more specifically, they swiftly address recommendations made in the mutual evaluation report published by the caribbean financial action task force in 2024 and also meet commitments made by all the uk’s overseas territories to the united kingdom.

this update focuses on the amendments to the bvi business companies act (the act) and regulations and statutory instruments promulgated under that act, but the festive legislative rush also included important updates for limited partnerships and regulated entities on which harneys will be providing separate updates soon.

company law and record keeping

the changes to the act which were passed earlier in 2024 (see our detailed client alert here) have been brought fully into force with effect from 2 january. most of the changes are administrative in nature and relate to the record keeping and filing obligations on bvi companies.

key features of the amendments include:

• changes to the bvi’s system for maintaining and registering beneficial ownership information (discussed further below).
• a company’s register of members must now be filed with the registrar of corporate affairs (the registrar), although it will remain private and not publicly searchable. the bvi government and the fsc have made clear in numerous forums that the bvi will not be implementing a fully public register of beneficial ownership information, but a consultation on allowing some access to those with a legitimate interest in the information is expected to begin soon (as discussed further below).
• new registration requirements apply for companies with “nominee” shareholders or using licenced professional directors – such companies are now required to maintain registers containing certain information and to provide the same to regulators.
• new requirements apply to “continuations out” of the jurisdiction to prevent companies from using that process to try to avoid pending regulatory requests or legal proceedings (including litigation or other civil or criminal proceedings).
• companies will have an express duty to co-operate with regulators and the registrar will be granted additional enforcement and information-gathering powers.
• interested persons are now able to apply for rectification of a company’s register of directors by the court.
• companies which have been restored are given a 14-day window to conform with certain record-keeping and filing obligations.
• companies now have an express duty to co-operate with regulators and the regulator has the power to request returns containing certain information

those companies incorporated before the start of 2025 benefit from a transitional period of at least six months to file their register of members (and, where relevant, details of nominee shareholders and professional directors). that extension will expire on 2 july 2025. the legislation allows for a further six-month extension to be granted, although the financial services commission (fsc) has commented in industry meetings that, given the delay in bringing the legislation into force, it does not expect that extension to be necessary.

new bvi companies established in 2025 will need to comply from incorporation. equally, companies that have been struck-off and dissolved will need to comply to be restored.

most of the information required to comply with these requirements should already be held by the bvi registered agent, although they may have some work to do ensuring that records are up-to-date and in the correct format. the administrative burden on end-clients will hopefully be relatively limited. we expect that registered agents will be reaching out to clients to confirm information they hold remains up to date. some clients may want to take specific advice on their obligations or the requirements – particularly if they are unable to obtain (or have other concerns regarding) the required information.

collection of beneficial ownership information

the amendments to the act passed in september 2024 created a framework for changes to the way in which bvi companies are required to collect and file beneficial ownership information. further details have now been provided in industry updates given by the fsc, and in regulations and guidance published in december.

since 2017, bvi companies have been required to provide and, via their registered agent, to file beneficial ownership under the beneficial ownership secure search system act, using the system known as “boss”. boss is to be phased out for various reasons but currently remains the portal being used for reporting economic substance information. our full guides to economic substance compliance and reporting are available here. further improvements to the economic substance reporting system are expected.

although the boss system was trailblazing when introduced, the bvi will now collect and maintain information via the virrgin system, which is used for the main company registry. for more details on this, particularly for registered agents (on whom the burden will fall more heavily), please see our blog post here. the amendments to the act allow for this transition, as well as making a number of other technical updates and clarifying the definition of a “beneficial owner”.

under the new rules, all bvi companies (and limited partnerships) have an express statutory obligation to collect, keep and maintain adequate, accurate and up-to-date information on their beneficial owners. that information will need to be filed with the registrar either within 30 days of incorporation (for new entities) or by the end of the transition period for grandfathered pre-existing entities. any future changes will need to be notified to the registered agent and filed within 30 days.

beneficial owners are defined as natural persons who ultimately own or control 10 per cent or more of the relevant company or limited partnership or exercise control over its management. as the definition encompasses both ownership and control, it captures both legal ownership, economic ownership and voting rights. the 10% threshold reflects the bvi’s longstanding aml threshold, although generally only information on ultimate beneficial owners with a 25 per cent or greater interest (which is the commonly-used global standard) will be shared under international information exchange arrangements.

almost all the information to be included on the new beneficial ownership register (the bo register) was already collected via aml requirements or boss, with the new data fields being gender and occupation, as well as a new requirement to clarify the capacity in which that person is a beneficial owner.

the controllers and owners of bvi entities should be aware of the need to notify the registered of any changes in their beneficial ownership information and should also look out for communications from their registered agent in the next few months, who we expect will to be reaching out to confirm the information currently held and gather any missing information needed to populate the new data fields ahead of filing.

exemptions to the requirement to collect and file bo information

there are some exceptions to the obligation to identify beneficial owners. entities whose shares are listed on recognised exchanges (which captures all the world’s leading stock markets, including in the united states, london and hong kong) are broadly exempt.

equally, all the bvi’s regulated fund vehicles (private, professional, public, private investment, incubator and approved fund) are also exempt provided that (i) the information is maintained by a bvi regulated administrator or an authorised representative or other person licenced by the fsc with a physical presence in the bvi and (ii) the information can be provided with 24 hours.

companies subject to disclosure and transparency rules contained in international standards, equivalent to those for listed companies or specified funds, may also apply for exemptions. where a company's shares are held by a trustee licensed under the banks and trust companies act, the company is only required to file the name of the trustee as its beneficial owner.

there is also an exemption for companies which are 75 per cent or more owned by another legal entity that itself complies with the beneficial ownership filing requirements (or is itself exempt). this is intended to prevent duplication where there is a chain of bvi entities.

broadly, exempt entities are still required to notify the registrar of and provide certain basic details regarding their exempt status.

access to beneficial ownership information

the bvi government and regulators are keenly aware that for much of the industry the question of who will have access to beneficial ownership information and what information they will be able to access is more significant than the questions of on what portal it is held or which regulator has custody.

the bvi government and the fsc have made clear in numerous forums that the bvi will not be implementing a fully public register of beneficial ownership information until such registers become a global standard (which feels increasingly remote in view of developments elsewhere, notably judicial decisions in the eu and us).

on 17 january the bvi launched a consultation on allowing access to certain beneficial interest information stored in virrgin to persons who can demonstrate a “legitimate interest” in it (eg in connection with fighting financial crime).

certain other uk overseas territories, including bermuda and cayman, have committed to taking similar steps and are at various stages in the legislative process. assuming the final legislation is consistent with the principals set out in the consultation paper, the bvi looks likely to be closely aligned with cayman and bermuda.

the consultation invites responses from the industry and other stakeholders on how legitimate interest access might work including who can claim a legitimate interest, the scope of information that should be accessible on this basis, what constitutes a legitimate interest, how to protect vulnerable individuals and how to balance the fundamental desire to prevent financial crime or other misuse with the desire to protect the privacy and other rights of the lawful and legitimate users of bvi companies. if any clients would like to discuss responding to that consultation please feel free to contact the authors.

it is worth noting that there will be no legitimate interest access until the consultation has concluded and regulations have been passed. based on commitments made by the bvi, bermuda and cayman to the uk we expect final legislation in april, and implementation by the end of june.

annual financial returns

at the start of 2023, the bvi introduced a requirement for most bvi companies (subject to certain exemptions) to prepare and file a brief and simple annual return with their registered agent or face penalties. for companies with a 31 december year-end, those returns were due at the end of september 2024 (ie, nine months after the end of the 2023 financial year). as that deadline approached, it became clear that, while most entities had complied, others were struggling with various legitimate practical issues such as audit periods or complex financial positions.

accordingly, the act has been amended to allow the fsc to grant both specific and general extensions to the nine-month period. a general extension has been granted to all entities with a 31 december 2023 year end, which now have until 30 june 2025 to provide the return. this supersedes a previous statement by the fsc confirming that it would not take action against companies failing to meet the initial deadline (or registered agents for not reporting non-compliance).

there is no need for those entities which have already provided their annual return to take any action, but those who have not should check whether they are covered by the extension or (if they cannot get themselves into a compliant position very shortly) need to request one.

for more on this change, see our more detailed blog post here.

certificates of good standing

to obtain a certificate of good standing, a company must have filed its register of directors and register of members and beneficial ownership information with the registrar and the registrar must not have received a notification of failure to file the company’s annual return from the registered agent. certificates of good standing now also bear an expiry date.

next steps and further information

harneys continues to be at the forefront of the legislative development of the bvi and to play an active role in the industry response to changes.

as with any new law, market practice and ultimately jurisprudence will develop over time. these changes will require a number of technical updates to systems and software (for both registered agents and regulators), not all of which are currently live, and so some of the practical aspects will also be fleshed out in the coming weeks and months. we will continue to keep our clients updated.

if you have any questions in relation to these issues feel free to contact the authors or any of your usual harneys contacts.

this guide is also available in spanish and portuguese.

on 6 december 2024, the prevention and suppression of money laundering and terrorist financing law, l.188(i)/2007, as amended (aml law) was significantly amended by the enactment of l.141(i)/2024 (amending law) bringing about important changes to the beneficial owners (bo) register submission requirements and pertinent enforcement mechanisms.

in addition, on 16 december 2024, the registrar of companies and intellectual property (roc) issued regulatory administrative act (raa) 423/2024 (amending directive) which amended the roc’s primary directive on the prevention and suppression of money laundering and terrorist financing directive (beneficial owners register for companies and other legal entities), raa 112/2021, as amended (primary directive). the amending directive aligns the primary directive with the amending law.

the aforementioned legislative updates, introduce the following key changes:

accountability and transparency

companies and other legal entities which refuse, omit or neglect to meet their obligations under the aml law and/or the primary directive, now risk, in addition to penalties, strike-off from the companies register since the roc now has extended powers allowing them to do so, including pursuant to section 327 of the companies law, cap.113, as amended (companies law) and section 57(5) of the general and limited partnership and business names law, cap.116, as amended (partnerships law). to our knowledge, however, neither the companies law nor the partnerships law has been amended to expressly permit this.

furthermore, the roc can now seek court orders to enforce compliance, a measure that was not explicit under the previous framework.

in turn, upon receiving the bo information in the bo register, the roc is required to immediately send a confirmation email to the submitting entity or individual, confirming the successful recording of the information. this new measure eliminates ambiguity and reassures entities that their compliance efforts have been duly recorded.

notification mechanism

there is now a newly introduced obligation on the roc to inform, via letter or email, companies and other legal entities of approaching bo submission and/or confirmation deadlines, at least 30 days prior to such deadline.

under the previous framework, companies and other legal entities were solely responsible for ensuring compliance with, and adherence to, such timelines. therefore, the newly imposed obligation on the roc to proactively notify is intended to reduce the likelihood of unintentional lapses or oversight as well as to ringfence the roc’s future decisions against potential legal challenges, including administrative reviews.

penalties and enforcement

the amendments also introduce more measured penalties for violations in comparison to the previous, more draconian, penalties regime.

previously, companies, other legal entities as well as, inter alia, their officers, including the company secretary, faced an initial fine of €200 and an additional €100 for every day of continued non-compliance, with the total penalty reaching up to €20,000 per person.

the revised aml law and primary directive now expressly exclude directors and secretaries from the imposition of fines. instead, companies and other legal entities now face, in the event of non-compliance, initial fines of €100 and daily penalties of €50, capping the total penalty at €5,000.

it should be noted, however, that, with the exception of the company secretary, the officers of a company or other legal entity that refuses, omits or neglects to fulfil the mandatory bo register information, are jointly and/or severally liable with said company or other legal entity for payment of the financial penalty imposed by the roc. said officers may not be liable if they can demonstrate that they have exercised due diligence for compliance, including, for instance, obtaining legal advice in relation to these matters, and where any breach of the aml law or the primary directive is not a result of any act, omission, or negligence on their part.

having said the above, penalties may be imposed on officers (excluding secretaries) in the event where such persons, following notification by the roc, either (a) refuse, omit or neglect to discharge their duties in relation to bo register submission requirements and/or (b) submit false, misleading or deceptive information in relation thereto. such offence is punishable for up to one year of imprisonment, a fine of up to €100,000, or both.

for completion, the revised aml law now also grants authority to the roc to establish procedures for administrative review and/or for the submission and examination of appeals against decisions imposing financial penalties on companies or other legal entities.

fines imposed to-date

on 16 december 2024, the roc addressing concerns relating to the severity and fairness of past penalties imposed, further announced that all fines imposed on individuals, companies or other legal entities as of 1 april 2024 for non-compliance of their statutory duties in relation to the bo register submission requirements are thereby revoked.

the announcement further mentions the avenues through which affected persons who have already settled imposed fines are to be refunded:

1. for online payments made through jcc, the amount will be refunded directly to the card used for the payment, without any further action required by the affected persons.
2. for payments made at the cashier of the roc, the amount will be refunded to the applicants’ bank accounts after submitting the ke1 form at the roc cashier, accompanied by the authorisation form for payments via fimas, a copy of the payment receipt, and the international bank account number (iban) to be credited, as described in the authorisation form.

new deadlines for compliance

the amending directive sets out the new deadlines for submission of the bo information in the bo register as well as for pertinent confirmation, to the extent not already done so under the previous deadlines:

1. companies or other legal entities incorporated or registered prior 16 december 2024, are required to electronically submit bo information by 31 january 2025.
2. companies or other legal entities incorporated or registered after 16 december 2024, have 90 days to electronically submit bo information.
3. the deadline for confirmation of submitted bo information for the year 2024 has been extended to 31 march 2025.

it is important to note that companies or other legal entities have a continuous duty to confirm already submitted bo information every year between 1 october and 31 december. in addition, any changes to the bo information must be communicated to the roc within 45 days of such change taking place.

to assist with the submissions, stakeholders are advised to refer to the roc's guidance to the final solution of the bo register issued in february 2024 (the guidance), subject to the revisions introduced by the amending law and amending directive. we anticipate that the roc will release an updated version of the guidance in due course reflecting the changes introduced under the aforementioned legislation.

concluding remarks

the changes effected through the amending law and amending directive reflect a calibrated attempt to enhance transparency and fairness while, at the same time, ensuring proportional penalties and robust compliance mechanisms. stakeholders should become familiar with the updates to the legislation and seek legal assistance for any clarifications, where necessary, in order to ensure compliance.

use our cayman regulatory compliance calendars to stay on top of your regulatory obligations.

the calendar shows key cayman compliance filing dates that you should be aware of for 2025.

download our compliance calendar here.

cayman islands regulatory deadlines

download this compliance calendar here.

we want to remind you that the details encapsulated in this calendar are not comprehensive, nor should they be considered as legal counsel. therefore, they should not replace tailored advice for unique situations.

have questions about these regulatory deadlines? contact us to learn more.

the proceeds of crime act (revised) (poca) was amended by the proceeds of crime (amendment) act 2023 (act 12 of 2023) (the amendment) and was published in the cayman islands gazette no, 32 on 6 october 2023. the amendment was due to commence on 30 april 2024 but was postponed to 2 january 2025.

under part 5 of poca there are various money laundering and other criminal conduct offences.

what is criminal conduct?

criminal conduct is defined in section 144(2) of poca to mean conduct which: (a) constitutes an offence in any part of the cayman islands; or (b) would constitute an offence in any part of the cayman islands if it occurred there.

what is criminal property?

property is criminal property if it constitutes a person’s benefit from a criminal conduct or it represents such a benefit (in whole or part and whether directly or indirectly) and the alleged offender knows or suspects that it constitutes or represents such a benefit and includes terrorist property.

how are the money laundering offences interpreted?

typically:

1. it is immaterial who carried out the criminal conduct, who benefitted from it and whether the conduct occurred before or after the commencement of the poca;
2. a person benefits from criminal conduct if that person obtains property as a result of or in connection with the conduct;
3. where a person is required to make a determination as to whether property was obtained through criminal conduct under poca:
   1. it is immaterial whether or not any money, goods, or services were provided in order to put the person in question in a position to carry out the conduct; and
   2. it is not necessary to show that the conduct was of a particular kind if it is shown that the property was obtained through conduct of one of a number of kinds, each of which would have been criminal conduct;
4. if a person obtains a pecuniary advantage as a result of or in connection with criminal conduct, that person shall be considered to obtain as a result of or in connection with the criminal conduct of a sum of money equal to the value of the pecuniary advantage.

what is money laundering?

money laundering is an act which:

1. constitutes an offence under sections 133, 134, or 135;
2. constitutes an attempt, conspiracy, or incitement (essentially inchoate offences) to commit an offence specified in (a);
3. constitutes aiding, abetting, counselling, or procuring the commission of an offence specified in (a); or
4. would constitute an offence specified in (a), (b) or (c) above if done in the cayman islands.

what are the section 133, 134, and 135 poca offences?

section 133 – the “concealing” offence

a person commits this offence if that person conceals criminal property, disguises criminal property, converts criminal property, transfers criminal property, or removes criminal property from the cayman islands.

prior to the coming into force of the amendment, the poca allowed that a person does not commit an offence under this section if that person makes a disclosure to the financial reporting authority (fra) (usually by way of a suspicious activity report (sar)) or a nominated officer but this does not apply to the person who committed or was a party to the act from which the property derives.

with the amendment, poca has been modified to provide that a person does not commit an offence under this section if he makes a disclosure to the fra and has the consent of the fra to commit the act but this does not apply to the person who committed or was a part to the act from which the property derives.

section 134 – the “arrangements” offence

a person commits an offence if that person enters into or becomes concerned in an arrangement which that person knows or suspects facilitates (by whatever means) the acquisition, retention, use or control of criminal property by or on behalf of another person. this section has been modified by the amendment to allow that the person does not commit an offence if he makes a disclosure to the fra and has the consent of the fra to commit the act, but this does not apply to the person who committed or was a party to the act from which the property derives.

section 135 – the “acquisition, use and possession” offence

a person commits an offence if that person acquires criminal property, uses criminal property or has possession of criminal property. this section has been modified to allow that a person does not commit an offence if he makes a disclosure to the fra and has the consent of the fra to commit the act, but this does not apply to the person who committed or was a party to the act from which the property derives.

is disclosure to the fra mandated under poca?

yes.

under section 136 of poca, a person commits an offence if:

1. that person knows or suspects or has reasonable grounds for knowing or suspecting that another person is engaged in criminal conduct;
2. the information or other matter on which that person’s knowledge or suspicion is based, or which gives reasonable grounds for such knowledge or suspicion, came to that person in the course of a business in the regulated sector or other trade, profession, business, or employment;
3. that person does not make the required disclosure to the competent authority as soon as reasonable practicable after the information or other matter in (b) comes to that person; and
4. the required disclosure is a disclosure of:
   1. the identity of the person who may be involved in money laundering, if that person knows it;
   2. information or other matter in the form and manner prescribed by regulations to the poca;
   3. the whereabouts of the property with respect to which the criminal conduct is committed, so far as that person knows it; and
   4. the information or other matter mentioned in paragraph (b), or prescribed under section 201 for the purposes of section 136 of poca.

a person does not commit an offence for not reporting if:

1. that person has a reasonable excuse for not making the required disclosure;
2. that person is a professional legal advisor or other relevant professional adviser and the information or matter came to that person in privileged circumstances; or
3. that person does not know or suspect that another person is engaged in money laundering and that person has not been provided by that person’s employer with such training as is specified in the guidelines issued by the cayman islands monetary authority.

nor does a person commit an offence under poca if:

1. that person knows or believes on reasonable grounds that the criminal conduct is occurring in a particular country or territory outside of the cayman islands; and
2. the criminal conduct:
   1. is not unlawful under the criminal law applying in that country or territory; and
   2. is not of a description prescribed in an order by the attorney-general.

is tipping-off permitted?

no.

under section 139 of poca, a person commits an offence if:

1. the person knows or suspects that an activity in relation to which a disclosure is required to be made under poca is about to take place, is taking place, or has taken place (whether or not a disclosure has been or is likely to be made); and
2. the person makes a disclosure which is likely to prejudice any investigation which might be conducted following the disclosure in (a), whether or not the investigation is conducted.

a person does not commit an offence if:

1. the disclosure of the information was done in accordance with information sharing obligations, under a financial group’s group-wide programmes against money laundering and terrorist financing;
2. the disclosure is made in carrying out a function that person has relating to the enforcement of any provisions of poca or of any other enactments relating to a criminal conduct or benefit from a criminal conduct; and
3. the person is a professional legal adviser.

what are the consequences for breaching the money laundering offences?

a person who commits an offence under sections 133, 134, or 135 of poca is liable:

1. on summary conviction, to a fine of ci$5,000 or imprisonment for a term of two years, or to both; or
2. on conviction on indictment, to imprisonment for a term of 14 years or to a fine, or to both.

a person who commits an offence under section 136 or 139 of poca is liable:

1. on summary conviction, to a fine of ci$5,000 or imprisonment for a term of two years, or to both; or
2. on conviction on indictment, to imprisonment for a term of five years or to a fine, or to both.

what to do when in doubt?

forming a view as to whether there is a suspicion of money laundering is an entirely subjective matter. if ever a situation presents itself where there is a thought that a money laundering offence might be taking place, the safest route is to file a sar with the fra. information on filing of sars and the most updated version of the fras sar template can be found here. for entities that are regulated, employees should liaise with the relevant officer, usually the money laundering reporting officer (mlro) or the deputy mlro, as appropriate in accordance with the usual internal controls and compliance policies, see here.

the amendment allows the cabinet upon the recommendation of the anti-money laundering steering group, the cayman islands monetary authority, and the fra to make regulations prescribing the measures to be taken to prevent the use of the financial system and any other facilities provided in or from within the cayman islands for the purposes of criminal conduct measures – these include – establishing a framework under which reporters of suspicions of criminal conduct may seek and obtain a defence to specified money laundering or terrorist financing offences in relation to those reported offences. the prescriptive supporting regulations have not been published as yet. however, in the meantime, relevant financial businesses should review and update their internal controls, including but not limited to their anti-money laundering, counter terrorist financing, and counter proliferation financing procedures to reflect the consent regime as introduced under the amendment.

should you require any advice in relation to the consent regime, preparation and filing of sars with the fra, or any other regulatory disclosure obligations, please do feel free to contact the author or any of your usual harneys contacts.

this article surveys selected recent developments in regulatory and tax-related law and practice in the british virgin islands (bvi), cayman islands and bermuda that are relevant to end-clients, advisors and intermediaries.

overview

the three leading caribbean international financial centers – namely, bermuda and the b.v.i. and cayman islands (together, the ifc's) – are members of the caribbean financial action task force (cftf) and have consistently implemented o.e.c.d. initiatives and similar e.u. requirements. as such, these ifc’s participate in cftf and oecd peer review and monitoring and continue to develop their legal systems and enforcement mechanisms to reflect international best practices.

©ruchelman p.l.l.c. the article was originally published in vol. 11 no. 6 of insights, the tax journal of ruchelman p.l.l.c.

during the last quarter of 2024, several breach notices were issued by the cayman islands tax information authority’s department for international tax cooperation (ditc) to cayman islands reporting financial institutions (fis) that were non-compliant with the common reporting standard (crs) regime. many of these breach notices identified situations where fis contravened regulations 9(1) and 9(4) of the tax information authority (international tax compliance) (common reporting standard) regulations (revised) (the crs regulations).

what is regulation 9(1) of the crs regulations?

under this provision of the crs regulations, each fi shall, for each calendar year:

1. make a return to the ditc for each reportable account the fi maintained during the year setting out the information required to be reported under the crs – this is the crs return; or
2. if the fi did not maintain any reportable account in any reportable jurisdiction during the year, make a nil return.

the fi will need to provide to the ditc information reasonably required by the ditc to ensure effective implementation of, and compliance with, the reporting and due diligence procedures in accordance with the crs (this takes the form of a crs compliance form).

a list of the reportable jurisdictions as at 2024 can be found in the cayman islands gazette no. 27/2024 issued on friday 12 april 2024, see here.

a useful link to the crs compliance form can be found here.

what is regulation 9(4) of the crs regulations?

under this provision, an fi is required to make a return ie the crs return (as referenced in regulation 9(1) of the crs regulations) on or before 31 july of the year following the calendar year to which the return relates. for example, if the fi maintains reportable accounts in reportable jurisdictions for the 2023 crs reporting year, the fi should be making the crs return by 31 july 2024 in respect of the 2023 reporting year.

what have the breach notices identified?

the breach notices have identified that:

1. fis may have been registered with the ditc under the foreign account tax compliance act (fatca), as applied to the cayman islands under the tax information authority act (revised), the tax information authority (international tax compliance) (united states of america) regulations (revised), and associated regulations and guidance but then did not register under the crs regulations with the ditc and did not report under regulations 9(1) and (4) of the crs regulations. while there may be legal and regulatory reasons for this, fis would be encouraged to check their legal classification under both the fatca and crs regimes to ensure that they have correctly classified themselves based on the unique facts of their business operations. at harneys we have an online tool that can assist fis to determine their legal status conclusively, see here. alternatively, fis who wish to be provided with bespoke legal advice can also get in contact with us for a more traditional approach.
2. fis have not made a crs return to the ditc for each reportable account that it maintained.
3. where the fi did not maintain any reportable account, in any reportable jurisdiction, it has not made a nil return to the ditc.
4. the fi has not provided the ditc with information reasonably required by the ditc to ensure the effective implementation of, and compliance with, the reporting and due diligence procedures in accordance with the crs.

in relation to (d) above, fis would be required to provide this information to the ditc by submitting a crs compliance form on or before 15 september through the ditc portal, see here.

typically only the principal point(s) of contact or secondary users for the respective fi can access the portal with their unique user name and password. the user guide on how to navigate in the ditc portal can be found here.

do any exemptions apply?

all fis (which would include custodial institutions, depositary institutions, specified insurance company and investment entity) would be in scope for complying with the crs regulations, including but not limited to regulations 9(1) and (4). if an entity is not considered legally to be an fi, then it will either be considered as an active or passive non-financial entity (nfe) under the crs.

active nfes are those that:

1. have less than 50 per cent of the gross income for the preceding calendar year or other reporting period as passive income and less than 50 per cent of the assets held by during the preceding calendar year are assets that produce or are held for the production of passive income;
2. the shares or equity of the nfe are traded on a stock exchange; or
3. is some type of governmental entity, international organisation, a central bank, or an entity owned by one or more of the above.

passive nfe is an nfe that is not an active nfe. passive nfes may not be required to comply with the crs regulations but may be required by fis with whom they do business to provide confirmation as to their passive nfe status, as such, self-certifications will be important.

what are the consequences for non-compliance with crs?

there are various reasons why an fi may not have complied with the crs regulations, these can be for example: where the fi was incorrectly classified, pure administrative oversight, change of service providers where there is some delegation by the fi to a third party, where legal advice has not been taken and the senior management of the fi and/or its functionaries are not wholly familiar with the crs regime, situations where there is a failure to launch or start the business (but the entity has registered on the ditc portal) or situations where the fi has been struck off (dissolved) and cannot comply until it has been restored to good corporate and regulatory standing.

where a substantive breach has been identified, the ditc is empowered by section 24 of the crs regulations to impose an administrative penalty - ci$50,000 for an offence by a body corporate or for an offence by an individual who forms, or forms part of, an unincorporated fi or otherwise ci$20,000.

importantly, if the primary penalty has been imposed, which has not been stayed, the contravention has not been remedied and the party is capable of remedying the contravention, the ditc may impose further penalties on the party of ci$100 for each day the contravention continues.

the penalty becomes a debt owing by the party to the crown thirty days after the penalty is imposed.

should an fi receive a breach notice, the fi should treat the receipt of such a notice as very serious and liaise with its cayman islands legal counsel as quickly as possible in order to mitigate any further breach, to make any mitigation to the ditc by way of formal written submissions and to assist with remedying the breach that has given rise to the issuing of the notice. in certain situations, depending on the facts there may need to be specific submissions relating to the proposed action taken by the ditc or the proposed amount of the penalty bearing in mind reasonableness principles.

what does the ditc expect as a part of the remediation?

typically, the ditc is expecting fis to:

1. make:
   1. a crs return for each reportable account that it maintained during the 2023 calendar year (being the relevant reporting period); or
   2. a nil return to the ditc for the 2023 calendar year; and
2. prepare and submit via the ditc portal a crs compliance form for the 2023 calendar year.

separately, fis are reminded that under regulation 7 of the crs regulations, fis are required to establish and maintain written policies and procedures to comply with the crs regulations and implement and comply with the policies. senior management of fis should be in the habit of ensuring that these policies are reviewed and more importantly are being implemented as a part of the corporate governance framework unique to each type of fi. where there is some delegation or outsourcing arrangement in place between the fi and a third party service provider, the obligation remains with the fi to ensure that it is crs compliant.

where fis who have registered on the ditc portal, for whatever reason, cease to be an fi, has failed to launch, has not started business operations, does not intend to continue their business operation, they should seek to de-register so as not to continue to be an fi and therefore be subject to the crs regulations.

where crs notifications and returns are made to the ditc, fis are under an obligation to ensure that correct information is submitted.

please do feel free to get in touch with the author or any of your usual harneys contacts should your fi receive a breach notice and require any assistance.

the cruising and home permit act, 2021 (the act) came into force on 12 october 2021. it provides expansively for cruising permits for home based charter boats and foreign based charter boats and home port permits for small cruise ships. the act also repeals the cruising permit act (cap 203) and will be the principal piece of legislation governing cruising in the british virgin islands (the bvi).

charter boat permits

cruising permit

a charter boat owner must not cruise in the territorial sea of the bvi without first obtaining a cruising permit from the commissioner of customs (the commissioner) or any other person authorised by the commissioner to issue such a permit. it is therefore the duty of each charter boat owner to carry a valid cruising permit at all times whilst cruising. charter boat is defined in the act as any vessel offered for hire, with or without a crew, for the conveyance of passengers, for a particular period of time and any period of time, and any boat conveyancing passengers for payment or reward (unless exempted from such fees).

the cruising permit allows the charter boat to peaceably cruise and enjoy the waters, beaches and reefs of the bvi for a specifically identified period on the cruising permit and the commissioner maintains a record of every home based and foreign charter boats.

home based charter boat means a charter boat, which for a period of five months or more, in any twelve-month period:

• is registered in the bvi
• has an established base of operations in the bvi
• is managed by a company registered in the bvi

foreign based charter boat is defined in the act as any charter boat other than a boat which fits the description of a home-based charter boat.

appointment of agents

a charter boat owner may appoint an agent to act on his or her behalf and such appointment is to be notified to the commissioner in writing.

friends and guests of charter boat owners

friends and guests of charter boat owners are not exempt from the requirement of a cruising permit. for avoidance of doubt, cruising permit fees are also applicable to them. however, immediate family members are exempt. see further the exemptions section below.

obligations of charter boat owners

• the owner of a home based charter boat must obtain a cruising permit from the commissioner in order to cruise in the bvi.
• the owner of a bvi based charter boat (has an established base of operations in the bvi) which is managed by a company in the bvi for a period of five months or more in any twelve-month period but is not registered in the bvi, may be permitted to pay an annual registration exemption fee of $950 to the virgin islands shipping registry (the visr).
• an owner of a foreign based charter boat which proposes to bring passengers in that boat to cruise within the territorial sea, must notify the commissioner fourteen days before the commencement of such cruising. however, where the boat being used is regularly engaged in cruising within the territorial sea, notification of such cruising should be made by 1 november each year, or on such other date as may be specified by the commissioner.
• charter boat owners must submit the details of each boat required to the commission for the purposes of the record
• charter boat owners must maintain records of charters and of fees paid in such form as may be prescribed by regulations (and the commissioner has a right to examine and take copies of all records, correspondence and documents relating to the number of persons accommodated on charter boats).

home port permits

a small cruise ship owner is not permitted to home port in the territory without first obtaining a home port permit from the director of the visr or any person authorised by the director of the visr. the home port permit is issued with certain conditions and for a specific time period. a small cruise ship is defined in the act as a vessel which is not registered in the virgin islands and capable of carrying not more than 500 passengers but not less than thirteen passengers. likewise, it is the duty of the owner of a small cruise ship to carry on the ship, a valid home port permit at all times.

the small cruise ship permit will allow the master or a person in charge of the cruise ship permission to use the cyril b. romney, tortola cruise pier or any other designated port in the territory for the purpose of beginning or terminating a cruise from or at the home port. it will also allow cruise passengers to have the requisite permission to begin their cruise (including flying into the territory) to commence their cruise or otherwise terminate the cruise. the special permit is also issued with certain conditions and for a specific time period and the special permit is intended to facilitate smaller cruise vessels which cruise regularly in bvi waters.

aside from the permit above to regularly frequenting cruise vessels, a special permit may also be granted to the master of any cruise ship approved by the bvi ports authority (the bvipa) to commence and terminate a cruise at the cyril b. romney tortola cruise pier or any other port designated in the special permit on such terms and conditions as may be specified in the permit. this type of permit is intended to facilitate one-off cruise permission requests or those smaller cruise vessels which do not regularly cruise in bvi waters.

fees

exemptions

the commissioner may exempt from the payment of fees:

• for the first 24 hours of any voyage, a charter boat or cruise ship whose capacity exceeds 100 passengers and has on board a safety of life at sea (solas) approved overnight and accommodation; and
• charter boats engaged on direct voyages (a) originating in a foreign port and terminating in a bvi port with no continuing internal legs; of (b) originating in a bvi port with no prior internal legs and terminating in a foreign port.
• the commissioner may, with the approval of the minister of finance and the financial secretary, waive, remit or refund the whole or any part of cruising permit fees to be paid in respect of cruising in the territory.
• where a charter boat carrying immediate family members of the owner on board is 24 metres or greater in length, is registered in the bvi and is managed by a company in the bvi, such a vessel will be exempted from paying cruise permit fees.
• a ferry boat (as defined in section 2 of the bvipa act is not subject to the provisions of the act.

offences

the act also specifies penalties for breach of the act as follows:

• a charter boat owner who fails to comply with the requirement to obtain a charter boat permit is liable on summary conviction to a fine of five thousand dollars (us$5,000).
• a small cruise ship or a cruise ship which fails to comply with the requirements to obtain a home permit or a special permit respectively, commits an offence and is liable on summary conviction to a fine of five thousand dollars (us$5,000).
• both these offences may also be compounded and where compounded, the owner will pay a fee of thirty dollars per person found to be cruising on the boat for each day that the offence continues (with such time not exceeding seven days, as the commissioner may allow). the compounding aspect of the offence will not apply to a person who has been previously convicted of this offence or had on two previous occasions compounded the same offence.
• any person who fails to comply with or contravenes any of the provisions of the act for which no penalty is otherwise provided, is liable on summary conviction to a fine of five hundred dollars (us$500).

harneys bvi private wealth department specialises in shipping and marine matters and are available to provide any assistance you need to obtain cruising permits, home port permits or special permits or any advice pertaining to the act or the shipping industry in general. please contact you usual harneys contact.

this guide looks at the steps and procedures that need to be taken in order to be married in the british virgin islands (bvi). both the bride and groom are required to be present in person at the registrar-generals office, where the application form will be completed.

marriage in the bvi is governed by the marriage act (the act).

in order to get married in the bvi, the couple will first need to obtain a marriage licence. the process can be facilitated in one of two ways:

• prior to your arrival in the bvi or visit to the registrar-general’s office, by online submission of your information and by completing an online application through the government’s civil registry information system (cris) at www.crisvi.gov.vg and thereafter, visiting the registrar-general’s office for completion of the application process, or
• by physically visiting and applying to the registrar-general’s office which is located on the first floor of sakal building, road town, tortola, bvi. the office opening hours are 8:30am to 4:30pm monday through friday, however the office’s cut off time for receiving payments is 3pm.

applying online

the application process online is more geared towards facilitating and securing a date for the ceremony and the marriage officer’s/registrar-general’s availability to officiate the ceremony.

the online application process is as follows:

1. once the application is submitted online, it is submitted to the marriage officer, who will be notified that it is available for review. the online application must be reviewed by a marriage officer* before it can be submitted to the registrar-general’s office for approval
2. you may submit the application to a marriage officer of your choice, including the registrar-general
3. the marriage officer will electronically approve or deny the ceremony details and you will be informed of the result via email. if your application is approved by the marriage officer, you will receive a priority number
   
   a list of marriage officers in the bvi can be obtained by contacting the lawyer listed at the end of this guide. in addition to the registrar-general’s office, this list includes marriage officers (ministers of religion appointed as marriage officers), and civil marriage officers (persons deemed fit and proper by the governor to act in that capacity).
   
   
4. upon receipt of the priority number, you will need to insert that number and the groom’s last name on the online website (under the application for marriage licence tab) in order to verify and print the application. this process will electronically submit the application information to the registrar-general’s office. you may then submit the application in person and any required supporting documents to the registrar-general’s office for approval, signing and witnessing

as indicated above, although the registrar-general will have your information from the online application, the registrar-general’s office requires both the groom and bride to be present in person to fill out the forms to ensure that there is no element of coercion.

physical application

both the bride and groom are required to be present in person at the registrar-generals office, where the application form will be completed. you are required to have present with you the required documentation as outlined below and also two witnesses.

in the application, you would have to indicate the following:

1. whether the application is for a licence or a special licence;
2. the first and other names and surnames of both parties, and their profession or occupation, permanent address and address at the time of making the application if it is not their permanent address;
3. whether the marriage is to be solemnised or celebrated by a marriage officer, civil marriage officer or registrar-general, and if by a marriage officer, the place where and the marriage officer by whom the marriage is to be solemnised;
4. whether the parties or either of them has or have been previously married;
5. that they know of no impediment of kindred or alliance or other lawful cause to prevent the proposed marriage;
6. that one of the parties, for the space of 15 days immediately preceding the licence has had his or her usual place of abode within the territory, or that one of the parties, in the case of a special licence, for the space of one day immediately preceding such application for special licence had his or her usual place of abode in the territory; and
7. that the consent of the persons whose consent to such marriage is required (under the act) has been obtained.

types of licences

1. ordinary licence: this licence is available if you have been resident in the virgin islands for 15 days or more prior to the application for the licence.
2. special licence: this licence can be obtained if you are in the virgin islands for at least one day prior to the application. you must be present at the time of the application and plan to be resident/present in the virgin islands for at least one day.

requirements

in order to obtain a marriage licence, the following are required:

1. passports – as proof of identity and date of arrival in the bvi
2. proof of marital status (original or a certified copy of the divorce decree for divorced spouses or death certificate of deceased spouse)
   
   previous marriage certificate (if applicable)
   
   affidavits as proof of identity if applicable, for example, where the names on the proof of identity document and the divorce decree do not match.
   
   
3. letter from the pastor/officiating marriage officer indicating that they will be officiating the marriage ceremony (if not the registrar-general)
4. two persons to witness (and to sign) your application for the licence. these witnesses need not be the witnesses who will be present at your marriage ceremony
5. us$220 (us$200 in postage stamps and a processing fee of us$20) for a special licence or us$120 (us$100 in postage stamps and a processing fee of us$20) for an ordinary licence (these fees are for licences only and do not include any additional fees for location of the ceremony or the officiating of the same by the authorised person). see below for information on additional fees.

all documents above must be originals or certified as true copies of originals. postage stamps can be purchased at the civil registry and passport office. all cheques should be made payable to the accountant general.

processing

a marriage licence takes three (3) working days. if you are in a rush, you may be able to obtain a special marriage licence which takes one (1) working day to process.

validity

once a licence is granted, it is valid for three (3) months from the date it is issued, and it is issued for a specific marriage officer and marriage ceremony venue.

additional fees

the registrar-general may perform a civil marriage at the registrar-general’s office for a fee of us$460 (inclusive of the us$120 fee for an ordinary licence, and in addition us$220 for the registrar-general or marriage officer to perform the ceremony, us$120 for the ceremony to be held in the civil registry building). if the ceremony is to be officiated outside of the registrar-general’s office at a location of your choice (within reason), there is a fee of us$220. there is also a fee of us$75 for late arrival for a wedding outside the office conducted by the registrar-general.

if you desire to conduct the ceremony at a church, you would need to contact the church of your preference. please note that the church may have additional requirements and may charge additional fees.

solemnisation and celebration

the marriage shall be solemnised by a marriage officer or a civil marriage officer between the hours of 6am and 8pm. if the marriage shall be celebrated by the registrar-general in his office, it should be solemnised between the hours of 8:30am and 4:30pm on mondays to fridays, except holidays (including christmas day and good friday). two or more credible witnesses besides the officiating official should be present.

the implementation of the ai act heralds a new era in the regulation of artificial intelligence (ai). this article serves as a comprehensive guide to understanding its impact, focussing on the scope of its application, prohibited ai practices, key enforcement considerations, and its institutional setting. delving into the intricacies of the act, in this article, we provide an overview of the boundaries of permissible ai innovation to help organisations navigate the new regulatory landscape effectively.

brief overview

• the ai act sets a common framework for the use and supply of ai systems in the eu, making it the first binding worldwide horizontal regulation on ai.
• the ai act aims to ensure that ai systems used in the eu are safe, transparent, traceable, non-discriminatory, and environmentally friendly. oversight by humans is emphasised to prevent harmful outcomes, and obligations for providers and users are established based on the level of risk posed by ai systems.
• it offers a classification for ai systems with different requirements and obligations tailored to a 'risk-based approach'. ai systems presenting 'unacceptable' risks are prohibited[1], while 'high-risk' ai systems are subject to requirements to access the eu market, including conformity assessment before deployment.
• specific rules are provided for general purpose ai (gpai) models, with more stringent requirements for gpai models with 'high-impact capabilities' that could pose systemic risks.
• the act establishes a governance structure at both european and national levels to oversee ai deployment and ensure compliance with regulations.

to continue reading the article download the pdf or click here.

this note is intended as a guide to clients wishing to purchase property in the bvi. it explains in outline the legal procedures involved in a standard transaction in typical circumstances. it is not a comprehensive guide on all aspects of property acquisition as each transaction has its own peculiarities.

letter of intent

the first stage of most property transactions is the buyer and the seller agreeing the principal terms of the transaction such as price and any conditions which must be satisfied before the sale and purchase can proceed. these terms are typically recorded in a letter of intent, otherwise known as head of terms and the deposit is usually paid at this stage. the letter of intent is usually stated to be subject to contract which means that until the sale and purchase agreement has been entered into there is no legal commitment by either party to the other. once the sale and purchase agreement has been entered into the buyer is legally committed to buy and the seller to sell at the stated price, subject to the agreed conditions.

deposit

in a standard property transaction a deposit of 10 per cent of the purchase price is paid by the buyer. paying a deposit prior to signing the sale and purchase agreement does not in itself secure the property, but along with the letter of intent it is an indication of serious intent and a buyer will usually expect the seller to withdraw the property from the market at this stage. the deposit is paid by the buyer either to the estate agent (if there is one) or to the seller’s lawyers before or upon signature of the sale and purchase agreement. the deposit will normally be placed on an interest bearing deposit account so as to earn interest. the interest follows the deposit and so if the sale proceeds normally, the seller will be entitled to the interest on the deposit at completion. if the sale does not proceed and the buyer recovers the deposit then the buyer will be entitled to the interest.

sale and purchase agreement

the sale and purchase agreement is normally prepared by the seller’s lawyers and submitted to the buyer’s lawyers for amendment or approval. amongst other things, it contains a description of the land, the nature of the title (whether freehold or leasehold), and the agreed price. in the case of developed property, it should document if any furnishings are included as part of the sale.

the buyer should always be sure to have arranged adequate financing before signing the sale and purchase agreement, or ensure that the sale and purchase agreement is made conditional on securing adequate financing. if the buyer is unable to pay the balance of the purchase price at completion, the buyer is likely to, at least, lose the deposit.

the sale and purchase of a property may be made subject to the satisfaction of one or more conditions. the nature of the conditions will depend on the particulars of the transaction but may include the buyer securing adequate financing and/or the buyer arranging and receiving the results of various property-related surveys and inspections to its satisfaction.

land holding licence

buyers who are not belongers will need to obtain a non-belongers land holding licence (a licence) to hold the property. for this reason a sale of property to non-belonger buyers should always be made conditional on receipt of a licence. licence applications are generally made by the buyer’s lawyers, but in order to make the application the lawyers need to be provided with certain information about the buyer together with other supporting documents. a licence application relates to a specific property and a specific buyer.

a non-belonger buyer purchasing undeveloped land will need to submit a proposal for its development as part of the application for the licence. if the development proposal is approved, the development proposal will be included as a condition in the licence which the buyer will be expected to comply with. where the buyer fails to comply with a condition in the licence, the bvi government may impose a financial penalty.

a licence will typically be granted with a condition not to undertake any alterations to the property without the consent of the cabinet of the virgin islands. where a non-belonger purchases a developed property and wishes to undertake alterations to it (such as adding bedrooms, bathrooms, a gazebo or swimming pool) the buyer should include details of their proposals as part of the application for the licence, to avoid the need to make a further application for the required consent after completion.

the application process for a licence typically takes approximately 3-5 months. a sale and purchase agreement will typically provision for 12 months to allow sufficient time for the buyer to secure the licence. if the licence is not secured within this timeframe the sale and purchase agreement will typically allow the parties to agree an extension of time, or for either party to terminate, in which case the buyer secures the return of the deposit.

completion

completion is usually arranged to take place within a specific time after the last of the conditions in the sale and purchase agreement has been satisfied. upon completion the seller and the buyer sign an instrument of transfer which records the transfer of the property from the seller to the buyer. if the buyer is borrowing money to fund the purchase of the property then the buyer will need to sign loan documentation at completion. the balance of the purchase price is payable at completion. it is generally upon completion that the buyer takes possession of the property.

after completion

immediately after completion, the buyer’s lawyers will present the instrument of transfer to inland revenue for payment of stamp duty. stamp duty is calculated as a percentage of the higher of the purchase price and the market value of the property. for belongers this is 4 per cent and for non-belongers this is 12 per cent. in each case a copy of a recent appraisal must be submitted as evidence of the market value. after stamp duty has been paid and the instrument of transfer stamped, the buyer’s lawyers will submit the instrument of transfer for registration at the land registry. after completion the buyer will need to ensure that any accounts for utilities are transferred to the buyer’s name.

personal attendance

none of the legal procedures requires the personal attendance in the bvi of the buyer or seller.

earlier this year, the british virgin islands (the bvi) government embarked on legislative reform to repeal the probates (resealing) act (cap 60) and amend the administration of small estates act (cap 4) respectively, both of which have recently come into force. these changes significantly impact the bvi probate landscape and are considered in turn below.

the probates (resealing) act 2021

the probates (resealing) act 2021 (the act), which came into force on 9 july 2021, repeals the probates (resealing) act (cap 60), while introducing welcome changes and further flexibility to the probate process in the bvi.

the act provides that where a grant of probate or letters of administration (the grant) has been obtained in a “recognised jurisdiction” (which now includes a total of sixty-seven jurisdictions) either on or before the act has come into force, a copy of such grant may be resealed by the high court of the bvi (the court). once the grant has been resealed, it is deemed to have the same effect as a grant of probate which has been issued by the high court by way of a completely new application.

previously, the court would only allow a grant to be resealed if it was extracted from, in essence, the uk, a british overseas territory, a crown dominion, or a commonwealth jurisdiction where the monarchy is still head of state.

this limitation in jurisdictions resulted in grants obtained from most jurisdictions across the globe being incapable of being resealed by the court and therefore, fresh applications for a grant in respect of a deceased’s bvi estate would need to be submitted. the act therefore introduces significant changes in recognition of the need for a modernised and streamlined process, during a time which can be increasingly difficult for individuals dealing with the loss of a loved one. the recognised jurisdictions include virtually all common law jurisdictions around the world, including in particular, the usa and hong kong.

it is important to note however, that there are conditions which must be satisfied prior to the grant of probate being resealed, although they will not be relevant to most clients. if stamp duty is payable in respect of a deceased’s bvi estate (for example if a deceased owned land in the british virgin islands), evidence as to the domicile of the deceased may be requested by the court. additionally, where there has been an application by a creditor before the grant has been resealed, the court may request that security be given for the payment of debts due from the estate of the deceased, to creditors residing in the british virgin islands.

by way of reminder however, if a jurisdiction is not included as one of the sixty-seven recognised jurisdictions, then a grant from such jurisdiction may not be resealed and a full application for a grant would need to be submitted. in such circumstances, the probate process can be made much simpler where the deceased held a bvi will.

the administration of small estates (amendment) act 2021

a further change to the bvi probate process is the introduction of the administration of small estates (amendment) act 2021 (the amendment act), which also came into force on 9 july 2021, amending the administration of small estates act (cap 4).

under the previous legislation, an estate would only qualify as a “small estate” if it was valued at no more than us$240. any such estate would allow the formal grant application process to be dispensed with, which significantly reduced the costs and time spent obtaining a grant. it is worth noting that the sum of us$240 was established in 1944 and has long been out of step with reality, as we would expect that the value of any small estate in the bvi today would be far greater than us$240. the amendment act has increased this value from us$240 to us$25,000. the amendment is a welcome one, as the historically maintained lower value resulted in very few estates being classified as “small estates”.

additionally, the administration of small estates act (cap 4) applies where the deceased had a valid will in place whether the deceased was domiciled in the virgin islands or in another jurisdiction (which was the position previously). however, if the deceased died intestate, it is now a requirement under the amendment act for the deceased to have been domiciled in the virgin islands in order for the deceased’s estate to qualify as a small estate, otherwise a full application for letters of administration will need to be submitted. therefore, while this is another welcomed change to the bvi probate process, it further reinforces the importance of having a will and the pitfalls which may be avoided by doing so.

for more information on bvi grants of probate, resealing or how to obtain a bvi will, please contact the authors of this guide or your usual harneys contact.

legislative review probates (resealing) act 2021

the main distinction between the probates (resealing) act (cap 60) and the probates (resealing) act 2021 may be found in section 3 (1).

section 3 (1): enables grants of probate obtained from recognised jurisdictions to be resealed. all recognised jurisdictions are included in the schedule to the act which includes a total of 67 countries. the position in the probates (resealing) act (cap 60) was that a grant could only be resealed if it was extracted from:

• any part of her majesty’s dominions
• a british court in a foreign country

in practice, this was understood as the uk and its crown dependencies and overseas territories, plus any commonwealth jurisdiction which still had the monarchy as its head of state. the new act expands that list to the other commonwealth jurisdictions, plus non-commonwealth jurisdictions that use the common law rather than civil law. importantly this includes the usa and hong kong. applicants from most civil law jurisdictions will continue to need a full bvi grant.

the remainder of the act is essentially the same as the probates (resealing) act (cap 60) and differs only in structure.

legislative review: administration of small estates (amendment) act 2021

the administration of small estates (amendment) act 2021 introduces the following changes to the administration of small estates act (cap. 4):

• at section 2, the definition of a small estate has been amended to include estates no greater than us$25,000, a significant increase from us$240.
• section 3 (1) has been amended to require the deceased to have been domiciled in the virgin islands where letters of administration are being applied for in the case of an intestate estate.
• section 7 changes the application fee for a small estate from us$1.20 to us$25.

finally, the penalty for a false statement in making an application for a grant of probate or letters of administration where the deceased’s estate qualifies as a small estate has been increased from us$120 or imprisonment for a term of no more than six months to us$5,000 or imprisonment of no more than 12 months.

the limited liabilities companies act (the cayman llc act) governs the cayman islands limited liability company (the cayman llc). the cayman llc act was drafted using the principles of the delaware general corporation law (delaware llc law), existing cayman islands legislation (in particular the companies act and the exempted limited partnership act), international obligations to which the cayman islands adheres (eg the oecd) and the common law of the cayman islands.

this guide summarises the cayman llc act and sets out the key similarities and differences between the cayman llc and limited liability companies formed in the state of delaware (delaware llc) under the delaware llc law.

download the pdf to read more.

on 22 february 2022, cyprus enacted the protection of persons reporting violations of eu and national law (l.6(i)/2022) (the law), which transposes eu directive 2019/2937 into national law.

the law aims to protect both public and private sector employees who disclose information about certain violations of eu or cyprus law that they encounter in their work environment. the protections granted under the law also extend to facilitators, third parties connected to whistleblower employees, such as colleagues or relatives, and legal entities associated with said employees.

the protections granted under the law also extend to facilitators, third parties connected to whistleblower employees, such as colleagues or relatives, and legal entities associated with said employees.

the law mandates that certain entities are required to establish reporting channels for employees to be able to report any relevant breaches of eu or cyprus law that they may encounter. this includes public and wider public sector entities (with some exceptions), private companies with 50 or more employees, and private companies employing fewer than 50 employees but which are engaged in certain industries stipulated under the law (eg, financial services). entities that fall outside the scope of the law, are not required to set up reporting channels although it is still recommended to have these in place as a matter of best practice.

for the purposes of the law, reporting by an employee may be take place in two ways:

1. internal reporting which involves disclosing information to a designated service, department, or person within the organisation
2. external reporting which involves disclosing information to a competent authority, ie a state entity responsible for receiving and investigating such complaints

employers have an obligation to put certain procedures/policies in place in relation to both reporting channels and have these be effectively communicated to their employees. it is noted that while employees are encouraged to utilise internal reporting mechanisms first, they can resort to external reporting if they so wish, noting, however, that where both internal and external reporting is utilised, employees must inform the internal channel about the external report as well.

in relation to internal reporting, employers must provide details in relation to the verbal and written reporting options that employees have at their disposal. for instance, for verbal reporting this entails providing phone numbers, access to personal meetings, and the possibility to have discussions recorded on voice recording devices subject to the whistleblower’s consent. written reporting on the other hand, requires providing email accounts, forms, and fax details for reporting.

in relation to who an internal report may be made to, concerned entities may appoint either their head of compliance, head of human resources, integrity officer, legal or privacy officer, chief financial officer, chief audit executive, member of the board, or a third party such as a trade union representative as their reporting channel. it is crucial that any report made, must be followed up to determine the accuracy of the allegations and, where relevant, the allegations should be addressed through actions such as an internal inquiry, an investigation, prosecution, referral to a competent authority, communication with the whistleblower, or closure of the procedure.

moreover, the law sets out strict parameters with respect to the safeguarding and keeping confidential the identification details of the whistleblower, any trade/business secrets that may be included in the reporting and any personal data. in connection to the aforementioned, employers must ensure the due and proper safekeeping of all data, information, and documents, including any voice recordings or minutes that may have been obtained under a recording process. finally, it is imperative that employers ensure protection for employees against dismissal or any adverse actions as a consequence of their reporting.

failure by an employer to comply with the provisions of the law may lead to the imposition of substantial penalties, which range from a fine of up to €30,000 or, in more serious cases, three years of imprisonment, or both.

for more information on this subject, please reach out to the authors or your usual harneys contact.

as part of the initiative to modernise the luxembourg’s maritime law, a bill of law no. 8419 (the bill) was submitted to the luxembourg parliament on 23 july 2024. this follows the earlier submission of bill of law no. 7329 concerning the maritime labour convention.

the luxembourg’s maritime law is the law of 9 november 1990 on the creation of a luxembourg public maritime register.

the bill has two objectives: first, to streamline and simplify the administrative procedures relating to the registration of ships and registration of the associated real rights for the public, and second, to make the luxembourg flag more attractive.

modernisation of the luxembourg maritime law

under the current terms of the luxembourg maritime law, registering a new ship in the luxembourg register, with the registration of relevant mortgages, is an extremely complex and burdensome process for those concerned.

on the day of registration, the declarant or his representative must:

• register the deed of sale of the vessel with a luxembourg civil deeds office (bureau des actes civils), which office is identified depending on the location of the notary
• go to the luxembourg maritime authority (commissariat aux affaires maritimes) (the cam) to obtain the registration order
• register the vessel with the luxembourg mortgage office (conservateur des hypothèques)
• register the mortgage assignment and the credit agreement with a luxembourg civil deeds office (bureau des actes civils), which office is identified depending on the location of the notary
• register the mortgages with the luxembourg mortgage office (conservateur des hypothèques)
• return or arrange for the return of the duplicate certificate of registration to the cam

in addition, before being able to take these steps, the constituent has to:

• submit an application for registration (technical and administrative files) to the cam
• make an appointment with the luxembourg registrar of mortgages to register the vessel once the file has been validated by the cam and the authorisation to register and operate the vessel has been signed by the minister of the economy (or his delegate)
• notify the cam of the date and time of the appointment so that the officer in charge of the file can contact the luxembourg registrar of mortgages to obtain the certificate of registration number and the registration number in the register of mortgages in order to prepare the certificate of registration

in addition, various other administrations, such as the regulatory institute for ship stations, post and telecommunications for inmarsat equipment, the ministry of social security, the ministry of justice (armed guards), the technical investigation administration, the civil aviation directorate (helicopter platforms), the health directorate (radioactive sources, particularly on dredgers), may also intervene before or after the ship is registered.

the involvement of several geographically dispersed administrations is undeniably an obsolescence of the luxembourg system. in france, for example, the french international register has set up a one-stop shop to handle some of the administrative procedures. more recently, belgium has also simplified the procedure for registering its ships.

the bill redefines the powers and responsibilities of the various government departments in order to centralise procedures as far as possible under the authority of the cam.

to this end, the maritime register (of ships) will be placed under the authority of the cam and held by the maritime mortgage registrar. the aforementioned maritime mortgage registrar will be integrated at the cam, will be appointed by the responsible minister, and will also be entrusted with the maintenance of a register of real rights over vessels. the cam will effectively become the one-stop shop in luxembourg for the registration of vessels and the registration of real rights thereon.

the bill also simplifies administrative procedures and incorporates proposals made during interministerial consultations and consultations with industry representatives. it includes the following measures:

• the abolition of the ministerial registration order – under the bill the commissioner, rather than the minister, authorises the ship registration and informs the registrar of mortgages directly with a view to registering ownership of the ship in the register of real rights in ships
• the abolition of the obligation to register private deeds at the luxembourg civil deeds office (bureau des actes civils), making such registration optional
• the possibility of registering authentic instruments after they have been entered into the register within a short period of time
• the introduction of a certificate of ship registration for an unlimited period (instead of having to renew it every two years at the latest), subject to payment of the annual ship registration fee

the administrative simplification proposed by the bill goes hand in hand with greater flexibility on the part of the administration, which will accept documents drafted in english, the language most commonly used in the maritime and financial sectors.

enhancing the attractiveness of the luxembourg flag

the modernisation of administrative procedures is accompanied by a desire to enhance the competitiveness of the luxembourg flag by implementing several measures, some of which are inspired by civil aviation legislation.

some measures are aimed at facilitating financing and include:

• the possibility of mortgaging all or part of a maritime fleet. it is worth noting that even if a single deed is sufficient under the bill to encumber all or part of the fleet, each vessel must nevertheless be registered and a “bordereau” issued for each one
• the possibility for a person acting on behalf of the beneficiaries of the mortgage, a trustee or a fiduciary to constitute a mortgage
• the qualification, for the purposes of registration, of a ship leasing contract as a bareboat charter contract when the leasing company, in leasing the vessel, entrusts the nautical and commercial management of the vessel to the lessee

furthermore, the definition of a ship under the bill has a broader scope of application. in fact, this definition includes devices such as submarines, dredgers and other increasingly specialised service vessels, autonomous vessels, and devices propelled wholly or partly by wind or other new technologies. in addition, wind or drilling platforms and artificial islands that are not designed for navigation but have similarities with ships are also considered under the bill to be ships. the aim is to respond to the recent but rapid changes in the maritime sector. considering such “non-traditional” craft as ships ensures that the provisions of the luxembourg maritime law will apply in terms of liability, environmental safety, and navigation.

finally, the bill aims to promote more environmentally friendly shipping by establishing fiscal incentives. these include:

• reductions of the annual ship registration fee for ships using renewable and low-carbon fuels or alternative energy sources
• an exemption from registration and mortgage duties for credit facilities involving the creation of mortgages on the ship intended to finance new equipment, fixtures or fittings to improve the quality of the ship

these incentives are part of the ”green shipping” initiative, which also includes the luxembourg bill of law no. 8388 which confers on the cam the power to certify the reality and conformity of fixed assets eligible for special depreciation.

the above initiatives will support the modernisation of luxembourg's maritime fleet, whose average age is currently 11.5 years. the fleet should be modernised either by replacing older vessels with newer ones or by carrying out structural work to upgrade equipment to improve vessels' energy performance.

other changes introduced by the bill

introduction of administrative penalties

the bill also introduces new administrative sanctions to reaffirm the control exercised by the cam over the register. these sanctions are aimed, in particular, at ”declarants” who fail to notify the commissioner for maritime affairs of any changes that impact the conditions of registration.

creating a certificate of seaworthiness

until now, the certificate of registration attests that the ship meets all the requirements of the luxembourg maritime law and the regulations made under it, including the technical conditions. consequently, delivery of the certificate of ship registration is equivalent to authorising the vessel to navigate under the luxembourg flag. if the vessel does not meet the technical conditions, the words ”without authorisation” to navigate will be entered on the certificate, particularly for vessels under construction.

the creation of a certificate of seaworthiness, following the example of current practice in belgium, makes it possible to differentiate between compliance with administrative conditions and compliance with technical conditions. authorisation to navigate is now attested by the certificate of seaworthiness, while the certificate of ship registration is limited to proving that the vessel is registered in the luxembourg maritime register.

the bill, which constitutes the second phase of the reform of the luxembourg maritime law, cannot be adopted until after the vote on and entry into force of bill of law no. 7329.

our luxembourg team can assist you with matters relating to luxembourg maritime law. massimiliano is a member of the board of directors of the luxembourg maritime cluster (cml). he is also active within cml reviewing and commenting luxembourg projects of law on shipping related matters.

please do not hesitate to contact massimiliano, the author of this article, or your usual harneys contact for expert guidance tailored to your needs.

there is no statutory codification in the cayman islands of the general duties, obligations and liabilities owed by directors to cayman islands exempted companies.

the duties are based on a combination of english common law, statute and regulatory guidance. this guide details the duties and obligations for directors of an exempted company incorporated under the cayman islands companies act (companies act).

download the pdf to read more.

companies incorporated in the cayman islands are amongst the most popular offshore holding structures in the world due to the political and economic stability of the cayman islands, the use of the english language and the us dollar, and other unique advantages set out in this guide.

cayman vehicles are most commonly used in company or partnership-based fund arrangements, but holding company structures and cayman trusts are also popular.

download the pdf to read more.

all exempted limited partnerships (elps) registered in the cayman islands are subject to the continuing obligations set out in the exempted limited partnerships act (elp act).

this guide provides a general summary of some of the on-going obligations of cayman islands exempted limited partnerships.

download the pdf to read more.

all exempted companies incorporated in the cayman islands are subject to the continuing obligations set out in the companies act.

this guide provides a general summary of some of the on-going obligations of cayman islands exempted companies.

download the pdf to read more.

one of the reasons why the cayman islands is a leading offshore jurisdiction is the flexibility of cayman islands companies.

the main legislation regulating the formation and operation of companies in the cayman islands is the companies act. english common law and equitable principles and precedents are also followed in the cayman islands, where applicable.

download the pdf to read more.

the cayman islands director registration and licensing act (the act) requires directors of cayman “covered entities” to register or become licenced by the cayman islands monetary authority (cima).

download the pdf to read more.

any cayman islands exempted company (the most common cayman corporate vehicle limited by shares) may be registered as a segregated portfolio company (an spc) under the cayman islands companies act (companies act).

the concept of an spc is that the company, which remains a single legal entity, may create separate segregated portfolios (each, a portfolio) with the assets and liabilities of each portfolio being statutorily ring-fenced from the assets and liabilities of each other portfolio and the general assets and liabilities of the company. income and other property of an spc that is not attributable to any portfolio constitute the general assets of the company.

download the pdf to read more.

the cayman islands limited liability company (llc) is a corporate vehicle closely aligned with the delaware limited liability company. this guide sets out the key features of llcs and how they can be formed under the limited liability companies act (llc act).

download the pdf to read more.

the exempted limited partnership act (the elp act) governs the formation of exempted limited partnerships (elps) in the cayman islands and contains provisions relevant to the affairs of an elp.

this guide sets out the key features of elps and how they can be formed under the elp act.

download the pdf to read more.

the “non-domicile” regime has been available to cyprus tax resident individuals since the 2016 tax year and is based on the combined operation of the cyprus income tax law (the it law), the special defence contribution law (the sdc law), and the wills and succession law (the w&s law).

when the non-domicile regime in cyprus is used appropriately it ensures significant tax efficiencies and benefits to those individuals making use of it, alongside the rules governing tax residency.

asset managers and other entrepreneurs who have ‘skin in the game’ as regards their global funds, managed entities, and businesses should take note of the cyprus non-dom regime, especially in light of moves by other countries to either abolish their own non-dom regimes (united kingdom), or raise the bar to entry for individuals (italy).

overview for non-doms

to start with, it should be noted that cyprus levies tax on individuals only in respect of income and a unique type of withholding known as a ‘special defence contributions’. importantly, there is neither capital gains tax^[1] nor inheritance tax in the jurisdiction.

in general, and in line with global standards, individuals are only taxed in cyprus when they are tax resident in the jurisdiction.^[2] however, cyprus non-doms – with the right structuring – can fall outside of the scope of taxation in respect of much/most of their earnings, despite being tax residents of cyprus. we explore the grounds on which they may do so below.

a note on carried interest

considering the above context, managers should take note that the cyprus tax department has over the years considered ‘carried interest’ to amount to “income”, as opposed to “capital gains” for cyprus tax purposes. this is in contrast to the historic position in other countries, such as the uk where such earning may not be considered as such in certain circumstances. the position in cyprus mostly derives from the fact that there is no relevant capital gains tax regime.

non-doms aside, the it law does provide for certain safe-harbours from taxation in respect of carried interest as a benefit in kind for income tax purposes. this can reduce effective income tax to a flat rate of 8 per cent. however, eligibility for the safe-harbour is restricted to specific types of funds and managers meaning it may not be suitable in all circumstances. in contrast, we see the non-dom regime as a much more effective way of reducing tax liabilities for those that can benefit from it.

tax residency in cyprus

in accordance with the it law, an individual is considered a tax resident in cyprus if they are physically present within a tax year (ie calendar year) for at least 183 days (183 days rule).

in cases where the 183 days rule does not apply, an individual can additionally be considered tax resident in cyprus where they are resident for only 60 days in a given tax year (60 days rule), provided all of the below conditions are met:

• the individual must be physically present in cyprus for at least 60 days within the tax year;
• the individual cannot be considered a tax resident by any other country within the tax year;
• the individual is not physically present in any other country for 183 days or more within the tax year;
• the individual has a permanent residence in cyprus, which is either owned or rented; and
• the individual exercises business in cyprus, is employed in cyprus or is an office-holder (such as a director) of a company established in cyprus at any time during the tax year.^[3]

^[3] please note, income received by virtue of this employment or office would, in its own right, be subject to income tax in cyprus irrespective of whether the individual is domiciled in cyprus or not.

concept of “domicile” in cyprus

the concept of “domicile” in cyprus is an old one and derives from express provisions contained in the w&s law. under this regime, an individual is considered as domiciled in cyprus either through their origin (domicile of origin), by choice (domicile of choice) or by being considered as deemed domiciled in cyprus in certain circumstances. the concept only applies to individuals, it does not apply to legal entities.

domicile of origin

• an individual is domiciled in cyprus by domicile of origin by acquiring domicile at the time of their birth. when a legitimate child is born, and the father is alive and domiciled in cyprus, the legitimate child will automatically acquire the father’s domicile of origin.
• when a legitimate child is born and the father is dead, or the child is not legitimate, the child will acquire its mother’s domicile of origin. in this case, if the mother is domiciled in cyprus, the child will also be domiciled in cyprus by domicile of origin.
• an individual who is domiciled in cyprus by domicile of origin will maintain its “domiciled” status in cyprus until they acquire domicile of choice in another country.

domicile of choice

• an individual is considered to be domiciled in cyprus by domicile of choice by being resident in cyprus and having the intention of permanent residence in cyprus.
• an individual will be domiciled in another country outside cyprus by domicile of choice when they intend to indefinitely and permanently reside in the other country. this can override their domicile of origin consequently.
• the individual will keep their domicile of choice until they acquire a new domicile of choice or regain their domicile of origin.

deemed domiciled

when an individual is tax resident in cyprus under the provisions of the it law for at least 17 of the last 20 years before the tax year under consideration, this individual will be considered deemed domiciled in cyprus.

further savings under the sdc law

the sdc law provides that an individual who is considered to have their domicile of origin in cyprus may still be treated as non-domiciled in cyprus for the purposes of the sdc law in the following two cases:

• the individual used to be domiciled in cyprus by domicile of origin but has acquired domicile in another country on the basis that the individual has not been tax resident in cyprus for at least 20 consecutive years before the tax year in which the individual became a cyprus tax resident.
• an individual who has a domicile of origin in cyprus but was not a cyprus tax resident for at least 20 consecutive years before the non-domiciled provisions under the sdc law came into force, ie the individual was not cyprus tax resident between years 1995 and 2014 inclusive.

verifying non-dom status

in practice, individuals wishing to verify their non-domiciled status must obtain the relevant certificate from the cyprus tax department. these individuals should proceed with the relevant application and supporting documentation to the cyprus tax department. typically, it takes around three weeks for the cyprus tax department to provide an outcome for the status of the applicant.

harneys can assist in filing such applications and obtaining the relevant approvals.

taxation under the it law (income tax)

as far as the it law is concerned, tax resident individuals in cyprus (both domiciled and non-doms) will be exempt from:

• income tax liability for dividends received; and
• income tax liability for interest from loans and similar debt instruments received (note however that carried interest is treated differently, see above).

the logic to such wide carve-outs in cyprus is that revenue corresponding to the above is instead collected by way of special defence contributions under the sdc law regime, which exists in parallel to the it law and which we outline below.

taxation under the sdc law (special defence contributions)

under the sdc law, an individual who is tax resident in cyprus (ie is considered a tax resident under the provisions of the it law – see above) and domiciled in cyprus will be subject to payment of special defence contribution (sdc) in cyprus on interest, dividends, and rent received.

no sdc contributions levied on non-doms

however, under the sdc law a tax resident individual will be exempt from such taxes where they are not domiciled in cyprus. as such, they would be exempted from:

• sdc liability for dividends received;
• sdc liability for interest received from loans and similar debt instruments received; and
• sdc liability for rental income.

sdc contributions on such items can be levied at up to 17 per cent in cyprus, so non-doms make a significant saving in this respect when compared to cyprus domiciled individuals.

structuring considerations

noting the above, income received by cyprus non-doms which comprise:

• dividends received from equities held;
• interest received from loans and similar debt instruments; and/or
• rental income (excluding income which arises from cyprus real estate),

will fall entirely outside of the scope of the tax regime in cyprus. in consequence, managers and entrepreneurs can structure their affairs to ensure significant personal tax efficiencies where they become cyprus tax resident.

it should be recalled that individuals which are in employment in cyprus (a pre-requisite under the 60 day rule) will pay local tax on their employment income provided they earn more than €19,500 per year. this is essentially the personal allowance threshold in cyprus. where income exceeds this amount such individuals will be subject to an obligation to file tax returns, and will have clear proof that they are considered liable tax resident in cyprus on an on-going basis. the filing of tax returns is of course critical to demonstrating cyprus tax residency overseas.

final points to remember

cyprus can be considered a very attractive tax jurisdiction for individual asset managers and other entrepreneurs who are looking for a beneficial tax regime to do business. the cyprus non-domiciled regime is an important benefit provided.

noting the abolishment of such regime within the uk, individual asset managers and other entrepreneurs may consider cyprus as a jurisdiction to do their business because of the benefits they can receive from the cyprus non-domiciled regime.

for more advice on this topic, reach out to the authors or your usual harneys contact.

^[1] please note, as an exception to this, capital gains tax may be levied in cyprus in respect of gains from the disposal (sale) of immovable property (real estate) physically located in cyprus. the tax residency of persons disposing of such property is irrelevant.

^[2] in contrast, individuals who are not tax resident in cyprus will be taxed in cyprus only on specific types of income deriving from cyprus sources, such as rental income from local real estate.

cyprus is set to introduce new legislation on workplace violence and harassment aligning the current legislative framework with international labour organisation convention c190.

the bill on violence and harassment at the workplace (the bill), will cover verbal, psychological, and gender-based violence, emphasising zero tolerance for workplace violence and harassment while highlighting its impact on mental and physical health, productivity, and equality.

it should be noted that cyprus already has two pieces of legislation in place focussed on prohibiting and preventing discrimination, harassment, and sexual harassment whether based on gender, race, religion, age, or sexual orientation. despite this, a study carried out on behalf of the cyprus workers' confederation (sek) in 2022, indicates that workplace harassment remains a significant issue, with 70 per cent of employees believing that the issue is prevalent across the country and with 50 per cent reporting that they have been victims of harassment themselves.

as such, the bill aims to enhance the safeguards provided to employees and introduce novel provisions not covered in current legislation. in anticipation of the bill’s promulgation, employers are advised to be proactive and review their existing policies and codes of conduct related to preventing harassment and sexual harassment, and ensuring compliance with the law.

key duties of employers under the bill

employers should be aware that the bill extends prohibitions on discrimination, harassment, and sexual harassment beyond traditional workplace settings. these prohibitions now apply to non-workplace areas, including public or private workplaces, places where employees rest, eat, or refresh, and during periods of tours, travels, trainings, events, or work-related social activities. the bill also covers work-related communications, employer-provided accommodations, and commuting to and from work.

additionally, the scope of what constitutes harassment or discrimination has widened, encompassing a broader range of actions. for instance, the unilateral adverse alteration of working conditions, which may result in constructive dismissal, could now be classified as harassment or discrimination. an example of this is the reduction of an employee's salary or benefits, which may be considered 'violence at the workplace' due to the financial harm inflicted on the employee.

the penalties proposed under the bill are substantial, and breaching its provisions could also constitute violations of existing legislation, potentially leading to even greater penalties. this is particularly concerning given the recent trend of employees taking legal action against employers—including managing directors, chairman, directors, secretaries, and other similar officers—for failing to provide adequate safeguards against incidents of discrimination, harassment, and sexual harassment. to mitigate such risks, in conjunction with the provisions of existing legislation, the bill stipulates that employers should, at a minimum, implement the following measures:

• adopt and implement a comprehensive code of conduct which covers, amongst other things, definitions on what constitutes harassment in all its forms and outline prohibited behaviours, reporting procedures, and consequences for violations
• identify and assess risks of violence and harassment with employee participation and take preventive and control measures, which can be achieved through orientation sessions, seminars, regular reminders or company-wide meetings
• appoint one or more officers who will be responsible for the implementation of the code of conduct and who will act as reporting channels. such will also have the power to investigate any complaints coming from employees in relation to this subject matter
• any investigations must be carried out in complete impartiality and confidentiality, and must also ensure the protection of personal data of the victims but also of the alleged perpetrator(s)
• provide employees with information and training on risks, preventive measures, and rights and responsibilities, fostering a company culture that encourages employees to report any instances of harassment without fear of retaliation
• include in their risk assessments reports the risks that may be prevalent with respect to violence, discrimination, harassment, and sexual harassment at the workplace.

the above list is not exhaustive and the precise obligations are subject to further review and change as the bill is currently being examined by the house of representatives standing committee on labour, welfare, and social insurance. it is evident, however, that employers will likely face expanded responsibilities, including mandated protections for employees. this underscores the need for employers to have comprehensive policies and procedures in place to mitigate exposure to potential legal liabilities.

for more information on this subject, please reach out to the authors or your usual harneys contact.

pursuant to the bvi business companies act 2004 and related regulations, the financial services commission in the british virgin islands (the fsc) may approve the incorporation of a company, or the registration of an existing company, as a segregated portfolio company (spc) if the company will be licensed as an insurer under the insurance act 2008, as a mutual fund or private investment fund under the securities and investment business act 2010 (siba) or for more general unregulated use under the segregated portfolio companies (bvi business company) regulations 2018. this guide focuses on mutual funds set up as spcs.

download the pdf to read more.

segregated portfolio companies (spcs) are well recognised and popular corporate vehicles and the bvi has seen increasing demand for them over recent years. to the bvi business companies act 2004 (bca). these changes expanded the uses of spcs, which are now available for more general, non-regulated purposes, as well as their traditional use in the regulated funds and insurance sectors.

download the pdf to read more.

the cayman islands’ beneficial ownership transparency act, 2023 (bota) came into effect on 31 july 2024. the act aims to align the cayman islands' regime with global standards such as the us corporate transparency act.

this act replaces the previous beneficial ownership reporting regime introduced in 2017 and introduces several key updates to align with international standards. the new regime mandates more comprehensive transparency measures concerning beneficial ownership to combat money laundering, tax evasion, and terrorist financing.

however, enforcement of these new requirements has been delayed until early next year (specific date is yet to be confirmed).

many entities that were previously exempt or had limited obligations will now be required to adhere to the expanded requirements​.

download our pdf to read more.

this strategic approach opens new avenues for growth and security and inspires optimism and reassurance for south african families with significant wealth and business interests.

“if you can't run with the big dogs, stay on the porch” - john madden

private wealth and its powerful influence

global private wealth reached a staggering us$454.4 trillion in 2022. those with us$100,000 to us$1 million (r1.7 million to r17.4 million) hold a significant 39.4 per cent share of net household wealth. for successful south african families aiming to expand their influence, thinking beyond their current solutions and limitations is crucial. doing so can inspire generational prosperity and motivate them to explore new strategies.

south africans and global expansion

when south african families aim to expand their wealth and businesses, they often face real and perceived challenges. however, with the proper professional assistance and asset protection, these challenges can be navigated with confidence and reassurance. access to the right advisory teams and understanding the latest trends and opportunities are critical to simplifying the complexities surrounding asset protection, expansion, reporting frameworks, and generational opportunities.

connecting with a local expert who can work independently with offshore providers is not just essential, it's a game-changer. their role in ensuring that the solutions align with the family's goals without encountering jurisdictional issues is crucial. this alignment provides a solid foundation for successful offshore expansion and instils confidence and security in the decision-making process.

although south african families exhibit a global and entrepreneurial mindset regarding business, family, and wealth expansion, they might be discouraged due to globalisation's complexities. when families and businesses rely on various expert teams, they will save time and resources in the long run.

they can co-create accurate offshore solutions for their families and businesses. while some families may adhere to traditional or socially advised trends, these may not always best suit their circumstances, and they might end up with a short-lasting legacy and business solutions.

advisors often face the crucial question of which jurisdiction would best serve the expansion and safeguarding of their wealth and business interests. while advisors usually steer families towards familiar jurisdictions, exploring what successful global families consider when evaluating their options and which instruments they use to create sustainable solutions is essential.

in cases where families have embraced a more entrepreneurial mindset and are increasingly involved in managing their wealth, they have turned to jurisdictions such as the british virgin islands rather than handing complete power to a professional. this change has led to the development of structures that enable the family and the new wealth generation to actively understand the advantages of succession planning, making decisions, and maintaining their influence without compromising the structure's integrity. this empowerment, arising from active participation, fosters confidence and a sense of security in families, as they know they are shaping their financial future.

compared to other jurisdictions, the british virgin islands which is a british overseas territory situated in the eastern caribbean, has comprehensive and sophisticated succession planning vehicles and laws available. some of these structures allow the family to be actively involved subject to local tax advice.

the british virgin islands and their optimal co-creation solutions

family office structures in the british virgin islands

the concept of family offices in south africa and globally has gained popularity over the past few years, with the number of single and multi-family offices increasing yearly. setting up a family office is typically tied with setting up a family fund (sometimes in the cayman islands and the british virgin islands). the set‑up of a family fund institutionalises the holding structure for the family’s assets, facilitates succession planning, and creates a more efficient and transparent vehicle. however, commonly, there also needs to be a succession plan for the family office structures themselves, and that is where a british virgin islands vista trust or british virgin islands ptc structure can come into play as the optimum succession planning tool, partly due to the ability of the family to retain some level of control of the underlying structure, subject to local tax advice.

some families have a family office in one jurisdiction and a mirror structure in a global office. this enhances the family’s ability to be flexible with their wealth strategies. similarly, most successful families will have a local wealth and business framework that can be mirrored offshore, with specific characteristics that might differ due to the open architecture of offshore solutions, such as the british virgin islands vista trust.

british virgin islands vista trust

the british virgin islands has specialist legislation in the form of the virgin islands special trusts act (vista), which disengages specific traditional trustee duties. while a british virgin islands company’s shares are held in trust, the directors of that company are free to administer the company as they see fit, without intervention from the trustee (except in extreme circumstances). the family may be involved in the british virgin islands company as a director (subject to tax advice), thereby retaining control of the underlying assets within the structure's limitations. in addition, the family may also take up the office of protector and the office of appointor, allowing the family to appoint future directors of the british virgin islands company, once again subject to the observation of certain control risks.

this solution remains critical for families looking to have succession planning in place and still retain some influence. vista also allows for the option of disapplying vista at a particular event, allowing a vista trust to convert to a reserved powers trust, perhaps on the settlor's death, should the settlor be concerned that the family will not be able to manage affairs appropriately. any good estate plan must retain the flexibility to support the family when circumstances change and considering alternative options and ongoing stress testing of the solutions remains critical. the solutions that are used must have the ability to evolve with the family story, for example, using a ring-fenced trust company structure.

british virgin islands private trust company structures

the british virgin islands has built a reputation as a sophisticated jurisdiction in which to incorporate private trust companies (ptc). setting up a ptc allows settlors or their trusted advisors or family members to exercise a degree of control over the decisions made by the ptc. by serving on the board of directors of the ptc, the family can make decisions as and when required, and these decisions can be made expeditiously without having to wait for an independent trustee to deliberate on a decision.

ptc structures also allow the family to set up different trusts, allowing assets to be ring-fenced or placed in individual trusts for other family members. ptc structures have become popular in asia for families seeking pre-ipo (initial public offering) structuring and integration with family office solutions. they complement both onshore and offshore structures. some south african families have also established ptcs to protect their privacy and enhance the family's decision-making powers.

conclusion

no standard structure exists for any family or business, but specific methods and solutions have worked for families for generations. one standard success story is where the family understands that wealth is more than numbers; it is driven by the family's values, mission, and vision. when there is a meeting of minds between the family and the advisors, created by a shared vision of the family, then the solutions are more aligned and sustainable.

many families start with a basic governance structure, and historically generational families, like the rockefellers, make sure they have good advisory teams to guide them. john d. rockefeller is credited with establishing the united states' first full-service, single family office. the rockefeller family office was established in 1882 and provided diverse services, including investment management, estate planning, and philanthropy. the rockefeller family office was a model for other wealthy families, and soon, more family offices emerged, such as the carnegie and vanderbilt families. although not all families require a family office, they need professional support and a family framework to set them on a path to reach their goals.

act with care and take action towards making informed decisions to create generational success.

singapore amended its companies legislation in 2017 to introduce an inward re-domiciliation regime allowing foreign companies, including companies incorporated in the cayman islands, to transfer their registration to singapore.

download the pdf to read more.

this guide discusses the cayman islands law requirements when taking security over shares in a cayman islands exempted company (a company)

download the pdf to read more.

this guide discusses the cayman islands companies act (the companies act) requirements relating to the registration of security interests (eg mortgage, charge, pledge, encumbrance) over the assets of a cayman islands exempted company.

download the pdf to read more.

various significant amendments to the bvi business companies act 2004 will come into force shortly.

in september, the house of assembly in the bvi passed a set of amendments to the bvi’s business companies act (the principal piece of corporate legislation in the bvi). these amendments are not yet in force as of the time of writing, although are expected to be enacted soon.

the key changes to the law will include the following:

• a company’s register of members will be required to be filed with the registrar of corporate affairs (the registrar) on a private basis.
• new registration requirements will apply for companies which have “nominee” shareholders and which use licenced professional directors.
• new requirements will apply to continuations out of the jurisdiction aimed at preventing companies from using the migration process to avoid any regulatory action or pending litigation.
• companies will have an express duty to co-operate with regulators and the registrar will be granted additional enforcement and information gathering powers.
• impacted persons will be able to apply for court rectification of a company’s register of directors.

the amendments are being introduced to ensure the bvi keeps pace with international best practices and with international standards established by standard-setting bodies such as the global forum on transparency and exchange of information for tax purposes and the financial action task force. in particular, with these amendments the bvi has taken steps to ensure the jurisdiction moves quickly to address the recommendations made in the mutual evaluation report published earlier this year. the bvi remains committed to having a robust, modern corporate and regulatory framework and to fighting financial crime in all its forms.

in this client update, we will use the term amended act to refer to the principal legislation as it will be once these amendments are in force.

register of members

companies will now be required to file their register of members with the registrar on a private basis. this is similar to requirements introduced several years ago for the register of directors. shareholder information will not be publicly available or searchable.

the amended act will allow for a transitional period of six months (which will start from the date the legislation is brought into force) to give existing companies time to come into compliance. newly incorporated companies will need to comply from the date of incorporation.

registers of nominee shareholders and professional directors

there are new registration requirements for companies which have “nominee” shareholders and/or licensed professional directors. this will require companies to file both the names of the relevant directors and nominees but also details of any individuals on whose instructions the professional director or nominee shareholder is acting.

as with the register of members, this information will not be publicly available or searchable. a transitional period will also apply.

register of directors

persons who may be aggrieved by an omission or inaccuracy (or a delay to the updating of information) in a company’s register of directors will have a statutory power to apply for court rectification.

this aligns with similar rights already available in relation to a company’s register of members.

registration of beneficial ownership

on 1 january 2023, amendments were made to the act to include a framework for the future introduction of a public beneficial ownership register in the bvi which, at that time, was expected to broadly align with the uk’s model.

given developments in global market practice (including a european court of justice decision which emphasised the need to balance transparency with privacy), it is now anticipated that the bvi will have a public beneficial ownership register which is only accessible to those who can show they have a legitimate interest in the information sought. the amended act provides some of the framework around that register, including critical exemptions for public companies and funds.

however, much of the detail, including the crucial question of how “legitimate interest” will be defined and measured, will be in supplementary legislation which is yet to be made public. we are aware of the interest from many clients on this point and will bring further updates as soon as we have them.

continuations out of the bvi

companies wishing to continue their corporate existence outside the bvi will need to confirm to the registrar that there are no pending proceedings, outstanding regulatory requests, or receivers appointed over the company or its assets. the changes supplement the additional protections for creditors and members introduced in 2023. we have not seen wide use of the continuation process by entities in litigation or under investigation and we expect this will impact few entities, although clients who are currently contemplating a continuation to another jurisdiction should factor in the possibility of some changes to the documentation needed and the process.

restoration

minor changes have been made to the provisions regarding the restoration of dissolved companies to give companies a 14 day window from the date of restoration to comply with the record keeping obligations on all bvi companies. this applies to both court ordered restorations and those using the administrative restoration regime introduced in 2023.

cooperation with regulators

a focus of the legislation is ensuring the bvi’s regulators have the right tools, and quick access to the information they need, to discharge their functions. the amended act introduces an express duty on companies to co-operate with competent authorities and bvi law enforcement agencies. the registrar also has a new power to require a company to provide a “return” on its business and affairs.

next step

there is no need for entities to take immediate action at this stage. although additional information will need to be provided to the registrar (once the legislation is in force), the majority of this information should already be in the hands of their registered agent and if their records are up to date the administrative burden on clients should be limited.

harneys will be providing further updates on the legislation, as market practice develops, and regulatory guidance becomes available, and we will be providing greater detail on some of these topics in due course.

any clients who have particular concerns should feel free to contact the authors or their usual harneys contacts.

just over a year has passed since the enactment of the transparent and predictable working conditions law, l.25(i)/2023 (the law). the law, which was amended in may 2024 under law 85(i)/2024, transposed eu directive 2019/1152 into national law.

despite the fact that the law was preceded by similar legislation imposing a duty on employers to inform new employees of their employment particulars within a short timeframe following commencement of their employment and the new law's clear intentions to ensure fair and transparent employment conditions in cyprus, many employers in cyprus still struggle to adequately reflect and implement its provisions, resulting in widespread non-compliance.

this view also appears to be shared by the ministry of labour and social insurance (mol) which recently became more active in conducting random inspections at employers’ premises and worksites, in an attempt to pressure employers into compliance. moreover, l.85(i)/2024 now introduces stricter enforcement mechanisms and penalties for non-compliance than initially existed under the law.

from experience, common pitfalls include employers failing to provide written communication of material employment particulars to employees, such as adequate and precise job descriptions, clearly defined working hours, detailed breakdown of remuneration, specific employment duration (ie fixed term or indefinite), absence of a remote working policy (where one is required) and lack of comprehensive termination of employment procedures.

these shortcomings can lead to the rise of significant legal and operational risks faced by an employer. moreover, employees may feel insecure in their rights and undervalued, resulting in decreased morale and productivity, which directly affects an employer’s profitability. furthermore, non-compliance with the law exposes employers to potential disputes, litigation, and penalties, ranging from fines to, in more serious cases, potential imprisonment, which could also result in serious reputational and financial damage.

given the importance of this, the recent enactment of the amendment legislation adds an additional layer of pressure by penalising any employer who may decide to obstruct the mol’s inspectors from carrying out their statutory duties and exercising their wide rights of inspection. this includes refusing to answer or providing false answers during investigations, failing to present required documents, or attempting to hinder any person from appearing before, or being examined by, an inspector. offenders can face imprisonment for up to six months, a fine of up to €10,000, or both. importantly, where an offence is committed by a legal entity, individuals holding positions of responsibility (such as directors or senior managers) may also be held personally accountable, unless they can prove that the offense occurred without their consent, involvement, or negligence.

therefore, cooperation with the mol’s inspectors and clear and thorough communication of employment particulars, in compliance with the law’s provisions, following proper legal advice, are essential to fostering a stable, transparent, and compliant work environment and tempering, as much as possible, an employer’s legal and operational risks in this regard.

for more information on this subject, please reach out to the authors or your usual harneys contact.

in the final episode of season one, william peake chats with carolynn vivian our cayman islands office managing partner, about her career journey from sydney to cayman, including requalifying in vancouver. carolynn highlights the importance of staff development and cayman’s role as a global financial centre. she also shares helpful advice for junior lawyers about the importance of cultivating curiosity, teamwork, and organisational skills.

the international tax co-operation (economic substance) act (es act) was introduced in the cayman islands in response to oecd’s base erosion and profit shifting framework and related eu initiatives in relation to what are known as “geographically mobile activities”.

download the pdf to read more.

cayman islands entities receive their annual invoices for the following year’s registration fees in the last quarter of a current year. if you are considering terminating your entity’s registration with the cayman islands monetary authority (cima) and dissolving it or transferring to another jurisdiction, it is essential to act quickly to avoid or reduce next year’s registration fees and filing requirements.

this legal guide first addresses the process for terminating a registration with cima, followed by the process for dissolving a cayman islands entity. if the sections on cima deregistration are not relevant for your circumstances, you may disregard them.

download the pdf to read more.

the contracts (rights of third parties) act (the act) gives third parties the ability to enforce contractual rights expressly granted to them in cayman islands law governed contracts to which they are not a party, subject to certain exceptions.

download the pdf to read more.

on 30 april 2024, the european commission promulgated its first-stage consultation of social partners in relation to remote working and employees’ right to disconnect.

while remote working has gained momentum following the outbreak of covid-19, certain eu countries, such as france, belgium, spain, and italy, acknowledged and regulated certain aspects of the practice, including a universal (ie, not connected only to remote working) right to disconnect, as early as 2006.

nowadays, all eu member states have remote working-related legislation or collective agreements in place, regulating the practice to varying degrees. however, achieving consensus on an eu-wide directive to harmonise the legal position remains, to this day, elusive.

case in point, the right of employees to disconnect from the media through which they provide their services, whether remotely or in situ. notably, 11 member states introduced and recognised in their laws an employee’s right to disconnect, though the definitions for this and the degrees of application of such a right between member states vary significantly. specifically, in six of these member states, the right to disconnect applies only to remote work involving ict tools or work carried out at a distance, while for the remaining five, this right applies to all employees. the eu, while strongly in favour of promoting better work-life-balance conditions for all eu citizens, has, to-date, been unsuccessful in establishing a right to disconnect across all its member states.

given these discrepancies and the recent stalling of a stakeholders’ dialogue process without tangible results or consensus, the eu commission is now taking the initiative by kicking off a process expected to lead to the issuance of a directive specific to remote working and the right to disconnect.

remote working and right to disconnect in cyprus

in light of the discussions taking place at eu-level, cyprus, relatively recently (november 2023), took a proactive step in an attempt to regulate remote working and introduce a right to disconnect, and enacted the organisational framework on remote working law, l.120(i)/2023 (remote working law).

cyprus favoured a soft approach over a hard approach, meaning that, under the remote working law, there is no obligation on employers to implement a system that stops work-related communication during non-working hours, taking thereby the decision out of employees' hands. instead, under cyprus law, the decision to disconnect during off-hours lies with the employees.

in addition, remote working remains optional and may be agreed between employer and employees. if such is agreed upon, the remote working law ensures that remote working employees are afforded the same rights and protections as those working at the company’s physical premises. the remote working law also mandates that the employer informs their employees of their right to disconnect, without the latter being penalised or faced with any adverse consequences for exercising said right. this right, however, has been connected to remote working and stops short of applying to all employees in relation to their overall work (ie to those working in situ). this is considered by some legal analysts as one of the legislation’s biggest drawbacks and criticisms. other issues include the absence of a ministerial decree on remote working costs as well as grey areas on the practical applicability and potential for discharge of statutory duties of care, particularly in relation to health and safety aspects, by an employer.

be that as it may, employers must ensure that they closely follow the provisions of the remote working law and inform their employees of their rights under the legislation when agreeing to remote working arrangements. this includes the obligation for employers to establish and have a comprehensive remote working policy in place. such policy should, among other things, outline measures to safeguard employees’ health and safety, protect personal data and confidential information, and provide adequate information regarding equipment use and any associated expenses. failure to comply with these requirements can result in substantial fines of up to €10,000. where violations concern health and safety regulations, this could potentially lead to fines of up to €80,000 or imprisonment in the most serious cases.

the regulatory landscape in relation to remote working is rapidly developing and further changes are expected following the finalisation and issuance of the expected eu directive, especially, in cases where the right to disconnect at eu level shall be a universal – as opposed to applicable only to remote working - one. it is, therefore, crucial that employers remain updated with legislative developments in this space and adjust their employment contracts and policies accordingly.

for more information on this subject, please reach out to the authors or your usual harneys contact.

in this episode, shanghai managing partner vicky lord reflects on her career path from criminal barrister in london to leading our shanghai office. vicky discusses the importance of teamwork and responsibility in managing a successful office and shares helpful advice for junior lawyers about always continuing to learn. she highlights the strategic significance of the shanghai office in serving chinese clients using offshore structures, stressing the value of communication in their local languages.

the limited partnership act 2017 (the act) came into force in january 2018 and governs the formation of limited partnerships (limited partnerships) in the bvi from that date.

download the pdf to read more.

when considering the well-being of your loved ones, planning for the future is essential. one of the most important steps in this process is creating a will. if you reside in the cayman islands or have assets here, having a will is not just advisable - it’s crucial. a will provides clear instructions for how your assets should be distributed, ensuring your wishes are respected and your family is taken care of after you’re gone.

understanding the importance of a will in the cayman islands

the succession laws in the cayman islands are based on the principle of testamentary freedom which means a person who is not incapacitated can leave his or her estate to anyone that he or she wishes. a will is a legal document that allows you to specify who will inherit your property and assets, who will care for any minor children, and how your estate should be managed after your death. without a will, your estate will be distributed according to the laws of intestacy, the succession act, which may not align with your personal wishes. in the cayman islands, this means that the act and intestacy rules will decide how your assets are divided.

key reasons to get a will

1. control over your estate: a will gives you control over who inherits your assets. without one, a person dies ‘intestate’ and their assets will be distributed in accordance with any applicable intestacy rules and in set proportions, which may result in your assets being distributed in a way you did not intend.
2. protection for your loved ones: if you have dependents, a will allows you to appoint a guardian for any minor children, ensuring they are cared for by someone you trust. it also provides financial security by allowing you to allocate resources specifically for their upbringing.
3. avoiding disputes: a well-drafted will can prevent family disputes by clearly outlining your wishes. this reduces the risk of conflicts over your estate, which can be both emotionally and financially draining.
4. minimising legal delays: having a will simplifies the legal process after your death. your loved ones can avoid the lengthy delays associated with intestate succession, allowing them to access your assets more quickly.
5. flexibility and updates: life changes - marriage, the birth of a child, or the acquisition of new assets - may necessitate updates to your will. having a will in place allows for flexibility, ensuring your estate plan evolves with your circumstances.

legal requirements for a will in the cayman islands

for a will to be valid in the cayman islands, it must meet certain legal requirements:

1. written document: the will must be in writing.
2. testamentary capacity: the person making the will (the testator) must be at least 18 years old and of sound mind.
3. signature and witnesses: the will must be signed by the testator in the presence of two witnesses, who must also sign the will in the presence of the testator.

steps to creating a will

1. consult a lawyer: it’s advisable to consult with a lawyer experienced in cayman islands estate law (our private client team!). they can guide you through the process and ensure that your will meets all legal requirements.
2. list your assets: compile a comprehensive list of your assets, including real estate, bank accounts, investments, and personal possessions.
3. choose your beneficiaries: decide who will inherit your assets and in what proportions. consider including alternate beneficiaries in case your primary choices are unable to inherit.
4. appoint executors and guardians: choose a trusted person to act as the executor of your will, responsible for carrying out your instructions. if you have minor children, appoint a guardian.
5. review and update regularly: regularly review and update your will to reflect any life changes, such as the birth of a child, marriage, or acquisition of new assets.

conclusion

creating a will is an act of care for your loved ones, ensuring that they are provided for and your wishes are respected. in the cayman islands, a will is not just a legal formality - it’s a vital tool for protecting your legacy and offering peace of mind to those you care about most. don’t leave your future to chance; take the necessary steps to create a will today.

contact us

for more information or to begin the process, consult with our private wealth team who can provide personalised advice and guide you through the intricacies of estate planning in the cayman islands.

ask us now and sleep well at night knowing your plans are secure.

the companies law, cap.113 of the republic of cyprus (the companies law) was amended on 26 july 2024 by law 101(i)/2024, to introduce additional powers for the registrar of companies (the registrar) to correct, delete or include additional information in the registers maintained by the registrar, in an effort to enhance the integrity and accuracy of their records.

in the context of the amendments, the term “information” includes a wide range of personal and corporate data, including identification details and contact information.

the key provisions of the amendments are as follows:

• for the purpose of correcting their records, the registrar can collect and process information from the government's information repository or other competent authorities within the republic, subject to adherence to relevant data protection laws.
• before making any changes, the registrar must notify the affected legal entity or organization, giving them 30 days to file an objection. if an objection is raised, the registrar is required to review it and respond within 30 days.
• if an error in the register is due to a mistake of or oversight by the responsible officer of the registrar, the registrar can approve a correction of information without following the usual notification and objection process noted above.
• the registrar can additionally periodically request that registered entities confirm, correct, or update their information as registered with the registrar, without the requirement for submission of additional he or other forms. these requests can be made via mail or electronic means, and entities are required to comply within a specified timeframe.

these amendments do not interfere with the powers of the court under section 111 of the companies law to order the rectification of a company’s register of members.

during the july 2024 parliamentary session in the cayman islands, the perpetuities (amendment) bill 2024 successfully passed its second reading without amendments and is now set for a third reading.

this significant legislative development aims to modernise the perpetuities act (1999 revision) by providing greater flexibility for trusts that do not involve cayman land, aligning the jurisdiction with other leading financial services centres that have already abolished the rule against perpetuities. currently, for cayman islands trusts other than star trusts, the maximum perpetuity period is 150 years.

the rule against perpetuities is a long-standing legal principle that limits the duration of trusts to prevent them from lasting indefinitely. however, many modern financial services jurisdictions have moved away from this rule to provide more flexibility for trust arrangements, especially those used for estate planning and wealth management. the perpetuities (amendment) bill 2024 proposes several key changes to the existing legislation to address this issue.

key provisions of the bill

1. disapplying the rule against perpetuities for non-land trusts

the amendment will disapply the rule against perpetuities for dispositions that do not relate to trusts holding land or any interest in land in the cayman islands. this change will apply to instruments that come into effect on or after the commencement of the amendment legislation.

2. court applications for disapplying the rule

trustees, settlors, enforcers, persons on whom powers are conferred, or those with beneficial interests can apply to the grand court for an order disapplying the rule against perpetuities. this provision, however, does not apply to trusts relating to land in the cayman islands.

dispositions can still relate to trusts holding interests in entities owning cayman land for business purposes. the court must be satisfied that granting the order would not be detrimental to the beneficiaries before disapplying the rule.

3. changing governing law to cayman law

if a trust of unlimited duration, which is not subject to the rule against perpetuities under its current governing law, decides to change its governing law to cayman law, the dispositions of the trust will not be subject to the rule against perpetuities under cayman law.

these provisions are designed to enhance the attractiveness of the cayman islands as a jurisdiction for establishing and managing trusts, providing greater flexibility, and aligning with international standards. by allowing parties to contract out of the rule against perpetuities, the bill seeks to accommodate the needs of modern trust structures that require longevity and flexibility, especially those used in complex financial and estate planning.

the successful second reading of the perpetuities (amendment) bill 2024 marks a critical step towards its enactment. once passed, it will represent a significant shift in the legal landscape for trusts in the cayman islands, providing trustees and beneficiaries with more options and greater certainty in their trust arrangements.

trustees, legal practitioners, and those involved in estate planning should closely monitor the progress of this bill, as its enactment will bring about important changes to the management and structuring of trusts in the cayman islands. this development underscores the cayman islands’ commitment to maintaining a competitive and modern financial services sector, in line with global trends and best practices.

harneys’ dedicated trust professionals possess the deep knowledge and expertise to guide clients through significant legal changes and ensure their trust deeds are aligned with the latest developments. contact the private wealth team today to discuss how we can assist you.

we look forward to helping you navigate these important changes and providing the support you need to manage your trusts effectively.

in the seventh episode of our chat omp podcast, william peake interviews pavlos aristodemou, managing partner of our cyprus office. pavlos shares his unique journey at harneys, including the evolution of the cyprus office from a small boutique firm to an official harneys location. he highlights the essential skills required to excel as a managing partner, drawing parallels to being the skipper of a boat, and offers valuable advice to junior lawyers on the importance of consistency.

due to its compelling advantages, luxembourg has emerged as a premier jurisdiction for establishing family structures, ranging from regulated funds to unregulated entities. the jurisdiction's stability, expertise in wealth management, tax efficiency, and international accessibility makes it a favoured choice for families seeking to create efficient and secure wealth management vehicles tailored to their specific needs.

luxembourg’s single family office law: tailored solutions for high-net-worth families

the single family office law offers a robust legal framework for single family offices, catering to the bespoke needs of affluent families to run their family structures from a politically and financially stable country with a aaa-rating. the single-family office framework provides the ability to tailor financial services, investment strategies, and succession planning solutions together with luxembourg entities, insurance, or fiduciary contracts, ensuring the effective management and preservation of family wealth for future generations.

société de gestion de patrimoine familial law in luxembourg

by leveraging luxembourg's wealth management laws and the flexibility offered by the société de gestion de patrimoine familial (spf), individuals and families can navigate the complexities of estate planning, asset protection, and investment management with confidence and precision. luxembourg's reputation as a trusted financial centre, coupled with its investor-friendly environment, positions it as a strategic hub for optimising family wealth structures and fostering long-term financial prosperity.

the spf law, serves as a cornerstone for structuring private wealth management entities. enshrined in the law of 11 may 2007, it creates a conducive environment for the formation and operation of private wealth management companies, focussing on preserving and growing family assets in a secure manner.

as wealth management strategies evolve and families seek to fortify their financial legacies, luxembourg stands out as a jurisdiction that epitomises stability, expertise, and regulatory clarity. this makes it an ideal choice for setting up family structures that endure the test of time.

for more on the benefits of the spf structure, click here to read our guide.

our luxembourg team can assist you with the implementation and administration of an spf, ensuring compliance with all relevant regulations, tax implications, and specific activities outlined in our guide. please do not hesitate to contact the author or your usual harneys contact for expert guidance tailored to your needs.

the spf regime

luxembourg’s spf law of 11 may 2007 (as amended) (the law) creates a specific tax regime for companies whose sole purpose is managing individuals' private wealth.

the spf regime is intended to partially fill the vacuum created in the private wealth management sector by the abolition of the luxembourg 1929 holding regime.

definition and purpose

an spf is defined in the law as a company:

• that is set up under the legal form of a public limited liability company (société anonyme), a private limited liability company (société à responsabilité limitée), a partnership limited by shares (société en commandite par action) or a cooperative (société cooperative) organised under the form of a public limited liability company;
• the shares of which are exclusively held by eligible investors (as defined below); and
• the articles of incorporation of which make a specific reference to the law.

investors in an spf

the spf is exclusively designed for investors managing their private wealth. its shares cannot be used for a public placement and cannot be quoted on a stock exchange. the benefit of the spf regime is that it is not open to corporate investors, and it cannot be used within a traditional corporate group.

eligible investors within the meaning of the law are:

• individuals managing their private wealth;
• private wealth management entities acting for one or several individuals; or
• intermediaries acting on behalf of the individual/entities referred to above.

private wealth management entities are intended to include entities such as trusts, foundations, “stichtings” or any other such type of entity involving the management of the private wealth of one or more individuals.

entities holding the shares of the spf on a fiduciary basis on behalf of an individual or a private wealth management entity are also eligible investors.

activities of an spf

as an spf is an extension of the private wealth of its investors, its activities are limited to the following activities:

• holding of financial assets: the sole activity of the spf should be the acquisition, holding, management, and disposal of financial assets. any type of commercial activity is prohibited.
• holding of participations: the spf can also hold participations in the share capital of other companies, but only to the extent the spf does not involve itself in the management of these companies. the spf will, therefore, not be allowed to exercise any management role in its subsidiary. there are no restrictions as regards the activity of the company in which the spf may hold a participation.

activities that are not permitted include:

• granting of loans: the spf is not allowed to render any kind of service, including granting interest bearing loans (even to companies in which the spf holds a participation). it may, however, make cash advances or guarantee the liabilities of a company in which it holds a participation, but only on an ancillary basis and without direct remuneration.
• holding intellectual property: the spf is not authorised to hold any type of intellectual property.

holding real estate: the spf may not invest directly in real estate. however, it may acquire holdings in corporations or other non-transparent entities that hold real estate.

financial resources

the law does not require the spf to comply with a specific debt-to-equity ratio. however, since the part of the debt that exceeds eight times the paid-up share capital would be taken into account for the computation of the subscription tax (see below), the spf will, in practice, have to comply with an 8:1 debt-to-equity ratio.

tax framework

income and net wealth taxes

at the level of the spf:

• the spf is not subject to luxembourg corporate income tax, municipal business tax, and net wealth tax.
• due to its specific tax regime, the spf is not entitled to benefit from double tax treaties concluded by luxembourg or from the eu parent-subsidiary directive 90/435/eec. as a result, any dividend and interest payments on financial assets received by an spf may be subject to withholding tax in the state of source in accordance with the domestic tax rules of that state.

at the level of the shareholders:

• there is no luxembourg withholding tax on the distributions of profits from an spf to its shareholders. payments of interest by an spf can, however, be subject to a final 20 per cent withholding tax for payments to luxembourg resident individuals if certain conditions are met.
• gains realised by a foreign shareholder on the disposal of the shares in an spf are not subject to tax in luxembourg.

subscription tax

the spf is subject to an annual 0.25 per cent subscription tax (taxe d’abonnement) that is levied on the sum of:

• the paid-in share capital and share premium of the spf; and
• the part of the debt (if any) that exceeds eight times the amount of the paid-in share capital and share premium of the spf.

the subscription tax cannot be lower than €100 and cannot be higher than €125,000 per year. the tax is payable on a quarterly basis.

value added tax

• based on its restrictive scope of activities, an spf is not considered by the luxembourg authorities as a taxable person for vat purposes.

tax on directors’ fees

• directors’ fees paid by the spf to its directors are subject to a withholding tax of 20 per cent on the gross amount of the fees (25 per cent of the net amount). the withholding tax must be paid to the tax authority within eight days of the payment.

tax resident certificate

based on a circular from the luxembourg tax administration dated 4 june 2024, an spf may now obtain a tax resident certificate and benefit from double tax treaties if certain conditions are met.

in the sixth episode of chat omp, william interviews vanessa molloy, managing partner of the luxembourg office. vanessa shares her 24-year career journey in luxembourg, detailing the strategic evolution of the jurisdiction and its appeal to american and asian investors. she highlights the importance of adding value to clients, the benefits of luxembourg's adaptable legal framework, and offers helpful advice for junior lawyers on career success.

it is often noted how maitland remarked that “the development from century to century of the trust idea was the greatest and most distinctive achievement performed by englishmen in the field of jurisprudence”.

what he omitted to mention, however, was the role of certain international finance centres (ifcs) in taking the concept of the trust truly to the next level and in particular, when in combination with other, usually corporate, vehicles available in such jurisdiction.

the rise and rise of the family office has had many consequences across numerous ifcs, but from the perspective of an offshore lawyer, one of the most notable and interesting has been the coming together of structures which in the past have been too easily pigeon-holed as either institutional or as private wealth.

all leading offshore jurisdictions offer a wide range of both institutional and private wealth type vehicles, but two in particular have gone about marrying the concepts to provide a more holistic offering to international family offices looking to structure in that jurisdiction and/or relocate to that jurisdiction more permanently.

with the marked increase over recent years in the wealth of business owning ultra high net worth families around the world, it is testament to the quality of both the private wealth and institutional vehicles available in the british virgin islands (bvi) and the cayman islands (cayman) that these ifcs have become jurisdictions of choice for family offices looking for a centre in which to structure and base their operations.

in the field of trusts, both bvi and cayman offer a wide range of options which can be tailored to the individual needs of individual families and family offices. on the one hand, the ability to appropriately allocate responsibilities, including over investments, between stakeholders, can be achieved via vista in the bvi or via other forms of reserved powers trusts in both jurisdictions and on the other hand, the sheer sophistication of star trusts in cayman, can allow for the purposes of a trust to be far more bespoke than simply to benefit a group of beneficiaries.

at their most simple, such trust vehicles provide excellent succession planning for any form of holding in an intuitional structure, whether a fund or company, but at the more sophisticated end of the planning spectrum, they can provide excellent governance systems for the underlying entity of even for a family office itself, for example by segregating economic and voting rights.

when looking at fund structures which are more traditionally the domain of institutional fund raising, the flexibility of the options available in the bvi and the true market leadership demonstrated in cayman not only allow for family offices to operate vehicles that consistently meet the demands of international standards, but also ensure that they will not be left with unnecessary cost and regulatory red-tape where they are simply not necessary in a tight group of closely-connected investors.

we have seen incredible uptake in both the incubator fund and approved fund in the bvi where a family office wishes to operate an offshore fund structure for their own investment purposes, with the option to potentially bring in some third-parties to co-invest alongside them in particular deals or opportunities, vastly increasing their purchasing power and standing. these two highly flexible offerings are also open-ended, allowing for the investor base to have a high degree of liquidity and flexibility where cash flow can be critically important. in cayman, the registered mutual fund is the most recognisable offshore fund structure in the world, with broad acceptance globally of both its undoubted pedigree and clear ability to operate within any geographical regulatory landscapes. where a family office wishes to compete with the very best institutional fund managers, this is a commonly chosen product to sit alongside the market standard.

where family offices wish to play in the venture space, the private investment fund in the bvi and private fund in cayman are both relatively new closed-ended structures in terms of the regulatory framework around them, but both domiciles have successfully operated in this area for many years indeed and when the new legislation was introduced in 2020, it was carefully measured to ensure that there was flexibility to allow for family offices to still operate these vehicles with the minimum of regulatory burden.

not only is there the opportunity to compete with the very best in the global investment market using these vehicles, but there is also a clear ability to use fund structures in the bvi and cayman to carefully provide for some highly-optimised succession planning, especially with the flexibility and innovation of structures like the segregated portfolio companies, which can allow for statutory ring-fencing of assets and investments between different members of the family and outside investors.

ultimately, the attractive and resilient legislative regimes in both the bvi and cayman ensure that family offices can benefit from tax neutral regimes while complying with internationally recognised parameters and best practices.

this article was originally published on eprivateclient.

in this episode, paul sephton shares his experience from being a magic circle trainee to becoming our hong kong managing partner. he highlights our collaborative ethos and shares why hong kong is a pivotal gateway to china. he also gives some helpful advice to aspiring lawyers, stressing the importance of confidence and authenticity in the industry.

in this episode, william peake and paul sephton discuss the 20th anniversary of our hong kong office, reflecting on two decades of growth and the office’s recent accolade from hr asia as one of the “best companies to work for in asia”. paul highlights the office’s growth and employee-focused initiatives like wellness programs and engagement committees and shares insights on authentic business development for long-term client relationships.

on 15 march 2024, the eagerly anticipated companies law (amendment) (no. 3) of 2024 (l. 26(i)/2024) (the amendment law) was voted into law by the cyprus parliament transposing into domestic law the provisions of directive (eu) 2019/2121 (the mobility directive) amending directive (eu) 2017/1132 as regards cross-border conversions, mergers and divisions by amending the cyprus companies law, cap. 113 (the companies law).

a new set of provisions has been introduced into the companies law, namely (a) sections 201ha to 201hk establishing a new legal framework for cross border conversion; and (b) sections 201λα to λακ establishing a new legal framework on cross border divisions of companies with a share capital. the existing framework for cross border mergers already within the companies law, namely sections 201θ to 201kz has also been amended to align with the requirements of the mobility directive.

the new procedures on cross border conversion, division and mergers follow a harmonized approach in respect of the three cross border corporate actions, and apply where the companies involved have been incorporated, have their registered office, their central management or principal place of business within the european union, ensuring an aligned set of safeguards across the european union for the affected stakeholders.

it is noteworthy to mention that the companies law already accommodated an analogous procedure to cross border “conversions”, known as "redomiciliation", which provided for the transfer of registered office of a company both into and out of cyprus, from and to other jurisdictions both within and beyond the european union, therefore having a broader scope of application than the cross border conversion provisions. the redomiciliation provisions will remain available alongside the cross border conversion provisions, in scenarios where the cross border conversion provisions would not be applicable, ie where a cypriot company wishes to redomicile to a jurisdiction outside of the european union and conversely where a company from a non-eu jurisdiction wishes to transfer its seat into cyprus.

the provisions on merger and division of public companies under sections 201a to 201h of the companies law, remain unaffected by the amendment law.

importantly, amendment law ensures continuity for pending cross-border mergers and redomiciliations, clarifying that the amendments shall not affect procedures which have already commenced in respect of:

• cross border mergers, provided that the information under section 201iγ of the companies law have been submitted with the registrar of companies for registration, in respect of each merging company; and
• redomicilations to or outside of cyprus, provided that an application under section 354γ of the companies law has already been submitted or an application for the registrar’s consent to the company’s continuation in another member state has been submitted under section 354ia of the companies law.

for further information on any of the new amendments, please do not hesitate to reach out to our cyprus corporate team.

the virgin islands special trusts act (vista) established trusts known as ‘vista trusts’, which are unique to the british virgin islands.

the vista regime was introduced as a solution to what is commonly referred to as ‘the prudent investor problem’.

download the pdf to read more.

in our fourth episode, william welcomes rachel graham, our london office managing partner. she shares her experience practising law globally and transitioning into her current leadership role. rachel discusses what makes london a pivotal hub for the offshore world and offers some helpful advice for junior lawyers.

fintech lending is a decentralised form of lending which relies on technology and digital solutions to facilitate the process of soliciting applicants, applications and repayment, of loans.

what is fintech lending?

fintech lending is a decentralised form of lending which relies on technology and digital solutions to facilitate the process of soliciting applicants, applications and repayment of loans. these digital lenders operate online and not in a physical location, as with traditional banks; and they use data-driven processes and technology to underwrite loans, calculate interest rates, service the loan debt and deliver loan proceeds to borrowers. fintech lenders encourage financial inclusion and ensure that certain individuals, smaller start-ups or msmes, some who find it challenging accessing the traditional financial and banking avenues, can access funding without the need to produce onerous documentation. they guarantee fast responses, and innovative repayment plans (eg daily) via these digital capabilities. the fintech market is certainly revolutionising the way traditional banking and financial services are currently operating and is doing so at an incredible pace.

opportunities in fintech lending

the fintech market has been on a steady rise. in the aftermath of the covid-19 pandemic, the market has seen ginormous growth spurts and it continues to grow. in 2023, the market was valued at us$305.7 billion.

some of the opportunities as discussed above include:

• financial inclusion (global reach to more customers)
• faster credit decision making
• convenience created by online banking (no need for physical presence)
• cdd can be handled by biometrics and alternative data instead of physical documentation (requiring physical certifications)
• immediate or quick troubleshooting or resolutions
• less customer risk aversion (borrowers with weaker credit histories may be eligible)
• fintech lenders are able to keep overheads low and expand business quicker

challenges in fintech lending

• confidence in the market (many still argue that it is a bubble that will burst)
• lending credit will always be risky
• attracts higher interest rates (to mitigate higher risk)
• high risk of fraud (due to quicker decision times and reliance on alternative data for cdd)
• cyber-attacks (risk of losing money and reputation)
• regulatory compliance (robust government regulations)

fintech lending offshore

the bvi edge: unlocking the benefits for global businesses

fintech businesses need much of the same environment (sensible regulation, fair taxation, the rule of law and reliable infrastructure), as the flexible corporate structures which are established in offshore jurisdictions. the british virgin islands (the bvi), as an offshore jurisdiction, has always been on the cutting edge of cross-border transactions whilst ensuring a conducive environment. the bvi leads the international market with company incorporations under the bvi business companies act, 2004 (a modernised version of its predecessor, the ibc act, 1984). in responding to the fintech market, the bvi government, in 2018, amended the financing and money services act 2009 (which regulates persons who carry on financing and money services business in and from within the bvi) to include a new class f licence, which is a licence permitting the holder to carry on the business of international financing and lending in the peer-to-peer (p2p) fintech market, including peer-to-business (p2b) and business-to-business markets (b2b).

from around 2015, vasps began showing keen interest in the bvi as a jurisdiction to conduct virtual assets services, in particular initial coin offerings (icos). there has also been a high surge of crypto-funds, and crypto-exchanges shortly followed the movement. major international platforms who have realised the benefits of structuring in the bvi, have therefore joined the bvi fintech family. in the summer of 2020, the bvi government introduced sandbox regulations and guidance on virtual assets (the guidance) and more players found their way to the jurisdiction. in 2023, the bvi responded to the nearly 100 vasps which were already operating in the bvi pursuant to the guidance in creating its regulatory regime for vasps. to date, the bvi financial services commission (the fsc) has received in excess of eighty applications from these entities and in march 2024, approved its first two vasps with more to follow shortly. our well-versed harneys regulatory team advised in respect of one of the first two vasps the fsc recently licensed under the bvi virtual asset service providers act, 2023. to find out more about the bvi vasp approved click here.

regulatory conditions for fintechs to consider when choosing offshore

with this fast-pace moving and high-risk industry, ensuring fintechs receive the proper legal advice at the initial stages is key. bvi legal professionals understand this market very well and can advise on best practices offshore to ensure a successful operation. compliance with the bvi regulatory, legal and aml regimes is also critical to ensure continued operation and avoids enforcement action by the regulator. when contemplating offshore, fintech operators should seek out a jurisdiction with a pragmatic approach to regulation and one which understands financial services. the bvi, as a jurisdiction, has enjoyed a successful marriage of compliance/regulation and financial services business over the last forty years and counting. it is very agile when enacting and updating financial services legislation and in responding to international co-operation obligations. it also makes certain that it co-operates with an over-achieving private sector who is always willing and able to ensure bvi financial services products remain top tier and futuristic.

as an offshore jurisdiction, the bvi offers many other infrastructural advantages including the following:

• absence of capitalisation requirements
• absence of exchange controls
• english language
• us dollar (as currency)
• stable democracy
• common law legal system (with final appeal to the privy council in london)
• neutral tax jurisdiction
• speed
• competitive cost
• confidentiality
• corporate flexibility
• light touch regulation and products
• dedicated commercial court

conclusion

as the fintech revolution continues to gain momentum, more and more activity will continue to travel offshore, the bvi will continue to leverage its position as the premier offshore domicile for wealth structuring to strategically position itself as the premier offshore jurisdiction for fintech. forward thinking, ultra-modern legislation and regulations are already part of that wider framework. as a jurisdiction, the bvi is quite aware of the boundless opportunities in this digital expanse and it is well positioned to welcome and regulate commensurately. harneys is a leading law firm on the ground and in the forefront. harneys has the right team to provide the legal and regulatory guidance, so that those seeking to do business offshore can reap the benefits.

the corporate flexibility afforded by the bvi has ensured its place as a jurisdiction vital in international commerce for decades.

one way in which bvi companies remain relevant and popular is as a vehicle for taking a company or group public on a stock market. here, we have set out a reminder of some of the key reasons why a bvi listed company (listco) could be a good option if you are looking to go to market or redomicile an existing entity.

global recognition and reputation

the bvi business company is known, trusted, and used around the world in a variety of contexts, with over 400,000 having been incorporated. as a listing vehicle it has a track record going back decades with many valuable precedents.

by incorporating your listco in the bvi, you gain access to a wide range of international capital markets. the jurisdiction is well-connected to major financial centres worldwide, facilitating the listing of your listco on reputable stock exchanges, which can attract a broader pool of potential investors and increase your chances of a successful capital raise.

bvi companies are currently listed and traded on stock exchanges throughout the world. in the us, well known examples currently include capri holdings (the holding company for michael kors) and arcos dorados (the master franchise holder for macdonalds in latin america), in the uk, many resources (mining) companies favour bvi vehicles, and hong kong listed tiantong (one of china’s main canned food exporters) and xinyi energy (a major solar farm operator) are both bvi entities. the bvi business company is also one of the most used spac vehicles in the world.

favourable legal and regulatory environment

financial services has, for a long time, been at the heart of the bvi. government and regulators have been keen to ensure regulation and legislation keeps pace with innovation. close industry collaboration has been a feature of the bvi’s landscape and, along with other industry institutions, harneys has played a key role in the jurisdiction’s development.

the bvi does not impose any additional regulatory burden on listed companies, when compared to private companies, instead trusting that the rules of the relevant stock exchange will ensure adequate investor protections.

the bvi legal system is based on english common law and the bvi has a well-established and business-friendly regulatory environment that is highly conducive to listed companies. the government of the bvi has tailored laws and regulations to attract offshore companies, offering stability and a supportive legal framework.

the bvi also has a court system which is highly experienced and efficient in dealing with a variety of company law disputes, including those involving publicly listed companies (such as nam tai, which you can read about here). the ultimate appeal is to the judicial committee of the privy council, which consists of senior judges from the uk (predominantly those who sit on the uk’s supreme court).

flexibility in structuring

compared to similar jurisdictions, a major benefit the bvi offers is flexibility in structuring, especially in drafting constitutional documents.

the bvi allows unparalleled tailoring of the memorandum and articles, which govern your listco, allowing for unique share classes and rights without the need to follow legislative prescribed concepts (such as share capital). there is no issue under bvi law with share rights such as enhanced voting classes which, although controversial with some investor groups, are very popular with founders, especially in the tech sector. the bvi also allows “poison pill” structures that protect against hostile takeovers.

this flexibility allows you to tailor your listco’s structure to meet your, and your investors’, specific needs.

flexibility in operating

as well as flexibility in structuring, the bvi’s focus on flexibility in a company’s constitutional documents allows for greater freedom with ongoing governance:

1. special resolutions. unlike other jurisdictions, the bvi has eliminated the distinction between ordinary and special resolutions, instead allowing companies the freedom to determine what matters should require more than majority approval, and to set the approval threshold for such matters at a level appropriate for the company, its investors, and where it’s listed.
2. written resolutions. similarly, there is no requirement for written resolutions to be unanimous, either at the board level or shareholder level. it’s not always appropriate to have board and general meetings and so this approach can make it a lot simpler to deal with administrative matters.
3. dividend test. the bvi’s simple test for declaring dividends requires that the company’s assets exceed its liabilities and that it is able to pay its debts as they fall due, immediately before and following the distribution. this test doesn’t require the consideration of distributable reserves or “share capital”, as you find in other jurisdictions, which puts it in the hands of management to determine what the working capital needs of the company are and how much should be returned to investors.
4. share reorganisation. as bvi companies are able to issue no par value shares, it is a lot easier to divide and consolidate shares as part of company reorganisations.
5. electronic engagement. bvi corporate law is drafted such that it allows for companies to adapt as engagement with stakeholders change. listcos are able to stipulate that new technologies be used for calling and holding board and shareholder meetings (eg, websites, nfts, zoom, virtual reality).

foreign private issuer

if you plan to list in the us, incorporating your listco offshore means that (if you meet certain criteria) you can take advantage of being a “foreign private issuer”, exempting you from compliance with certain laws and regulations of the us securities and exchange commission (sec) and certain regulations of nasdaq. for example, you would be entitled to follow home country practice and not be required to:

• obtain shareholder approval for the issuance of new securities (nasdaq listing rule 5635)
• comply with the regulatory regime for the solicitation of proxies (nasdaq listing rule 5620(b))
• maintain a majority of independent directors (nasdaq listing rule 5605 (b)(2))

other stock exchanges offer other similar advantages to attract foreign companies. in the uk, the takeover code does not apply to entities listed in the uk and incorporated offshore, allowing flexibility around exit options.

disclosure requirements

us foreign private issuer status (if obtained) also means you will not be subject to all disclosure requirements applicable to us listcos. for example:

• exemption from certain rules under the us securities exchange act (securities act) regulating disclosure obligations and procedural requirements related to the solicitation of proxies, consents, or authorisations applicable to a security registered under the securities act
• executive officers and directors will be exempt from the reporting of “short-swing” profit recovery provisions of s.16 of the securities act and related rules with respect to their purchases and sales of securities
• no requirement to file periodic reports and financial statements with the sec as frequently or as promptly as us public companies
• exemption from regulation fd (fair disclosure) of the securities act, aimed at preventing issuers from making selective disclosures of material information

tax efficiency

the bvi currently imposes no corporate income tax, capital gains tax, or inheritance tax, making it an ideal choice for businesses seeking to maximise their profitability.

tax efficiency can be a crucial factor in enhancing your listco’s appeal to potential investors and positively impacting its valuation during the ipo process.

get in touch

if you are considering listing either now or in the future, contact the authors for advice. our lawyers have extensive experience in going to market and the ongoing operations of listcos. with offices spanning the globe, we provide advice not only on bvi law but also in the legal frameworks of cayman, bermuda, anguilla, cyprus, jersey*, and luxembourg.

*jersey legal services are provided through harneys (jersey) which is an independently owned and controlled jersey law firm.

currently, cyprus-based crypto exchanges that offer both spot crypto products and crypto derivatives must be licensed under both the national crypto-asset service provider quasi-licensing regime in cyprus under local aml legislation (the local casp regime) and the traditional investment services regime implementing eu directive 2014/65/eu (mifid ii).

both regimes are administered by the cyprus securities and exchange commission (cysec) which is responsible for the licensing and supervision of cyprus investment firms under the local mifid ii regime (cifs) and crypto-asset service providers under the local casp regime.

following the imminent replacement of the local casp regime with the rules of eu regulation 2023/1114 on markets in crypto assets (mica), which will enter into force on 30 december 2024 (subject to transitional periods), cifs will be able to provide crypto-asset services by submitting a simple notification to cysec containing certain information in accordance with mica, without additional authorisation under mica.

as there are significant overlaps between the regulatory standards under mifid ii and mica, the option of obtaining a cif licence to cover both spot crypto products and crypto derivatives has become an increasingly attractive option for crypto exchanges that are looking to obtain a foothold in the eu and enjoy the right to provide their services across the eu (aka passporting).

with the above in mind, we provide below an overview of the key features for the licensing of a cif in cyprus.

economic substance and other general requirements

cysec will expect an applicant cif to have sufficient economic substance in cyprus, including the following requirements:

• the cif will be expected to have:
  • a local office, and
  • physical presence in cyprus.
• all employees of the cif engaged in the provision of investment services or performance of investment activities are expected to take the relevant certification exams provided by cysec and be registered in the relevant register of certified persons maintained by cysec. these exams are divided into two levels (basic and advanced) which may apply depending on the type of investments services/activities provided by the relevant person.
• the cif is expected to maintain a minimum physical presence in cyprus and have at least the following personnel:
  • at least two executive directors and two independent non-executive directors. the majority of the board of directors must be cyprus residents.
  • a money laundering compliance officer (mlro) which will have to be a holder of the cysec aml certification and be registered in the aml compliance officer register. the mlro may concurrently be one of the directors, subject to cysec approval. the mlro should be based in cyprus.
  • a regulatory compliance officer which will need to be a holder of the cysec advanced certification and be registered in the relevant register of certified persons.
  • senior officers acting as heads for the following departments: dealing rooms, sales, dealing on own account, risk management, back office, accounting, internal audit. the senior officer may concurrently be one of the directors, subject to cysec approval. certain functions can be outsourced.
  • an external auditor.

capital adequacy requirements

• the minimum initial paid share capital requirements for a licensed cif ranges from €75,000 to €750,000 depending on the actual investment and ancillary services offered. for instance:
  • minimum paid up share capital of €75,000 will apply where a cif offers or provides the services of reception and transmission, execution of orders on behalf of clients, portfolio management, investment advice and placing of financial instruments without a firm commitment basis, provided that the relevant cif is not permitted to hold client money or securities belonging to its clients.
  • minimum paid up share capital of €750,000 will apply where the following services are offered by the cif: dealing on own account (market maker) and the provision of underwriting services in respect of issues of financial instruments.
  • minimum paid up share capital of €750,000 will apply where a cif offers or provides investment services or undertakes the activity of operating an organised trading facility and where that cif also engages in dealing on its own account or is permitted to do so.
  • minimum paid up share capital of €150,000 will apply for any cifs not falling in any of the above categories.

summary of application documents and related information

the relevant application form to be submitted to cysec for the cif licensing is cysec form 87-00-01. the application form and the accompanied documents requested by cysec must be submitted in wet-ink version.

the documents that are usually submitted to cysec in connection with the application form for a licence include the following:

• information about the directors, managerial staff, and shareholders with special participation (cvs, completed questionnaires as provided by cysec etc)
• company incorporation documents (certificate of incorporation, certificate of registered office, directors’, shareholders’, and secretary certificate, memorandum and articles of association, etc)
• analytical group and organisational structure charts
• evidence of paid-up share capital and other types of capital raised
• clean criminal records and certificates of good standing of the shareholders, the board of directors, and senior management of the company
• company procedures manual for all activities and operations, an internal procedures manual, and aml (anti money laundering) manual
• a detailed business plan
• financial statements and forecast accounting plans
• certification from the external auditors and legal advisors of the applicant

cysec application fees

cysec application fees can range from €7,000 to €25,000 depending on the types of services and ancillary services to be provided by the applicant.

cysec licensing fees and the investors compensation fund

once licensed the cif will need to pay annual fees to cysec – these commence from fixed charges ranging between €5,000 and €10,000 with additional variable charges based on a percentage scale and depending on the types of services and ancillary services, and extent of business undertaken, by the authorised firm.

separately to licensing fees, an obligation to make an initial and thereafter annual contributions to the mandatory investors compensation fund will also apply. initial contributions are set at €2,000 per investment service provided and €35,000 for the safekeeping ancillary service.

ongoing obligations for cifs

ongoing obligations imposed to cifs in the context of providing investment services in cyprus include the following:

• an obligation to ask existing or potential clients to provide information regarding their knowledge and experience in the investment field, so as to enable the cif to assess whether an investment service or product is suitable/appropriate for them.
• an obligation to take all reasonable steps to identify and prevent or manage conflicts of interests-including between the cif - including its managers, employees, and tied agents as well as any person directly or indirectly linked to them.
• a requirement to act honestly, fairly, and professionally in accordance with the best interests of their clients, including in terms of any relevant remunerations and commissions.
• when a cif holds financial instruments or funds belonging to clients, it should make adequate arrangements to safeguard the ownership rights of the clients.
• an obligation to take all sufficient steps, when executing orders, to obtain the best possible result for their clients – also as known as “best execution”.
• an obligation to provide appropriate information to clients in good time in relation to the cif, its services, financial instruments, and other related matters.

other requirements relevant to all cyprus companies

secretary & registered office

all cyprus entities must have a secretary and a registered office address in cyprus.

secretary: the secretary can carry out all the necessary secretarial duties including the preparation and filling of the annual returns (to the registrar of companies) and ensure that all minutes are prepared for the annual statutory meetings.

registered office: a registered office in cyprus is required in order to receive any official correspondence and notifications from any government department of the republic of cyprus.

ongoing statutory compliance obligations

aside from its regulatory obligations, during its operations, cifs will have certain statutory compliance and reporting obligations as follows which generally apply to cyprus companies:

• book-keeping: monthly bookkeeping function of the cif.
• monthly & quarterly management accounts: preparation of management accounts to comply with the reporting requirements of the cif.
• preparation of annual financial statements under ifrs: liaising with auditors providing them with all necessary information for the preparation of the annual financial statements.
• tax compliance services: preparation of the annual tax computations, completion, and submission of the annual income tax return (form td4), automatic exchange of information obligations and others.
• vat compliance services: providing preparation of the quarterly vat forms and any other vat matters which might be required.
• payroll services: full payroll compliance services for the employees of the company situated in cyprus.

auditors

all cyprus companies must appoint an external auditor to provide auditing services to the cif.

other relevant operational costs

a new cif set up in cyprus would be faced with several operational costs.

these costs include:

• set up and maintenance costs
• renting a space to use as an office
• it
• telephone
• electricity
• annual company levy which is imposed by the cyprus government on companies

it will be important for any cif to conduct its own due diligence on operational costs and planning as the licensing process progresses.

please contact the authors or your usual harneys contact if you require further information.

the foundation companies law, 2017 (the foundation companies law) introduces the foundation company as a new type of corporate vehicle in the cayman islands.

the foundation companies law is drafted to allow the foundation company to be rooted in cayman islands company law, but function like a civil law foundation and only applies to companies that have been declared by the registrar of companies (registrar) to be a foundation company. this guide sets out the key features of foundation companies and how they are formed and operated.

download the pdf to read more.

join us over the next nine months as global managing partner william peake sits down with each of our office managing partners to learn more about them and their jurisdictions. each episode will discuss a broad range of topics from the personal to the professional, sharing insights shaped by their local experiences.

in our third episode, william peake sits down with bvi managing partner tanya cassie-parker as she reflects on her journey with harneys and the growth and evolution of harneys and the british virgin islands. it’s a wonderful journey covering compelling advice to younger lawyers and quite possibly the best fictional dinner party imaginable.

the role played by offshore financial centres (ofcs) in shaping global finance is significant and impacts upon private credit transactions in much the same way that it does traditional institutional lending.

ofcs such as the british virgin islands (the bvi), the cayman islands and anguilla add undeniable value to the international financial system and are widely known for their tax neutrality, business-friendly and well-regulated environment, well established legal systems and financial institutions as well as their efficient financial services. feeding into that value add is their regular performance of an intermediary (cost-saving) function within the context of financial transactions and facilitation of global capital flows. in turn, this cross-border movement of capital supports much needed investment across the globe, in developed and developing economies alike.

currently estimated to be valued at roughly us$1.6 trillion, the global private credit market is projected to top out over the coming year at about $2.8 trillion. the rise in global private credit (which refers to non-bank lending to companies), characterised largely by private equity funds, alternate investment funds, hedge funds and other entities operating as private lenders in a bid to fill a gap left by banks signifies quite convincingly its increased importance in the facilitation of global capital flows as well. buoyed by large sums of capital, private credit is projected to fund ever-larger deals and in so doing, will continue to claim a greater share of the global finance market. impressive year on year growth and no indication of any slow-down in the foreseeable future given how lucrative the market has become, suggest longevity for the market as many of the macroeconomic factors credited with its genesis have largely continued to fuel its growth over the past two decades. many of these very same factors also bear responsibility for ultimately leading to a diminution in the risk appetite of banks seeking to confirm to capital adequacy and other regulatory requirements and management of costs and have ultimately brought about restricted lending standards (particularly involving smaller or riskier borrowers). the resulting gap in the lending market is one which has been ably plugged by an entrepreneurial private credit market.

against this backdrop, the growing importance of the private credit market to global capital flows witnessed over the past two decades and even moreso in recent years, made for an inevitable convergence of ofcs and the private credit market. the very same features which have made offshore appealing within the context of institutional lending transactions translate with equal effect within the context of private credit lending transactions. one key feature is the simple yet flexible corporate vehicles (ranging from standard companies to various types of fund vehicles) which are an integral part of the offering of ofcs like the bvi, anguilla and the cayman islands. the ability to have companies with unlimited objects and purposes or with restricted purposes is central to what makes ofcs attractive for cross-border lending transactions. flexible corporate features, bolstered by the generally creditor-friendly commercial and legal framework intrinsic to ofcs like the bvi, the cayman islands, bermuda and anguilla are a welcome boon for lenders and borrowers.

the choice of the type of corporate vehicle best suited to the needs of the parties will typically be informed by their commercial needs and the majority of transactions will see a company being used as these tend to offer the greatest degree of transactional flexibility while maintaining the separate legal personality which forms part and parcel of such transactions. the legal autonomy enjoyed by companies, with the capacity to contract, sue and be sued in their own capacity is a key feature which is generally attractive to lenders operating in the traditional banking industry and the same holds true for lenders within the rapidly expanding private credit market. contracting parties dealing with offshore entities have come to anticipate a certain degree of contractual certainty and when deals are structured using companies formed in the bvi, anguilla and the cayman islands, whether borrower-side or lender-side, the same benefits apply. there is ease of distribution of assets or profits by the company to shareholders since there is no requirement for companies domiciled in the bvi, anguilla, the cayman islands to have reserves or profits prior to making a distribution (whether in cash or specie). in addition, the absence of corporate, income or capital gains tax for companies, trusts, individuals or partnerships regardless of tax residence and the absence of withholding tax are also important factors which make the ofcs named herein particularly attractive to both borrowers and lenders when structuring transactions.

the additional benefits of the absence of exchange controls and currency restrictions in ofcs like bvi and the cayman islands facilitates the seamless running of cross-border financing transactions. bvi and anguilla have straightforward registration systems for security interests to determine questions of priority; something which instills confidence in lenders holding security. similarly, all contracting parties in ofcs like bvi, anguilla and the cayman islands benefit from well-established jurisprudence (largely based on common law principles) for the resolution of disputes arising from transactions where necessary.

we anticipate on-going interplay between the offshore world and private lending transactions as the demand for flexible financing options on the part of borrowers persists and private credit’s investor-base continues to exhibit an elevated risk appetite in exchange for larger returns. that investor base has expanded in recent times to include institutional lenders well acquainted with the benefits of incorporating ofc corporate vehicles into transaction structures and as private credit continues to contribute to the shaping of global finance and the ofcs named in this article continue to play the pivotal role which they currently do in global financing transactions, the symbiotic relationship between the two will continue to thrive.

without a doubt, so long as the prevailing macroeconomic position persists, the pairing of corporate borrowers in need of financing with a desire for more optionality with respect to their banking relationships with non-bank lenders with lots of money to invest and an appetite to transact would in many ways seem a match made in heaven.

on 7 march 2024, the british virgin islands cabinet announced the expansion of the list of exemptions to obtaining a work permit in the territory.

the new list, reflected in the labour code (work permit exemption) (amendment) order, 2024, introduces exemptions for:

• emergency and humanitarian services (ie persons providing emergency and humanitarian services to bvi registered businesses, statutory bodies, non-profit organisations and other entities). this category applies to persons offering vital support in areas such as emergency response, medical care, firefighting, and rescue operations services, and will be helpful in situations of hurricane or other natural disaster.
• essential repairs (ie persons providing repairs to machinery or equipment that are essential for the safe and uninterrupted operation of a business or facility where the necessary expertise is not available in the bvi). this category applies to individuals with specialised expertise required for urgent repairs to critical machinery or equipment, ensuring business continuity and public safety.
• government or community events (ie persons providing recreational or entertainment services at events sponsored or hosted by government, statutory bodies or non-profit organisations). this category applies to performers or entertainers.

the above exemptions will initially apply for seven days, with extensions available on request, where this is necessary. any bvi business wishing to utilise one of these exemptions for a service provider or staff-member must notify the chief immigration officer 48 hours in advance of the individual’s arrival. however, in the event of an emergency, notification can occur just before the individual departs to the bvi.

while not in the new legislation, the department of labour and workforce development has also confirmed that the individuals must travel with a letter of invitation from the bvi business, which should be presented to immigration on arrival. these new categories operate in the same way as current work permit exemptions, including the exemption for attendance at a board meeting.

the content of this article intends to provide a general guide to the new exemptions. if you have any specific questions regarding reliance on an exemption, or notifying the department, please contact harneys for further assistance.

read the press release here.

on 28 february 2024, the british virgin islands cabinet approved the belonger status and permanent residence policy (the policy), which addresses issues surrounding residence and belonger status.

following the release of the commission of inquiry (coi) commissioned by the uk government, it was recommended that there should be a review of processes for the grant of residency and belongership status in the bvi, and in particular the open discretion currently held by cabinet to make grants. a detailed review and public consultation followed, resulting in the preparation of the new policy, which has now been approved by cabinet.

the policy addresses eligibility for residence and belonger status, establishes guidelines and criteria for status awards, and outlines the process for determining quotas. it also addresses children's path to residence status and those born in the bvi to non-belonger parents.

importantly, the policy emphasises the need to manage immigration, permanent residence and belonger status to avoid straining educational, health, and physical infrastructure, as well as to mitigate social tensions, economic competition, and loss of opportunities. it aims to balance various factors to effectively manage immigration, population growth, and economic concerns.

we have set out some of the key takeaways from the new policy below.

eligibility for residence and belonger status

the immigration reform aims to align law and policy for residence and belonger status in the bvi. the two concepts should not be confused, with residence status being the right to regularly reside in the bvi only; it does not automatically create the right to citizenship or belonger status. belonger status is similar to citizenship, and signifies that the person becomes deemed to belong to the bvi. both statuses offer enhanced rights to general visitors or entry permit holders in the territory.

a core pillar of the new policy is that applicants must reside in the bvi for ten years to apply for permanent residence. to be eligible to apply for belonger status, the individual must reside in the bvi for 20 years (while holding residence status for a minimum of ten years). as of now, the application process considers character, skills, and adherence to local laws.

residents may need to renew their residence status certificates every five years to maintain residency, allowing monitoring of adherence to legal standards and progress towards belonger status. the intention is to ensure that residents actively contribute to and respect the values and laws of the bvi, promoting responsible progression towards belonger status.

endorsed children path to residence status

individuals who have resided in the bvi for at least ten years, attended educational institutions, and were endorsed on a parent's certificate of residence status may qualify for residence status upon turning 18. to qualify, they must have a clear police record, demonstrate good character, and apply six months before their 18th birthday. these individuals can continue residence temporarily while their status is processed, remaining endorsed with a parent for up to a year.

children born in the bvi to non-belonger parents

children born in the bvi to non-belonger parents, who ordinarily reside in the territory, may be granted residence status at birth and become eligible for belonger status at age 18, regardless of parental status.

permanent status and belonger status quotas

immigration quotas are a recurring theme in the proposed governance framework, serving as a policy tool to regulate the inflow of foreign nationals into the bvi.

the policy does not currently list such quotas, but confirms that these will be established through collaboration among various government entities, including the cabinet, ministries, the board of immigration, and the department of labour and workforce development.

what next?

at this time, the policy is in its infancy stage and it remains to be seen how swiftly the policy will be enforced, and whether corresponding legislation or guidance will be drafted to reflect its content, or amendments made to the immigration act.

there also remains some open questions, including the impact on ‘live’ applications for both residence and belonger status currently awaiting review or approval, as well as the treatment of individuals who have been in the bvi for nearly or over 20 years but have not yet applied for residency or belonger status. without explicit reference to these individuals, the new policy could prolong their eligibility period for belonger status to 30 years or more due to the requirement to hold residence status for 10 years.

despite these outstanding queries, the policy provides some helpful clarity on the direction of immigration applications in the bvi.

the content of this article intends to provide a general guide to the new policy. if you have any specific questions regarding your immigration status in the bvi, or would like our assistance with residence, belonger or other immigration applications, please contact the harneys private wealth team for further assistance.

the phrase “mergers and acquisitions” is used as a shorthand for the sale and purchase of businesses around the world. in the us, and some other legal systems, such transactions are typically effected by means of a legal ‘merger’, whereas in other countries such deals are not really ‘mergers’ at all.

us lawyers will be intimately familiar with how mergers can be used for both classic m&a deals and in a wide variety of restructuring transactions. for corporate lawyers used to other legal regimes (notably the uk and hong kong), that do not have the concept of a true merger, the extraordinary flexibility of this tool may come as more of a surprise.

we have written before in detail on the process of a merger under bvi and cayman law (for a general guide see here and here) and so this article skips over the legal formalities to focus on some of the different ways mergers can be used and structured, and what drives those structuring considerations.

what is a merger?

in a true legal sense, a merger is simply a transaction by which two or more legal entities combine their corporate existence so that just one combined entity remains. the merged entity inherits the assets and liabilities of the merging companies.

mergers are permitted by statute in the bvi, cayman, and bermuda. in all three jurisdictions the relevant laws have been heavily influenced by the us, and particularly delaware.

what can mergers be used for?

mergers can be used for a number of different things, including:

• for the sale and purchase of a business (see further here, for a discussion of how mergers and other tools can be used in this context, and their pros and cons)
• as a method of changing corporate domicile (see here)
• to squeeze out minority shareholders*
• as a route to a public listing
• to take a public company private
• as an alternative to liquidations, particularly for multiple entities
• for a variety of solvent restructurings and reorganisations (see here)

*depending on the jurisdiction concerned, and the constitutional documents of the relevant company, a merger may require a considerably lower voting threshold than other types of statutory squeeze out. it may also be more easily enforced than a contractual ‘drag’ right.

more than one option?

several factors can influence the choice of a particular merger structure, meaning it is important to tailor the approach to the unique characteristics of each deal. these factors include:

• tax: tax considerations of the jurisdictions involved can significantly impact the choice of a merger structure. although none of the bvi, cayman, or bermuda currently applies any corporate taxes, many offshore companies are actually tax resident onshore. even if they are not, the location of shareholders and other merger parties may bring tax considerations in other jurisdictions into play. in a takeover effected by merger, the goal may be to optimise tax efficiency for both the acquiring and target companies.
• regulation: both industry-specific and general regulation can play a crucial role. compliance with antitrust laws, securities regulations, and other relevant laws can dictate the permissible structures.
• public status: spacs (special purpose acquisition companies (see further here)) often opt for specific merger structures to bring a target company to market and companies may consider mergers for the purpose of de-listing from stock exchanges. in both instances, specific structures to meet regulatory obligations may be required.
• corporate governance: existing corporate governance structures and shareholder agreements may restrict what is and isn’t possible and a certain structure may be chosen to deal with uninterested or uncommunicative shareholders. similarly, some structures may be more appealing to certain types of shareholders.
• financials: the financial health and stability of the involved entities can influence the merger structure. companies with varying financial positions may opt for structures that address specific financial needs.
• complexity: the complexity of a deal, including the number of parties involved, the size of the transaction, and the nature of the assets or businesses being acquired, can impact the selection of a structure. where a deal is of a lower value, it may not be sensible financially to overly complicate the approach to the merger.
• minority shareholders: whether or not there are minority shareholders likely to object to the transaction and whether there is a serious risk of litigation may drive the way a merger is structured or even whether a merger is appropriate.
• future exit: considerations regarding a future exit strategy may be important. some structures may offer more flexibility for potential future divestitures or public offerings.

so what are the options?

simple merger

the most common approach, and the simplest, is a two-party merger. this can be vertical or horizontal, ie, the merger of a parent and subsidiary or the merger of two unconnected parties.

triangular mergers

as the name suggests, these mergers involve three entities, although only two of them strictly merge. this is how most takeovers in the us are structured. the buyer establishes a subsidiary to merge with the target company. the target company usually survives the merger and is left as a wholly owned subsidiary of the buyer. the old shareholders of the target usually receive merger consideration in cash or shares in the buyer.

a similar version of this is used by spacs for their de-spac, or business combination, transactions. the spac establishes a subsidiary to merge with the target company. at closing, the spac’s existing entity becomes the holding company of the group and the target’s existing shareholders become shareholders in it. this brings the target to market.

as with a simple merger, triangular mergers can be conducted in a vertical, as well as horizontal manner.*

*we recently acted in relation to a bvi company, listed on a foreign exchange (opco), looking to be taken private. because of the specific requirements of the foreign exchange, we were able to cash out certain shareholders and not others. instead, an election process was used which allowed electing and non-responding shareholders to be cashed out or to be issued with shares in a newly formed entity. furthermore, to complete the take private, it was important that following the merger, the former opco ended up as a wholly owned subsidiary within the group. for this merger, two new bvi companies were formed to sit underneath the opco, (known as “mergerco” and “new holdco”). opco was merged with mergerco, and opco’s shareholders received cash, shares in new holdco, or a mixture of both, depending on how they exercised their election rights. this left new holdco as the entity held by those opco shareholders who opted to roll over into the new holdco.

double dummy mergers

double dummy mergers are commonly used where buyer and target are relatively equal in size with the structure providing specific tax benefits depending on how it is used.

this approach is one of the more complex options and involves the buyer and target forming a subsidiary, which will eventually become their holding company. the holding company establishes two new “dummy” entities which then merge with each of the buyer and the target, issuing cash or shares in the holding company, as appropriate, to the original shareholders of each of the target and buyer. at the end of it, the holding company sits above the target and the buyer and the original shareholders of each have either become shareholders of the holding company or have been cashed out.

multico mergers

under bermuda, bvi, and cayman law, there are no restrictions on how many companies can be merged in a single transaction. this can be especially helpful in reorganisation exercises where multiple entities are no longer needed and it provides a quicker and simpler approach to consolidating the various assets and liabilities of companies without having to go through an asset transfer process and subsequent strike off/liquidation.

cross border mergers

as mentioned at the top of this article, the merger process is not one unique to bermuda, bvi, and cayman. many jurisdictions have a form of merger process and bvi and cayman law allow for companies incorporated in either jurisdiction to merge with foreign entities which also permit the concept of mergers. this can be an alternative to continuing out of the jurisdiction, and when multiple entities are being moved this can be a more cost effective and efficient move. however, cross border mergers are inherently a little more complex than mergers between entities in the same jurisdiction.

final note

the harneys corporate team has deep experience in advising on mergers in all of the contexts mentioned above. we also have a specialist team with expertise in dealing with merger related disputes when they arise.

flexibility is a key aspect of offshore law, and that is very much the case with mergers.

the above are examples of how you can structure a merger but, as corny as it sounds, it’s your imagination that will limit what’s possible!

a new bill titled “companies law (amending) law of 2024” (the bill) has been submitted to the cyprus parliament by the minister of energy, commerce and industry for the purpose of transposing into domestic law directive (eu) 2019/2121 (the mobility directive) amending directive (eu) 2017/1132 as regards cross-border conversions, mergers, and divisions.

the bill is currently before the parliamentary committee of energy, commerce and industry for discussion before the final bill may be presented in parliament for voting. it is expected that the bill will be voted into law during early spring of 2024.

the provisions of the mobility directive are designed to provide a harmonised legal framework for companies within the european union to convert, merge, and divide across borders and set the minimum safeguard requirements for, inter alia, members, employees, and creditors of the companies participating in the reorganisation. the new bill will be introduced and incorporated into the cyprus companies law.

key provisions of the mobility directive include the following:

scope of the mobility directive

the mobility directive introduces a harmonised regime for cross-border conversions and divisions of limited liability companies and amends certain of the existing provisions on cross-border mergers within the eu, in respect of which an aligned legal framework was already in place. the rules and conditions applicable to the three types of cross-border reorganisations are now broadly the same, establishing consistency and greater certainty for both practitioners and businesses.

while the mobility directive covers a cross-border division in which the recipient entity would be a newly incorporated company, it does not cover a scenario where the recipient entity would be an existing company. when implementing the mobility directive, certain jurisdictions, such as belgium and germany, have expanded the scope of cross-border divisions to cover existing companies also. the approach to be taken in cyprus will be confirmed upon adoption of the final bill.

protection of shareholders

the mobility directive provides for a “cash out right” for dissenting shareholders. in addition, shareholders now have a right to challenge the share exchange ratio in mergers and divisions and claim additional compensation.

enhanced scrutiny by authorities

the competent authorities which, pursuant to domestic law, are responsible to sanction the reorganisation by delivering a “pre-reorganisation certificate” are now able to prevent the implementation of a reorganisation on the ground that it is abusive or fraudulent, or designed to circumvent applicable laws or for criminal purposes. therefore, the authorities’ competence, under the mobility directive, extends further than checking that all formalities and procedures have been complied with, as is currently the case under the companies law. it is possible that this augmented discretion will result in more substantial scrutiny of proposed reorganisations.

creditor protection

the interests of creditors whose claims predate the publication of the draft terms of reorganisation and whose claims have not yet fallen due, must be taken into account and be safeguarded under the provisions of the mobility directive.

employee participation

employees must, under the mobility directive, be provided with adequate information and are offered consultation rights in respect of the proposed reorganisation.

the above are some of the provisions which are expected to be introduced into the companies law along with a new procedural framework for the implementation of the cross-border reorganisations within the eu.

look out for our further updates on the companies law amendments to be released once the bill has been passed.

join us over the next nine months as global managing partner william peake sits down with each of our office managing partners to learn more about them and their jurisdictions. each episode will discuss a broad range of topics from the personal to the professional, sharing insights shaped by their local experiences.

in our second episode, william sits down with bermuda managing partner henry tucker, who shares his legal journey that took him to london, hong kong, and the bvi before finally returning home to manage our bermuda office in 2023. he also chats about why bermuda is a leading offshore centre, the tricks to managing a practice and being an omp, and he shares advice for junior lawyers starting their careers.

an industry to which most have been largely oblivious for decades, now sits perched in prime position to rival and potentially poised to overtake mainstream lending. having gained significant market share of the lending market, sufficient to rival many institutional lenders, private credit (also known as direct lending) is now trending as an alternative form of financing for companies seeking an alternative to traditional/institutional lending.

private credit refers to debt financing provided by non-bank lenders to companies and while it may be tempting to treat it as if it is a new source of lending, in reality it is not. it has existed as a form of financing for some time (having started to really take root on the heels of the 2007-09 global financial crisis when a stricter regulatory environment placed increased capital adequacy requirements upon banks) its more recent popularity can be attributed to the covid-19 pandemic, an ever-tightening regulatory environment for banks and inflationary factors within the market which have propelled banks into a posture of tightened lending standards. while we should all want a stronger, more robust banking sector, the net effect of tightening protocols was the ushering in of slower, more cumbersome processes and limitations for borrowers dealing with institutional lenders. this created the inevitable liquidity hole in the market and in came private credit to plug that hole.

the current macroeconomic conditions, fuelled by a cocktail of elevated interest rates and inflation, have been important factors in the rising popularity of private credit, creating favourable conditions for it to expand its reach. as a market, the approach of private credit (when compared to its institutional lending counterpart), is one of flexibility and innovation, features which are appealing to borrowers. while banks must operate within certain regulatory and procedural strictures, lenders within the private credit market have the flexibility to provide customizable and bespoke lending products to borrowers. at a time of increased fiscal stress for many companies, the appeal in dealing directly with a lender that can provide a customized loan product that suits the needs of the company is obvious. much of that appeal emanates from the availability of customized direct loan products and lenders who are willing to adopt a tailored approach to each loan transaction. typical financing sizes range from $1 million to us$250 million and while the pricing of such loans can be higher than that in institutional lending, borrowers are willing to pay those costs for what tends to be a quicker simplified and often tailormade process. many lenders also approach lending as if they are partnered with the borrower and as a result they adopt business models that are linked to the success of the borrower.

it is often said that small and medium sized businesses (smes) are the lifeblood of most economies – and these businesses undeniably need capital in order to operate and expand. these needs have fed a demand for financing and in the absence of ready financing from banks, smes have turned to private credit sources. operating in what is said to be a us$1.6 trillion industry, lenders such as private credit funds, private equity firms and institutional investors with an abundance of money are now in a position to rival mainstream lending and are deploying a multiplicity of flexible lending strategies (such as direct lending, distressed debt, mezzanine financing, asset-based lending and specialty finance) in order to do so.

in essence, the data suggests that the primary advantages for borrowers who obtain financing through private credit include (i) the relationship driven approach adopted by lenders which is fuelled by collaboration between lender and borrower with the common goal of creating circumstances in which a borrower can thrive and grow its business; (ii) the fact that the market provides increasingly innovative and creative financing solutions for borrowers operating in underserved markets such as real estate and infrastructure financing. by aiming to understand each market in which borrowers operate, lenders have gained the trust and appreciation of the borrowers whom they service and (iii) the efficiency of processing loan applications.

such features are geared towards attracting borrowers and with no real indicators that the market is shrinking or likely to go away any time soon, it seems clear that so long as the market continues to demonstrate the levels of flexibility and innovation that it has thus far, it will continue to grow and gain market share from banks.

our global managing partner, william peake, gave his predictions for 2024 in an interview with bradley collins, ceo of legal tech talk, for the latest edition of the legal tech talk series, published by the modern law magazine.

from the rise of generative ai, specifically small language models, to the buzz of ai "agents," the legal sphere is on the brink of a technological renaissance. at the heart of the conversation is our commitment to innovation, encapsulated by our harneys wave and h3 initiatives - blending tech-savviness with legal acumen to provide innovative solutions for clients and to connect tech builders and entrepreneurs with verified service providers in web3, blockchain, and cryptocurrency domains respectively. read the full interview below to explore these themes and more.

what were the biggest industry shifts in 2023?

necessity is the mother of invention, and the uncertain global landscape of 2023 paved the way for seismic developments in processes and technology.

inflation rates soared, geopolitical tensions bubbled up, and sanctions and regulatory changes occurred at a bewildering rate of knots. amidst this backdrop of economic instability, individuals reassessed their investment strategies to focus specifically on value retention while markets fluctuated. and the knock-on effects of covid continued to ripple.

running parallel to these macro changes was the legal industry's recognition of artificial intelligence. publications were replete with studies on the opportunities presented from this new technology as well as the challenges that emerged. law firms are taking brave steps to ensure they're not left behind. the message is clear, the legal world is going to look unrecognisable in five years' time, let alone ten years. ai continues to throw up its own existential problems but the efficiencies and value add for clients are real.

is this the end of law firms as we know it? let's see what 2024 and beyond brings.

what kind of evolution in terms of trends are we going to see in 2024 in terms of priorities, tech, and culture in the legal industry?

in 2024, we anticipate accelerated technological progress and substantial changes in client expectations. this see-saw is critical to acknowledge when contemplating this question. in the first instance, it will necessitate that legal service providers adopt a proactive and forward-thinking approach. to flourish, the industry must not only actively embrace and leverage advancing technology but must also cultivate a culture of adaptability. this dynamism will need to be harnessed to formulate innovative service delivery methods that align with client expectations.

already in 2024 there are some notable trends gaining momentum. one such trend is the rise of generative al, specifically small language models (slms). while large language models like chat gpt are creating a splash in the market, it's the smaller models that have real potential for practical application and to revolutionise processes in law firms. by integrating slms into their everyday workflows, law firms can achieve task-specific excellence, enhancing their efficiency and accuracy.

one area of ai that is generating a buzz is the development of 'agents' - applications designed to execute tasks with high efficiency. imagine having an intelligent research assistant at your disposal, powered by a small language model? some law firms have already embraced this technology, and the possibilities to amplify productivity are endless. this could significantly streamline research processes, reducing time spent on mundane tasks and allowing more focus on strategic, forward-thinking decision-making.

at harneys, our commitment to embracing alternative solutions is evident in our harneys wave and h3 initiatives. harneys wave is our tech and innovation hub. in brief, it connects legal expertise with technology to provide innovative solutions for clients faced with esoteric legal issues.

our h3 initiative is designed to connect tech builders and entrepreneurs with verified service providers in web3, blockchain, and cryptocurrency domains. functioning as a one-stop shop, h3 provides specialised expertise in legal compliance, accounting, audit support, and dao management. this initiative emerged from discussions we had with clients on the challenges they faced when navigating the rapidly changing web3 landscape. in response, we sought creative ways to leverage evolving technology, develop innovative delivery methods, and prioritise the user experience.

this initiative emerged from our lawyers' deep understanding of the challenges faced by builders and entrepreneurs navigating the rapidly evolving web3 landscape. in response, we sought creative ways to leverage evolving technology, develop innovative delivery methods, and prioritise user experience whilst being trusted legal advisors to our clients, working alongside them to achieve their goals.

the world, along with the legal industry, is experiencing transformative changes. a promising future awaits only those who are ready to embrace technology.

the interview was originally published by modern law magazine.

join us over the next nine months as global managing partner william peake sits down with each of our office managing partners to learn more about them and their jurisdictions. each episode will discuss a broad range of topics from the personal to the professional, sharing insights shaped by their local experiences.

in our first episode, william sits down with singapore managing partner lishi fong who joined harneys in 2019. lishi shares her career journey, what it’s like working and living in singapore, and the challenges of managing your personal and professional life as a lawyer.

on 26 january 2024, the british virgin islands’ long-awaited whistleblower act, 2021 (the act) came into force, having been published by a notice in the gazette on 25 january 2024.

the act has been on the horizon for the past few years, with the draft legislation presented to the house of assembly in early 2021. now that the act is in force, it is imperative that bvi companies, particularly those with employees in the bvi, understand the full extent of the protections afforded to whistleblowers and the obligations on entities in receipt of concerns.

blowing the whistle

any person can “blow the whistle” in respect of another person or an institution, which importantly includes the employer or fellow employee of that person.

the act relates to “disclosures of impropriety”, which occurs in circumstances where a person has “reasonable cause to believe” that one or more of the following activities has, will, or is likely to be committed by another person or institution (whether a public or private body or organisation):

• a crime
• other (non-criminal) breaking of the law
• a miscarriage of justice
• waste, misappropriation, or mismanagement of public resources in a public institution
• degradation of the environment
• endangerment of the health or safety of an individual or a community

importantly, the disclosure (and the person making it) will only be protected if:

• the disclosure is made in good faith;
• the whistleblower has reasonable cause to believe that the information disclosed and the specific allegation of impropriety are substantially true; and
• it is made to one or more specific persons or institutions

the specific persons and institutions a disclosure of impropriety may be made to include the employer of the whistleblower, as well as the governor, the premier, the attorney general, the commissioner of police, a cabinet minister or junior minister, a member of the house of assembly, the complaints commissioner, the auditor general, and the head of a recognised religious body. in deciding who the disclosure is made to, the act sets out various considerations that the whistleblower may make (such as a reasonable fear of intimidation, or fear of the destruction of evidence).

the act also sets out details of the procedure for blowing the whistle, including consideration for whistleblowers who may be illiterate or suffering from a disability.

investigations and evidence

the act highlights the confidential nature of all disclosures made (including serious penalties for any person breaching such confidentiality), as well as the specific steps that must be taken by the person receiving the disclosure, which includes an obligation to submit written details to the attorney general within seven days.

detailed investigations into the concerns must be carried out expeditiously, with serious penalties (including imprisonment) for those found to be guilty of concealing or suppressing evidence as part of such an investigation.

protection for whistleblowers

critically, the act provides protection to whistleblowers, confirming that they must not be subjected to victimisation by their employer or by a fellow employee (which includes dismissal, suspension, redundancy, harassment etc), nor by any other person.

any person experiencing such victimisation can submit a complaint to the complaints commissioner, with further rights of action available to the victimised individual thereafter.

whistleblower reward fund

a much-talked about element of the act is the creation of financial incentives for whistleblowers, including the potential offer of legal assistance to individuals complaining of victimisation, and the establishment of a “whistleblower reward fund”.

this fund, made up of voluntary contributions and other money allocated by the house of assembly, is designed to provide rewards to whistleblowers, particularly those whose disclosures lead to a conviction or the recovery of money. amounts rewarded include a certain percentage of the monies recovered or an amount which shall be determined by the governor, after consultation with cabinet.

moving forward

bvi businesses, particularly employers, should become familiar with the act to ensure that they can appropriately identity a disclosure of impropriety when it is made, and have procedures in place for adequately escalating and investigating any concerns, as well as preventing against victimisation.

with this in mind, internal whistleblowing policies should be reviewed or implemented to ensure they reflect the new provisions of the act.

the content of this article intends to provide a general guide to the act. if you require further information on the act, or you would like our assistance in reviewing or preparing your whistleblowing policy, please contact the authors for more details.

the british virgin islands (the bvi) is a supernova destination for property purchases, with purchasers attracted to the beauty of the territory and an increased demand for real estate in locations that provided safe havens during the pandemic.

as with all important decisions, it is critical to understand the practical considerations ahead of time. here are the seven key steps to purchasing property in the bvi:

1. letter of intent

the first stage of most property transactions is the buyer and the seller agreeing the principal terms of the transaction. these terms are recorded in a letter of intent, head of terms or offer letter and a deposit is usually paid upon execution of this document. the letter of intent is usually stated to be subject to contract, which means that until the sale and purchase agreement (the spa) has been entered into, there is no legal commitment by either party.

2. deposit

a deposit of 10 per cent of the purchase price is usually required by the buyer. the deposit is paid to the real estate agent or to the seller's lawyers before or upon signature of the spa and would normally be placed in an interest-bearing escrow account. the interest earned follows the deposit. if the sale proceeds normally, the seller will be entitled to the interest on the deposit at completion. if the sale does not proceed and the buyer recovers the deposit, then the buyer will be entitled to the interest.

3. sale and purchase agreement

the spa is normally prepared by the seller's lawyers and submitted to the buyer's lawyers for amendment or approval. it is usually made conditional on, amongst other things, property related surveys, inspections and licences, and securing adequate financing. if the buyer is unable to pay the balance of the purchase price at completion, the buyer is likely to, at least, lose the deposit. once the spa has been entered into, the buyer is legally committed to buy and the seller to sell at the stated price, subject to the agreed conditions.

4. land holding licence

buyers who are not "belongers" (ie persons deemed to belong to the bvi) will need to obtain a non-belongers land holding licence to hold the property. the spa will contain this condition also. purchasers of developed property will typically be granted a licence for a specific property with conditions (enforced by penalties) not to undertake any alterations to the property without the consent of the cabinet of the bvi. the application process for a licence can take two - four months. however, a spa will typically provision for twelve months to allow sufficient time for the buyer to secure the licence. if the licence is not secured within this timeframe, the spa will typically allow the parties to agree an extension of time, or for either party to terminate (without liability to either party), in which case the buyer secures the return of the deposit.

5. completion

completion is usually arranged to take place within a specific time after all the conditions in the spa have been satisfied. upon completion, the seller and the buyer sign an instrument of transfer, which records the transfer of the property from the seller to the buyer. if the buyer is borrowing money to fund the purchase of the property, then the buyer will need to sign loan documentation at completion. the balance of the purchase price is payable at completion. it is generally upon completion that the buyer takes possession of the property.

6. stamp duty and registration

immediately after completion, the buyer's lawyers will present the transfer to inland revenue for payment of stamp duty. stamp duty is calculated as a percentage of the higher of the purchase price and the market value of the property. for non- belongers, this is 12 per cent. in each case, a copy of a recent appraisal must be submitted as evidence of market value.

after stamp duty has been paid and the transfer stamped, the buyer's lawyers will submit the transfer for registration at the land registry. personal attendance in the bvi of the buyer or seller is not required to complete, provided the original closing documents are present at completion. many sales have occurred virtually since the global events of the pandemic and buyers are very comfortable with viewing and completing virtually, especially those familiar with the property, realtor, and destination.

7. tax planning

there are no taxes on income, capital gains or lifetime gifts in the bvi. neither are there inheritance taxes, estate or succession duties in the bvi on transfers of property on death. aside from the stamp duties referenced above, there is a land and house tax assessed on property (together called property tax) which is payable each year and is assessed at a very low rate, when compared to property-related taxes assessed in other jurisdictions.

this article was originally published by international investment on 4 may 2021 and was updated by the author in january 2024.

given the increased need to retain talent in a candidate-driven market, harneys’ transactional team in the bvi has seen a considerable uptick in requests for equity incentive schemes in both the start-up and listed company market.

george weston, corporate partner, and charlotte allery, employment associate, consider some of the different options and the practical and legal pitfalls a business should consider before introducing such a scheme.

download the pdf to read more.

this summary outlines the key considerations for data controllers in the cayman islands dealing with a personal data breach.

download the pdf for more.

on 1 december 2023, the ministry of environment, natural resources and climate change (the menrcc) in the british virgin islands (bvi) released long-awaited details of a change in the policy which governs the non-belonger land holding licence (nblhl) process.

the policy changes, approved by cabinet, will come into effect from 18 december 2023 (the effective date), subject to any legislative amendments or ‘market conditions’. important excerpts provided by the menrcc dated 22 november 2023, outlining the key changes and principles for non-belongers, are set out below:

• increased development timeframes: the timeframe to complete a development subject to a nblhl has been increased from three years to five years, with the option remaining, to extend by a further two years upon request and payment of the relevant application fee. once this seven year period (the development period) has expired, no further extension will be granted, unless the applicant can provide satisfactory reason(s) for non-development during the development period to the governor.
• confirmation of forfeiture: the governor may engage in forfeiture proceedings at the end of the development period if no development of land has commenced. this may involve forfeiting the land to the crown, or disposal via the usual sale of property procedures.
• rules on rentals: non-belongers may rent their property (ie no restrictions on licence by the menrrc), providedthey obtain a trade licence and make arrangements with the inland revenue for payment of accommodation taxes. rental fees will attach to these rentals at a rate of $2.00 per square feet of covered development and $.50 per square feet of uncovered development. more information on fees and penalties can be found in our legal guide.
• clarification on penalties: non-belongers who breach the conditions of a nblhl will be subject to a penalty, including where development differs to plans approved by the planning authority. twelve categories of penalties have been established together with the associated monetary penalties for each category. these penalty categories are set out below. property owners should familiarise themselves with these new categories of penalties in order to have proper management of expectations once an application for a nblhl is made.
• property advertising and registration: as is the case at present, all properties for sale must be advertised in a local newspaper and online for four consecutive weeks. further, the non-belonger must register the land or property on the menrcc’s website for the same period.
• failure to comply with mortgage: where a lending institution is selling the property due to the licensee's failure to service a mortgage, the licence holder will be required to pay a penalty.
• amendment fees: separate to the fees for an extension of time, application fees will be payable on all other amendments to nblhls.
• minimum capital investment: a minimum capital investment on undeveloped land of us$350,000 is required. the town and county planning department will require a non-belonger to adjust to meet this amount. a penalty will be due where the requirement is not met.

alongside the policy excerpts and the new schedule of the nblhl fees and penalties that will be charged, a new outline of the application process and supporting documents required for future nblhl applications has also been provided.

further details can be found in our legal guide available on request.

if you need assistance with your nblhl application or require further clarification on the above principles, please feel free to contact your usual harneys contact for further assistance.

table of penalties (applicable from effective date)

further to our previous client alert, the proceeds of crime (amendment) act 2023 (the amendment act) was gazetted on 6 october 2023.

the amendment act signifies the commencement of a consent framework designed to introduce specific anti-money laundering (aml) defences conditional on obtaining consent for certain actions, which will be beneficial to financial institutions, particularly banks and payment service providers.

while the amendment act is not yet in force, the timing of its enactment will hinge on the availability of necessary resources within the cayman islands financial reporting authority to support a functional consent regime. we anticipate that this may take some time to materialise.

the new framework will address the handling of suspicious activity reports (sars) and how they interact with the defences against money laundering offences. this includes clarifying the interplay between internal sars and external ones and the implications for aml defences.

we will continue to monitor developments, and once the amendment act is in force, we will provide further insights as necessary. should you have any queries or require further information in the interim, please reach out to your usual harneys contact.

in september 2023, the stock exchange of hong kong (sehk) published a consultation paper on gem listing reforms (consultation paper) expressing its commitment to small and medium-sized enterprises in providing a supportive environment where they can thrive, ultimately contributing to the continued prosperity of both hong kong and the global economy.

established in 1999, gem is a platform designed for small and mid-cap companies to access capital markets and raise funds for growth. since 2019, the number of new listings and funds raised on gem have significantly declined. in 2022, no new issuers listed on gem.

in response to feedback from a broad range of stakeholders on i) high minimum eligibility thresholds for listing; ii) high cost of listing of gem compared to the amount of funds that they could raise by listing; (iii) lack of streamlined transfer mechanism to the main board; and iv) the need to ensure protection for investors, the sehk has made the following key proposals in the consultation paper:

• new alternative eligibility test – a new financial eligibility test targeting high growth enterprises that are heavily engaged in r&d activities. gem listing applicants using this new test must have the following:
  • an adequate trading record of at least two financial years;
  • an expected market capitalisation of at least hk$250 million at the time of listing;
  • revenue of at least hk$100 million in aggregate for the two most recent audited financial years, with year-on-year growth over the two financial years; and
  • incurred r&d expenditure of at least hk$30 million in aggregate for the two financial years prior to listing, where the r&d expenditure incurred for each financial year must be at least 15 per cent of its total operating expenditure for the same period.
• removal of mandatory quarterly reporting requirement – given that gem listing applicants are usually well established with a long history of operations at the time of their application, and both gem and main board listing rule requirements have converged following previous reforms over the years, there may be less of a need to require gem to report more frequently than main board issuers.
• new streamlined transfer mechanism – relaxation of its rules relating to sponsor appointment/due diligence and publication of a listing document. a transfer applicant will no longer be required to appoint a sponsor to conduct due diligence for its transfer or issue a “prospectus-standard” listing document. a transfer applicant will only be required to submit certain application documents as required by the sehk and publish an announcement as soon as practicable before the intended date dealings on the main board.

other proposals relate to (i) the reduction of the post-ipo lock up period for controlling shareholders; (ii) the removal of the requirement for the appointment of a compliance officer; and (iii) the reduction of the period for the appointment of a compliance adviser.

profile of gem listed issuers

most gem listed issuers belong to one of four industries: consumer discretionary, information technology, properties & construction, and industrial. most of the gem listed issuers derive the majority of their revenue from hong kong (46 per cent), followed by mainland china (33 per cent) and other regions (21 per cent).

over 80 per cent of the gem listed issuers are incorporated in the cayman islands mainly due to its attractiveness, including, amongst others, trusted and reliable legal systems, corporate law flexibility, and tax neutrality. around 9 per cent of gem listed issuers are incorporated in bermuda, which is becoming less common in recent ipo listings in hong kong.

for more guidance on this subject, please get in touch with the authors or your usual harneys contact.

the corporate team at harneys advises on complex cross-border transactions involving the british virgin islands, cayman islands, bermuda, luxembourg, and cyprus corporate vehicles. the team’s significant track record includes advising on high-profile private equity transactions, landmark ipos, public and private m&a, and joint ventures. the firm’s expertise lies in advising entities listed or listing on all major stock exchanges, including the new york stock exchange, nasdaq, the london stock exchange, aim, the hong kong stock exchange, the shanghai stock exchange, and the luxembourg stock exchange.

during the summer, the luxembourg parliament ratified the new luxembourg-uk double tax treaty signed on 7 june 2022, along with a protocol. this last luxembourg legislative step will end many years of negotiations between the two countries and trigger the treaty's entry into force in 2024.

the new treaty is likely to significantly impact tax structuring with the uk (especially in relation to real estate investments) as some of the new treaty provisions are materially different from the double tax treaty currently in force, which dates back to 1967. the new treaty widens the definition of resident and is more beneficial for luxembourg outbound dividend payments.

in a nutshell, the key changes are:

• full withholding tax exemption on most luxembourg dividend distributions
• extension of the treaty benefits to certain collective investment vehicles/investment funds
• reallocation of taxing rights in relation to real-estate rich companies to the country where the real-estate is located

full exemption from withholding tax

dividend

under the new treaty, dividends would benefit from a full exemption if distributed to a recipient who is the beneficial owner of the payment and resident in the uk . this should be seen as a major step as the old treaty, which followed the oecd model tax convention, provided for a reduced withholding tax rate of only 5 per cent on dividend distribution in certain conditions. this new provision would not affect outbound dividends distributed from the uk, as the uk has no withholding tax on dividend distribution. still, it is important for outbound dividends distributed from luxembourg as the luxembourg domestic tax on outbound dividends is 15 per cent.

even if a full exemption is also available under luxembourg domestic law in applying the luxembourg participation exemption regime, since the uk has left the european union, it was more difficult in practice to rely on the domestic provision to benefit from the full exemption. indeed, one of the conditions to benefit from the luxembourg participation exemption for companies non-resident in the eu is to be subject to a tax comparable to luxembourg corporate income tax (at least 8.5 per cent) and assessed on a tax base similar to the luxembourg tax base (the so-called comparable income tax test).

however, the withholding tax exemption on outbound dividends would not be available for dividends paid out by investment vehicles deriving income and gains (directly or indirectly) from immovable property and who distribute most of its income annually and whose income is exempted from tax. this new provision is in line with uk domestic law, which applies a withholding tax on dividends distributed by certain types of uk real estate holding companies (eg uk real estate investment trust – reit). in such case, however, the withholding tax is limited to 15 per cent.

interest and royalties

even if, from a luxembourg perspective, interest and royalty payments are, in principle, not subject to withholding tax, the new treaty confirms this and reduces the rates to zero per cent for royalty payments by four stating that such payments should only be subject to tax in the contracting state where the beneficial owner is resident.

extension of the treaty protection to certain collective investment vehicle/investment funds

the definition of resident is extended to include “recognised” pension funds and collective investment vehicles.

the protocol describes in further detail what constitutes a recognised pension fund. for luxembourg, it notably includes pension-savings companies with variable capital (sepcav), pension-savings association (assep), pension funds subject to the supervision and regulation of the insurance commissioner, and social security compensation funds.

collective investment vehicles (civs) will qualify as residents under the treaty if they are incorporated as a corporate body for luxembourg tax purposes (private limited liability company (sàrl), public limited liability company (sa), and partnership limited by shares (sca).

the civs should either be:

• an undertaking for collective investment in transferable securities (ucits) subject to part i of the law of 17 december 2010
• an undertaking for collective investment subject to part ii of the law of 17 december 2010
• a special investment fund (sif) subject to the law of 13 february 2007
• a reserved alternative investment fund (raif) subject to the law of 23 july 2016 (with the exception of raif subject to article 48 (this is the risk capital, sicar like raifs)
• any other luxembourg investment fund, arrangement, or entity established in luxembourg that the competent authorities of each contracting state agree to treat as a collective investment vehicle

in such case, these entities receiving income from the uk would be treated as individuals and be considered beneficial owners provided that equivalent beneficiaries own at least 75 per cent of the interest in the civ or if the civ is a ucits within the meaning of eu directive 2009/65. the protocol defines the notion of equivalent beneficiary as a resident of luxembourg or any other jurisdiction with which the uk has signed an exchange of information agreement and who would be entitled to at least as low as the rate claimed under the luxembourg – uk double tax treaty.

reallocation of taxing rights in relation to real-estate rich companies

the new treaty redefines the taxing rights between contracting states and aligns the capital gains provision with the oecd model tax convention.

under the current double tax treaty, capital gains realised on the sale of shares by a luxembourg parent in a uk subsidiary should only be taxable in luxembourg, irrespective of the type of assets held by this subsidiary. on that basis, these gains could be taxable in luxembourg in the hands of the luxembourg parent but similarly could benefit from an exemption if the conditions of the luxembourg participation exemption are met.

under the new treaty, if a luxembourg parent sale its shares in a uk subsidiary which derives more than 50 per cent if its value directly or indirectly from immovable property the taxing right will be allocated to the uk. luxembourg would lose its right to tax such capital gain but also the possibility to exempt it.

entry into force

the treaty has been ratified in the uk and luxembourg; on that basis, it should enter into force in luxembourg as of 1 january 2024.

for the uk, the entry into force will be as follows:

• 1 january 2024 for withholding tax
• 1 april 2024 for income tax and capital gains tax
• 1 april 2024 for corporation tax

final remarks

to conclude, the new treaty between luxembourg and the uk aligns with the oecd model tax convention and redefines the taxing rights between the two countries. additionally, the particularity of luxembourg and the importance of the investment fund sector is recognised by granting treaty benefits to luxembourg funds under certain circumstances. the new treaty should therefore open the door to new opportunities for investors.

this article was originally published in agefi in october 2023.

the cayman islands monetary authority’s (cima) new corporate governance and internal controls requirements are now in force (the rules) from 14 october 2023.

what is the impact of the deadline?

the cayman islands monetary authority’s (cima) new corporate governance and internal controls requirements are now in force (the rules) from 14 october 2023.

what do i need to do now?

if not already done, cima regulated entities should review their internal governance and control frameworks and make the necessary adjustments to ensure compliance with the new requirements.

do the new rules also apply to funds?

the rules are applicable to all regulated entities, including private funds regulated under the private funds act and mutual funds regulated under the mutual funds act. however, the rules are subject to a proportionality test based on the entity’s size, complexity, structure, the nature of its business, and its risk profile.

what is the significance of cima’s decision to make these new requirements a rule?

the rules are legally binding and non-compliance could result in fines or other regulatory action by cima. however, cima has issued a statement of guidance corporate governance for mutual funds and private funds which focuses on elements of the corporate governance requirements with which funds should already be operationally compliant.

what do i need to do to comply with the new corporate governance requirements?

funds should focus on cima’s statement of guidance on corporate governance for mutual fund and private funds (april 2023) (the guidance). the guidance covers:

1. the importance of the oversight function of the “operator”. the operator is “the board of directors where the entity is a corporation, the general partner where the entity is a partnership, the manager (or equivalent) where the entity is a limited liability company, and the board of trustees where the entity is a trust business”
2. the management of conflicts of interest
3. the importance of holding and the content of operator meetings
4. the duties of the operator (including exercising independent judgment, effective oversight and always acting honestly and in good faith)
5. documenting full, accurate and clear written record of operator meetings and determinations

how are the new internal controls requirements met?

the new internal controls requirements are separate from and not specifically addressed by the corporate governance rules and guidance. a fund should consider the new internal controls for the regulated entities rule and statement of guidance in light of “the size, complexity, structure, nature of business and risk profile of its operations”.

the new internal controls requirements entail:

1. a controlled environment
2. a dynamic and iterative risk identification and assessment process
3. control activities which are documented in policies and procedures
4. segregation of duties commensurate with the size, complexity, structure, nature of business and risk profile of the fund's operations and where segregation of duties is not reasonably practical, establishing and implementing appropriate alternative control activities
5. systems that provide information across the operation of the fund that are “relevant, reliable, timely, accessible, and provided in a consistent format”
6. continuous monitoring and evaluation of internal control systems considering changing internal and external conditions
7. “effective and comprehensive audits of the internal control system carried out by operationally independent, appropriately trained, and competent staff”
8. reporting internal control deficiencies “in a timely manner to the appropriate parties for corrective action”

how harneys can assist?

for a fixed fee, harneys can assist in reviewing existing fund policies and procedures, the fund’s offering documents and constitutional documents and, if necessary, preparing a compliance manual that addresses the requirements for policies and procedures in the corporate governance and internal controls requirements. in addition, we anticipate that most funds will need to make some changes to their offering documentation or make some up to date investor disclosure about the requirements of the new corporate governance and internal controls requirements. we can also prepare meeting agenda and advise on the governance elements of meetings and annual reports.

for guidance relating to your ongoing regulatory compliance obligations, please speak to any of the harneys attorneys listed in this briefing or your usual harney’s contact to discuss your needs.

in april 2023, as part of its continuing desire to remain at the forefront of global funds regulation, the cayman islands monetary authority (cima) introduced a new set of rules and guidance relating to corporate governance and internal controls for all entities that fall under its regulatory umbrella. we have issued alerts about the regime here in may 2023 and here in september 2023.

this set of faqs is for managers, operators, and owners of investment funds registered or licensed under the mutual funds act or the private funds act.

what are the new corporate governance and internal control rules and statements of guidance that have been issued by cima?

cima’s new corporate governance and internal controls requirements are based on creating a culture of governance, policies, procedures, systems, and controls that generate trust in the relevant fund for its stakeholders (including investors and the regulators) as well as requiring evidence of a fund’s compliance with the rules and guidance.

to whom do the new rules and statements of guidance apply?

the new rule and statements guidance apply to all entities that are registered with or licensed by cima under all regulatory laws. this includes banks, trust companies, company managers, fund administrators, and virtual asset service providers.

the rules and statements of guidance also apply to mutual funds and private funds that are registered with cima and there is a sector specific statement of guidance on corporate governance for investment funds. this faq is for funds and their managers and operators. we will have other guidance available for licensees and other registered entities.

in the context of investment funds, the rules and statements of guidance are to be adhered to by the governing body and its members. the governing body for a fund is:

• the board of directors (collectively) for an exempted company (including exempted companies registered as segregated portfolio companies)
• the managers/managing members for a limited liability company
• the general partner for an exempted limited partnership
• the trustee of a trust

where the governing body is itself another entity (eg company or partnership), the rules and statements of guidance apply to that entity’s own board or group of managers. where a fund’s operator has a more complicated management structure, the effective rule of thumb is that the rules and statements of guidance apply to the group of individuals who ultimately control the operations of the fund in a direct fiduciary capacity (ie not the investment manager).

will funds need to confirm compliance with the new rules and statements of guidance to cima?

while the rules and statements of guidance do not contain a certification process, we currently anticipate that the fund annual return for private funds and mutual funds will be changed in 2024/5 to require some level of confirmation from the governing body of the fund along the lines of the current requirement to confirm how many operator meetings a year currently take place.

will cima inspect compliance?

we don’t currently anticipate that funds will be subject to the same inspection regime that applies to licensed entities under other regulatory acts. as noted above, there may be a requirement to effectively self-certify compliance. of course, cima may require information regarding compliance if the fund is subject to some sort of crisis event or serious investor complaint.

how can my fund comply with the requirement to have policies and procedures that address the corporate governance and internal controls rules and statements of guidance requirements?

harneys can assist in reviewing all existing fund policies and procedures, the fund’s offering documents and constitutional documents and, if necessary, preparing a compliance manual that addresses the requirements for policies and procedures in the corporate governance and internal controls requirements. in addition, we anticipate that most funds will need to make some changes to their offering documentation or make some up to date investor disclosure about the requirements of the rules and statements of guidance.

please contact the regulatory & tax group at harneys or your usual harneys contact to discuss your needs.

what committee requirements are included in the new corporate governance and internal control rule and guidance?

the governing body must establish an audit committee or equivalent that is commensurate with the size, complexity, structure, nature of business, and risk profile of the relevant fund and establish its frame of reference and scope of activity. for example, for an investment fund with two directors, it is likely that they will constitute the audit committee, but it is important that there is a written frame of reference and scope of activity for that committee.

what further changes to meetings must take place?

the members of the governing body of a fund must hold regular meetings, at least annually and, depending on the size, nature, and complexity of the fund, more frequently. a detailed agenda for each meeting should be circulated sufficiently in advance of any meeting of the members of the governing body to allow each member of the governing body to apprise him or herself of the matters to be discussed. the minutes should include the items that require periodic review, such as reports from outsourced service providers such as the investment manager and the administrator. harneys can assist in preparing agenda packs and in taking board minutes that address the relevant requirements. please contact our regulatory & tax team or your usual harneys contact to discuss your needs.

the consultation conclusions to the proposals to expand the paperless listing regime and other rule amendments published by the stock exchange of hong kong limited (the exchange) in june 2023 (the consultation conclusion) requires listed issuers to revisit their constitutional documents and if required, amend their constitutional documents to comply with the proposed rules relating to the paperless listing regime.

based on the consultation conclusion:

1. issuers will be required to amend their constitutional documents only if their constitutional documents contain any restriction to that effect (eg any provision that mandates hardcopy dissemination as the only means of dissemination of corporate communications). if such restriction is due to a requirement under the applicable laws and regulations the issuer is subject to, the issuer will be required to amend its constitutional documents to facilitate its compliance with the relevant rules, if and when, the relevant restriction is removed from the applicable laws and regulations.
   
   
2. if it is necessary for issuers to amend their constitutional documents under circumstances specified above, the following transitional arrangements will apply to issuers that are listed on the exchange before 31 december 2023:
   1. issuers that are not prohibited by applicable laws and regulations from complying with the relevant amended rules will have until their first annual general meeting following 31 december 2023 to make necessary amendments (if any) to their constitutional documents to facilitate electronic dissemination of corporate communications in accordance with the relevant rules
   2. issuers that are unable to comply with the requirements set out in the amended rules due to any restriction under any applicable laws and regulations would have until their first annual general meeting following the date on which the relevant restrictions are removed from the applicable laws and regulations to make the necessary amendment to their constitutional documents to facilitate their compliance with the relevant rules

listing applicants that are to be listed on the exchange on or after 31 december 2023 will be required to comply with the amended rules upon listing to the extent permitted under their applicable laws and regulations.

whether a listed issuer is required to amend its constitutional documents requires a thorough analysis on its constitutional documents. please feel free to contact us if you would like to understand more about this topic and to seek professional advice to ascertain whether the existing constitutional documents require amendments under the new paperless listing regime.

anyone familiar with the m&a arena will understand the critical role due diligence plays in the transaction. it allows the buyer to identify risks in the target business which may impact on the price, may identify items to be covered off through contractual provisions, and in some cases may lead to the buyer deciding not to proceed with the purchase at all.

the common law doctrine, caveat emptor (let the buyer beware) places the burden on a purchaser to reasonably examine property before making a purchase. this applies in relation to the sale of a company in the same way as buying a car, a boat or a house. perhaps even more than with other assets, a company carries with it significant tail risks – you are unlikely to face significant legal liability for how the previous owners drove a car, but a buyer can face financial, legal and reputational risks based on how the sellers ran a business.

download to read the full article.

the interest of some trust settlors and beneficiaries in environmental, social, and governance (esg) investing is perhaps the hottest current topic in our industry conferences and periodicals.

you will have doubtless read a substantial amount about the principle of esg in trusts, and we, as offshore lawyers, are occasionally less involved in that initial client discussion which tends to be with their onshore advisors or trust company.

this article was originally published with thoughtleaders4 private client magazine.

download the pdf to read more.

the ita is responsible for monitoring entities’ compliance with the economic substance (es) compliance and reporting requirements. the ita is now investigating entities and taking further action, where appropriate. this guide summarises the key points to consider, including various legislative changes made in 2022 to increase the ita’s enforcement powers, and addresses some frequently-asked questions.

key takeaways:

• every company and limited partnership registered in the bvi (an entity) has some obligations under the regime – even if an entity did not carry on any es relevant activity during a financial period, it must still submit a “nil return” in respect of such period and identify and report certain information under the reporting regime set out in the beneficial ownership secure search system act (the boss act). the director(s) or general partner(s) of every entity (as applicable) should therefore put in place appropriate mechanisms to ensure compliance with the relevant entity’s obligations under the es regime.
• the scope of the prescribed es information has been increased for financial periods of an entity commencing on or after 1 january 2022. entities should ensure that they are referring to the boss act as amended. part 12 of the ita es rules and explanatory notes has not yet been updated to reflect the new requirements due to delays caused by the eu in approving publication of the ita’s revised guidance.
• following amendments in 2022, the international tax authority act (the ita act) formally requires an entity to establish and maintain adequate systems and controls to ensure compliance with its es compliance requirements (if any) and its reporting obligations, as well as certain other regulatory legislation as prescribed by the ita act.
• the ita has broad investigation and enforcement powers and has previously indicated that it expects to see robust written evidence to show how an entity has classified itself for es purposes, which may include minutes or written resolutions. we generally recommend that an entity maintains a written record of its compliance procedures as part of its general obligation to maintain records and underlying documentation under bvi law. keeping such records for at least six years from the end of each financial period should be of real practical benefit in the event of an ita investigation.

download the pdf to read more.

the amendments to the bvi business companies act, 2004 (as amended) (the act) bring into focus the different options for owners and operators of bvi companies who may wish to rationalise or simplify group structures in terms of the jurisdictions in which they operate. historically a migration or continuation out of the bvi to another jurisdiction was a commonly employed mechanism as it was a relatively speedy process which required little paperwork.

since 1 january 2023, additional advertising and notification requirements designed to protect both shareholders and creditors of bvi companies seeking to migrate from the bvi have extended the timeframe in which a migration out of the bvi can be effected. this article seeks to explain the new requirements and to also remind readers of the statutory merger provisions in the act which may provide an alternative means of achieving a similar result.

continuation out of the bvi

under the act, a bvi company can continue out of the bvi and continue as a company incorporated under the laws of a jurisdiction outside of the bvi (the foreign jurisdiction) provided the laws of the foreign jurisdiction permit the continuation.

subject to a company’s memorandum and articles of association (the m&a) and the company being in good standing, a bvi company may continue out of the bvi if authorised to do so by either resolution of directors or by resolution of members (the authorising resolutions) although the laws of the foreign jurisdiction may require approval of the members regardless of the position in the bvi. the approving resolutions authorise the company’s continuation into the foreign jurisdiction and generally will also include matters such as the appointment or resignation of directors and/or other officers of the company and the approval and adoption of the company’s new constitutional documents and the company’s name, all of which will be stated to come into effect on completion of the continuation into the foreign jurisdiction.

as of 1 january 2023, a company wishing to continue into a foreign jurisdiction must:

• advertise a notice of its intention to continue out of the bvi in the government gazette (the gazette) and on its website (if any) which must set out which jurisdiction the company intends to continue into (the advertisement); and
• notify all of its members and creditors in writing of its intention to continue out of the bvi, (the notice requirements).

once the notice requirements have been complied with, the company must wait 14 days (the notice period) before it can file a notice of its intention to continue out (the notice of intention), which must include a statement that the company has complied with the notice requirements and notice period.

the directors are also required to make a declaration confirming that the laws of the foreign jurisdiction permit the continuation and that the company has complied with those laws. complying with the laws of the foreign jurisdiction (which may require amongst other things, a bvi law opinion that confirms the bvi company’s ability to continue under the laws of the foreign jurisdiction) will require cooperation with overseas counsel. the process of registration under laws of the foreign jurisdiction can generally begin and run in parallel to the continuation out process under the act.

to the extent that there are any charges registered over any property owned by the company, an additional written declaration must be filed (more details below).

once the bvi registrar of corporate affairs (the registrar) is satisfied that the requirements under the act pertaining to the continuation out have been complied with, the registrar will issue a certificate of discontinuance, the company’s name will be struck off the register of companies and a notice of its striking off will be published in the government gazette.

practical considerations

security registered over any property of the bvi company

if a company has a charge registered over any of its property, prior to the company’s continuation out, the company will need to have the charge released and provide the registrar with confirmation of its release. however, if the charge cannot be released, the company will need to provide the registrar with:

• written confirmation that the chargee has been notified of the company’s intention to continue out of the bvi; and
• that the chargee has given consent or has not objected to the planned continuation.

where the chargee has been notified and has not given its consent or has objected to the intended continuation out, the registered charge will operate in such manner that it continues to be a liability of the company for which the company will continue to be liable for despite its continuation out of the bvi.

timing considerations

the timing of a continuation out will be driven by the requirements under the act as well as the requirements under the laws of the foreign jurisdiction. the process of continuing out of the bvi is generally straightforward. however, the notice requirements (as of 1 january 2023) will now need to be incorporated into the continuation out timeline.

the gazette publication schedule should be consulted to ensure that the placement of the advertisement in the gazette is aligned with the timeline of the continuation out. the publication date of the gazette is scheduled to be every thursday of each week (the publication date). the advertisement will need to be lodged no later than the monday of the week before the publication date (the notice deadline). publication dates and notice deadlines may differ to accommodate public holidays.

once the notice of intention is filed with the registrar, the final continuation out documents can then also be filed.

merger with a foreign company – an alternative process to a continuation out

as an alternative to the continuation out process, a bvi company may also merge or consolidate with a company that is incorporated in a foreign jurisdiction (the foreign company), provided the laws of the jurisdiction where the foreign company is incorporated allow for the merger or consolidation.

a merger is the merging of two or more companies (the constituent companies or a constituent company) into one of the companies (the surviving company). while a consolidation, is the consolidation of two or more constituent companies into a new company (the new company).

under the act, there is flexibility to tailor the structure and terms of a merger or consolidation to meet specific needs and objectives and in particular, in respect of the shares of each of the constituent companies and the surviving company or new company.

shares of a constituent company may be cancelled, reclassified or converted into shares, debt obligations or other securities in the surviving company or the new company and shares of the same class may be treated differently. alternatively, shares may be converted into money or other assets or a combination of the two. this allows shares to be bought out in consideration for money or assets or combination thereof.

the process for a merger or consolidation under the act is fundamentally the same save for a few nuances in respect of the constitutional documents of the surviving company and the new company.

the process under part ix of the act (merger or consolidation)

in both a merger and a consolidation, the first step is to prepare a written plan of merger or consolidation (the written plan) which must be approved by the directors of the constituent companies and also by a resolution of the members of the constituent companies. the written plan must be circulated to all members of the constituent companies notwithstanding that some members of one (or more) of the constituent companies may not be entitled to vote on the written plan.

following the approval of the written plan, the articles of merger or consolidation must be prepared and filed with the registrar which must contain amongst other items, the written plan of merger or consolidation.

if the registrar is satisfied that the requirements of the act have been complied with, the registrar shall register the articles of merger or consolidation and issue a certificate of merger or a certificate of consolidation (as applicable).

a certificate of merger or consolidation is conclusive proof that all requirements under the act in respect of the merger or consolidation have been fulfilled.

merger or consolidation with a foreign company

a bvi company that intends to merge or consolidate with a foreign company must comply with the merger or consolidation requirements under the act, while the foreign company must comply with the applicable laws of the jurisdiction of its incorporation.

following a merger or consolidation, where the surviving company or the new company (as applicable) is to be incorporated under the laws of a foreign jurisdiction, a process agent in the bvi must be appointed and certain filings must be made with the registrar. these filings include filing the certificate of merger or consolidation that is issued by the respective foreign jurisdiction where the surviving company or the new company is incorporated.

the effect of a merger or consolidation with a foreign company is the same as in the case where two or more bvi companies merge or consolidate, except in so far as the laws of the foreign jurisdiction provide.

where the surviving company or the new company (as applicable) is to be incorporated under the laws of a foreign jurisdiction, dissenting minority members of the constituent company may require the constituent company to purchase its shares at fair value. if the proposed merger or consolidation was intra vires the constituent company and not otherwise unlawful, ordinarily the minority members would be bound by the majority and would not be able to restrain the constituent company from carrying on with the proposed merger or consolidation with the foreign company. the act therefore provides a remedy for such dissenting members in the form of a statutory right to have their shares bought out by the constituent company for fair value.

the onus is on the dissenting member to exercise its statutory rights and both the dissenting member and the constituent company are bound by the procedure and timeframes set out in the act. if the written plan is approved, those members who are eligible to dissent (generally, this is a member who gave a written objection to the transaction or a member who did not vote in favour of the action and was not required to submit a written objection prior to the approval of the transaction) will be given an opportunity to elect whether or not to dissent. a dissenting member may only elect to dissent in respect of the whole of its shareholding and not only a portion. where the dissenting member elects to dissent, the constituent company and the dissenting member are to try to agree on the fair value to be paid for the shares of the dissenting member. where an agreement on the fair value of the dissenting member’s shares cannot be reached, the constituent company and the dissenting member will each appoint an appraiser who in turn will appoint a third appraiser. the three appraisers will fix the fair value of the shares as at the date immediately prior to the date the transaction was approved. thereafter, the dissenting member’s shares will be acquired and cancelled.

similarities between a continuation out and a merger or consolidation

while a continuation out by a bvi company into a foreign jurisdiction and a merger or consolidation by a bvi constituent company with a foreign company are two distinct processes, the legal effect of each is not dissimilar.

a continuation out and a merger or consolidation have the following similarities in relation to the assets, debts and liabilities, and proceedings:

for more information on continuations and mergers or consolidations involving bvi companies, please contact the authors or your usual harneys contact.

our singapore managing partner lishi fong recently co-hosted a webinar with qcp capital ceo melvin deng. the webinar provided valuable insights into the evolving landscape of web3 and crypto, and it was a lively and interactive exchange between the speakers representing different aspects of this ecosystem.

if you missed the webinar, here are some of the key takeaways from the discussion:

institutional crypto is driven less by speculation and more by adoption

for many people the impression of crypto could be that it is just a highly speculative market, with activity centred around buying memecoins and more. however, much of this is debunked on the institutional side, with options trading businesses like qcp capital steadily growing through institutional adoption. melvin explained, “traditional investors like hedge funds would unlikely take on risk on very new coins even though the price can go up by a thousand times. they tend to prefer products like options which are similar to products in traditional markets.”

he further elaborated that option volumes have generally remained very robust throughout crises, and that this means that people who have invested into the options market have not necessarily exited.

crypto option vols are generally much higher than vols in traditional asset classes

source: qcp insights, laevitas, bloomberg

crypto vols hit 150 in 2022 at the height of the 3ac and ftx events, but they have now stabilised in the 50 - 60 vol range. in comparison equity vols sit at the 15 - 30 range, while fx vols are around the 10 - 20 range.
on an absolute basis, crypto vols have historically moved 300 per cent from the lows despite unprecedented black swan events, while equity vols have moved 600 per cent and fx vols have moved 400 per cent.

crypto has also started to perform as an anti-usd/fiat debasement hedge similar to gold

as an example of how crypto has been adding to its value as a diversifier in portfolios, melvin shared that “bitcoin (btc) has been trading a bit closer to be more like gold in the last two to three months than before.” btc’s correlation with gold has trended higher during the recent hiking cycle and during the recent banking crisis. this correlation is also approximately +40 per cent on a 30-day trend compared to -40 per cent a year ago.

source: qcp insights, laevitas, bloomberg

the recent banking crisis has also shown how crypto can act as an alternative store of value. debt ceiling concerns, in which the lack of a resolution would mean the us potentially defaulting on some of its loan obligations, have also added to the crypto proposition. for example, the current credit rating of the us is rated aa, while microsoft and jnj are rated aaa.

source: qcp insights, s&p

establishing a crypto fund in the bvi and the cayman islands

lishi continued the conversation by sharing more about the recent rise in crypto fund formation in the british virgin islands (bvi) and the cayman islands. the bvi and the cayman islands have long been recognised as two of the world's leading offshore financial centres. both jurisdictions offer a wide range of investment products and services, including open-ended and close-ended funds, to meet the diverse needs of investors from around the globe. offshore fund vehicles are highly flexible, tax-efficient, appropriately regulated structures that allow you to issue fund interests to investors from different parts of the world, which can be established quickly and cost-efficiently to ensure you meet both your budget and timeline. unlike singapore, the bvi and cayman funds do not require a standalone licensed fund manager to manage the fund and the fund can be managed by the board of directors or general partners of the fund. this flexibility works well for start-up fund managers in the crypto space. additionally, the versatile fund models offshore allow for subscription and redemption in digital assets which may be the preferred dealing currency for some clients.

virtual asset (service providers) act in the bvi

lishi also noted that the bvi, similar to the cayman islands, introduced the virtual asset (service providers) act (the vasp act) which came into effect on 1 february 2023. this means that virtual asset service providers (vasps) (eg exchanges, market makers, decentralised finance protocols etc) within the regime must be registered with the bvi financial services commission (the commission). the vasp act provides for a transitional (or grandfathering) regime whereby vasps operating prior to the coming into force of the regime, ie prior to 1 february 2023, may continue to operate provided they submit an application for vasp registration with the commission or cease regulated activities in or from within the bvi. this transitional period ends on 31 july 2023. once a vasp submits an application to the commission, the transitional period is extended to cover the time period that the commission considers and either approves or rejects the application. in consequence, the new regime should not interrupt the on-going business activities of a pre-existing vasp that engages appropriately with the commission.

this webinar provided valuable insights into the institutionalisation of digital assets, highlighting opportunities and risks in the evolving crypto landscape.

at the start of 2023, various changes to bvi company law took effect. taken together, the changes represent the most far reaching and significant updates in some time, perhaps since the bvi business companies act itself came into force.

the amending legislation consists of the bvi business companies (amendment) act, 2022 and the bvi business companies (amendment) regulations, 2022, which were both published on 15 august 2022, and came into force on 1 january 2023.

the changes can be broadly grouped into the following areas:

• transparency: for the first time, the names of current directors of bvi companies are available to the public. the legislation also includes a framework for a register of significant controllers to be introduced in the future.
• striking off, dissolution and restoration: companies which are struck off the register of companies (the register) for any reason will now be dissolved immediately. there are major changes to the process by which a struck off and dissolved company may be restored.
• financial returns: subject to limited exceptions, for the first time bvi companies, will be required to provide some financial information to their registered agent on an annual basis. this is expected to consist of a simple balance sheet and profit and loss statement. this financial return will not be publicly available, nor publicly filed.
• liquidations: there have been changes to the eligibility criteria for those who wish to act as a liquidator of a bvi company, and what documents and records they are required to obtain and retain.
• continuations: the process by which a company may leave the jurisdiction has been amended, with additional protections for creditors and shareholders.

the amendments have been introduced to ensure the bvi keeps pace with international best practices and has regard to international standards established by standard-setting bodies such as the global forum on transparency and exchange of information for tax purposes and the financial action task force. the jurisdiction remains committed to a place at the forefront of combatting financial crime in all its forms.

publicly available director names

a list of names of the current directors of a bvi company is now available via a search of the online virrgin system, or to persons who attend the offices of the registry of corporate affairs (the registry) in person. the registry charges an additional fee for the provision of such list, and such information is not automatically provided as part of a “standard” search. searches must be run against a specific company, rather than the name of a director.

the full register of directors, which companies have been required to file on a private basis since 2016, remains unavailable on a public search (unless the company has voluntarily elected for it to be disclosed, which is rare). that means personal information about a director such as their date of birth and residential or correspondence address is protected, as are the names of former directors. the financial services commission (fsc) extracts the names available to the public from these previously filed registers, however, some entities which have not kept their register up to date or which are not otherwise in compliance with their existing obligations (which include filing an updated register of directors within 30 days of any change) should take care to rectify the position as soon as possible. as there may be a delay between a change taking place and the online record being updated, reliance on the list of directors carries obvious risks, and the company’s private register (which, by statute, is prima facie evidence of the information it contains) remains the more definitive document.

registers of persons with significant control

the amendments also include a primary legislative framework by which the bvi might in the future introduce a public register of persons with significant control, but does not bring such registers into being (see detailed client alert of january 2025 changes here).

if introduced in the future, the government may, by regulations, specify the requirements for the keeping and format of such registers. it also provides that such regulations may contain exemptions for listed companies or those with equivalent disclosure and transparency obligations. it further provides that the regulations may restrict access to the register in relation to any person where such restrictions are in the public interest, required to comply with data protection laws, to protect the person from risks to be specified, or where a person is a child or otherwise lacks legal capacity.

the bvi government, along with the other british overseas territories and crown dependencies, had previously committed to introducing such a register by 2023, subject to certain reservations. although the decision has no legal bearing on the bvi, nor the uk, it remains to be seen how the recent judgement of the european court of justice, which held that such registers contravene fundamental rights, will impact what had seemed an inexorable drift towards greater transparency.

striking-off and dissolution

under both the new system and the old, bvi companies may be struck off the register in a number of different circumstances. in practice, a failure to pay annual government licence fees is the most common ground.

under the previous regime, once struck off a company existed in a sort of purgatory state. its existence would not formally end for seven years, but the company (and its directors, members, and any liquidator or receiver) were broadly prohibited from taking any action with respect to the company, other than to take steps to restore it to the register. a struck company could generally be restored at any time by paying any accrued fees and penalties, provided it also rectified any other defect in its compliance with law (such as appointing a new registered agent where the old one had resigned). if not brought back into life prior to the end of the seven year period, it was dissolved.

under the new regime, any company which is struck off is dissolved immediately. brief transitional arrangements apply to companies which were already in a struck off or dissolved state as of 1 january 2023.

anybody with struck or dissolved companies with underlying assets or business operations should strongly consider taking action to bring the company back into good standing as soon as possible.

restoration of dissolved companies

for companies that are in a dissolved state, the process of restoration has changed significantly.

there is still a process for restoration by the bvi court, but for the first time there is a framework for an out-of-court restoration as well. to go down this route, companies must apply to the registrar of corporate affairs within five years of the date of dissolution¹.

there are several mandatory conditions for utilising the out-of-court process:

1. the company must have been carrying on business or in operation at the date of its striking off and dissolution;
2. licensed person must have agreed to act as registered agent of the company, and must make a declaration that the registered agent has updated and maintain all of the company’s information the registered agent is required to keep, including the company’s register of members, register of directors, and customer due diligence information required under the laws relating to money laundering, terrorist financing and proliferation financing;
3. following the striking off and dissolution of the company, if any property of the company has vested in the crown bona vacantia, the financial secretary has either signified the crown’s consent to the restoration or has not responded within seven days to a request for such consent;
4. the company has paid the restoration fee and any outstanding penalties in relation to the company; and
5. the registrar is satisfied that it would be fair and reasonable for the company to be restored to the register.

the court may order restoration in a wider set of circumstances. the court may exercise its power in any:

1. the company was struck off the register and dissolved following the completion of a solvent or insolvent liquidation;
2. on the date of dissolution, the company was not carrying on business or in operation;
3. the purpose of restoration is to (i) initiate, continue or discontinue legal proceedings in the name of or against the company; or (ii) to apply for property that has vested in the crown bona vacantia to be returned to the company (subject to a similar requirement for consent as discussed above); or
4. in any other circumstance where the court considers that, having regard to any particular circumstances, it is just and fair to restore the company to the register.

the court may (but is not obliged) order that the restoration be made subject to a licenced person making a declaration in the same format as for restoration by the registrar.

regardless of which route to restoration is taken a restored company is deemed never to have been struck off the register or dissolved.

financial records and accounts

bvi companies have, for some time, been required to keep such records and underlying documents which (a) are sufficient to show and explain the company’s transactions, and (b) will, at any time, enable the financial position of the company to be determined with reasonable accuracy. these requirements remain in place. these records may be kept at the registered office or at another place notified to the registered agent.

however, subject to narrow exceptions, bvi companies are now required to provide certain financial information, in the form of an annual return, to their registered agent on an annual basis (although, in practice, the first filings will not be due until 2024). further details, including the form of return, are due to be set out in supplementary regulations have not been published in final form at the date of going to press, although they are expected imminently.

based on public statements from the regulator and the draft regulations published during the consultation process, we expect the final annual return to consist of a relatively simple balance sheet and profit and loss statement. there is no requirement that the return be audited or based on audited financials, either locally or otherwise, and companies should be free to use whatever accounting policies they currently use.

the annual return will need to be filed within nine months of the end of an entity’s financial year (which we expect will not necessarily need to be a calendar year). the registered agent will have an obligation to inform the regulator if it has not received the annual return within 30 days of the due date. companies which do not file in time will be subject to a fine of us$300 for the first month, and at a rate thereafter of us$200 per month, up to a maximum fine of us$5,000. where a company has reached the maximum fine and has still not filed its return, it may be struck off.

the information filed with the registered agent will not be filed with any regulator or bvi government authority, and will not be publicly available. the registered agent will, of course, need to provide the information to a regulatory body if it receives a request which is within the scope of that body’s investigative powers and existing information exchange agreements.

there is an exception to the requirement to file an annual return for listed companies on recognised exchanges (on the basis that such companies are already subject to comprehensive financial disclosure regimes). there are also exceptions for companies that already provide information to bvi authorities. this will benefit entities which have a regulated status in the bvi and which provide financial statements to the fsc in such capacity. companies which file annual returns with the bvi’s internal revenue department, likely to be only relevant to entities operating locally, also benefit from an exception.

liquidations

a person wishing to act as a liquidator of a bvi company must now satisfy a residency requirement. to qualify, an individual must have physically lived in the bvi for at least 180 days, either continuously or in aggregate, prior to their appointment. the legislation is not entirely clear whether that 180 days is assessed by reference to a specific period.

in recognition of the fact that there may be foreign language or time zone benefits in having liquidators where companies have their main operations or businesses, it will also be possible to appoint joint liquidators where only one meets the residency test.

liquidators are now also be required to take additional steps to obtain accounting records before commencing a liquidation and to provide copies of all documentation they receive to the registered agent of the company being wound up.

continuations and other minor changes

companies wishing to continue their corporate existence outside the bvi must now advertise notice of their intention to depart in advance, by placing an advertisement in the bvi gazette. they must also notify the shareholders and creditors in advance. in practice, many bvi companies have no creditors, and many continuations are approved unanimously by the sole shareholder. although this will cause a small delay to some continuations, the additional protection for creditors and members is broadly welcome.

bearer shares and bearer warrants issued by bvi companies, which were already effectively extinguished by the long-standing requirement that bearer shares be deposited with an authorised custodian and vanishingly rare in practice, have now been definitively abolished.

the bvi has also introduced changes to the incorporation requirements for companies wholly or partially pursuing charitable or non-commercial purposes. these are now required, at the time of incorporation, to file an application with the registrar containing certain additional information. broadly, they must now indicate whether the activities are being carried out wholly or partially for non-commercial purposes, how any commercial activities are segregated from non-commercial ones and where in the world the activities will be carried out. an exception to these requirements applies to commercial companies that undertake some non-commercial activity for csr reasons. entities carrying on charitable objects within the bvi itself remain additionally regulated by the non-profit organisations act 2012.

next steps

as with any major legislative change, legal and regulatory practice in response is likely to evolve over months and years (and perhaps in surprising ways), although early indications are that the implementation process has been fairly smooth, perhaps aided by a constructive period of prior consultation. while much of the new legislation may appear reasonably clear on its face, its interpretation has yet to be tested by the courts. we would also welcome and encourage the publication of official guidance in relation to some of the changes.

it is hoped that the supplementary regulations in relation to financial returns will be published soon, and the industry awaits those with great interest. over a longer-term period, we also wait to see what the next steps in the bvi, the other overseas territories and the crown dependencies, will be in relation to publicly available information in relation to beneficial ownership and persons of significant control.

some of the changes will undoubtedly require some adjustments by the owners and operators of bvi companies, and many will require advice from their professional advisors. however, we have every faith that the jurisdiction will demonstrate yet again its extraordinary adaptability. the bvi looks well positioned to remain at the forefront of the offshore industry.

this article originally appeared in world financial review.

following adoption by the council of the eu and publication in the bloc’s official journal, the long-awaited markets in crypto-assets regulation, mica to its friends, is finally here.

mica aims to bring regulatory clarity and legal certainty to the crypto-assets industry across the eu by creating a harmonised set of rules on par with the existing suite of financial services legislation. the rules extend to various parts of the industry, including the issuance of crypto-assets, the offering of crypto-assets to the public and their admission to trading platforms, and the provision of services relating to crypto-assets.

in this article, we provide an overview of mica’s impact and attempt to bridge the gap between the upcoming regulation and industry trends and practices.

crypto-assets and eu regulation pre-mica

prior to mica, the eu framework for the regulation of crypto-assets was largely limited to the following:

• aml-related obligations imposed on crypto-assets service providers (casps) under the eu’s fifth anti money laundering directive 2018/843 (5amld), including providing for a registration regime.
• obligations emanating from traditional eu financial services legislation (principally mifid ii, the e-money directive, and the payment services directive) covering only certain aspects of the industry, notably crypto-derivatives and stable-coins that crossed into electronic money issuances.

at a national level however, some eu member states took the 5amld provisions further by creating comprehensive regulatory regimes for the registration and supervision of casps in their jurisdictions. most of these regimes were heavily influenced by existing eu financial services legislation, financial action task force (fatf) recommendations, and the draft mica proposal in public circulation at the time. other eu member states instead adopted a more minimalist approach with little or no additional rules beyond the minimum set out in the 5amld provisions.

cyprus is an example of an eu member state that opted for much greater regulatory oversight than the minimum set out in the 5amld, and this may well have given it a competitive advantage in the post-mica world. experiences under the national regime in jurisdictions like cyprus should prove valuable to regulators and industry participants. similarly, casps in jurisdictions where concrete economic substance requirements already apply will be able to more easily navigate the transitional periods under mica and comply with its provisions.

which types of crypto-assets does mica seek to regulate?

mica defines the term “crypto-asset” widely, as a digital representation of a value or a right that is able to be transferred and stored electronically using distributed ledger technology or similar technology. however, mica sub-categorises crypto-assets into various types. depending on its type, special rules may apply in relation to a crypto-asset or it may fall outside the scope of the application of mica altogether.

the table below provides an overview of the treatment of the main types of crypto-assets under mica.

key themes

offers to the public and admission to trading (excluding e-money tokens and asset-referenced tokens)

mica introduces rules regulating the offering of crypto-assets to the public and seeking admission of crypto-assets to trading on trading platforms for crypto-assets in the eu, subject to exceptions. issuers of crypto-assets are not subject to regulation when the issuer is not an offeror or a person seeking admission to trading. the rules are clearly inspired by eu regulation 2017/1129 (the prospectus regulation) which applies with respect to securities offerings.

notably, persons offering crypto-assets or seeking admission of crypto-assets to trading must draft a crypto-asset white paper in accordance with a number of specifications. the white paper is then notified to the national competent authorities and published. in contrast to the prospectus regulation, there is no prior approval requirement in respect of white papers.

various other obligations are placed on offerors and persons seeking admission of a crypto-asset to trading, including rules on marketing communications.

finally, persons offering a crypto-asset to the public must provide a 14-day right of withdrawal to retail buyers where the relevant crypto-assets have not been admitted to trading.

authorisation and supervision of crypto-asset service providers

subject to exceptions, persons who provide one or more crypto-asset services which fall within the scope of mica must obtain authorisation as casps from their national competent authorities. there are 10 such crypto-asset services in total:

1. providing custody and administration of crypto-assets on behalf of clients
2. operation of a trading platform for crypto-assets
3. exchange of crypto-assets for funds
4. exchange of crypto-assets for other crypto-assets
5. execution of orders for crypto-assets on behalf of clients
6. placing of crypto-assets
7. reception and transmission of orders for crypto-assets on behalf of clients
8. providing advice on crypto-assets
9. providing portfolio management on crypto-assets
10. providing transfer services for crypto-assets on behalf of clients

the mica authorisation regime replaces the previously applicable national authorisation/registration regimes in eu member states although transitional provisions may apply (see further below). the authorisation and supervision of casps is the responsibility of the national competent authority of each member state under the coordination of the esma.

the authorisation requirements under mica are rigorous and are generally on par with existing authorisation regimes under eu financial services legislation with certain industry-specific additions. similarly, casps will need to abide by a number of economic substance requirements and ongoing obligations, including prudential requirements, governance arrangements, conduct of business rules, and certain special rules only relevant to the provision of specific crypto-asset services.

notably, traditional regulated institutions (eg credit institutions and investment firms) can, in certain cases, provide crypto-asset services without obtaining a casp authorisation. moreover, passporting provisions enable eu casps to freely provide crypto-asset services across the european economic area and rules have been put in place for the provision of crypto-asset services by third country firms to eu-based persons.

rules on e-money tokens and asset-referenced tokens

under mica, the right to offer an e-money or asset-referenced token to the public or seek its admission to trading is limited to its issuer, subject to exceptions.

in the case of an e-money token, the issuer must be authorised by its national competent authorities as an electronic money institution under the e-money directive or as a credit institution.

in the case of an asset-referenced token, the issuer must be authorised by its national competent authorities under mica or as a credit institution.

in both cases, offers to the public or seeking admission to trading is subject to preparing a white paper. white papers of e-money tokens are not subject to any prior approval requirement. for white papers of asset-referenced tokens, a prior approval requirement applies.

similarly, both issuers of e-money tokens (under the e-money directive and mica), and asset-referenced tokens (under mica) are subject to extensive ongoing obligations. these crucially include rules on the composition, management, and custody of their reserves as well as governance arrangements, own funds requirements, and a prohibition on granting interest to token-holders.

certain e-money tokens or asset-referenced tokens may, on the basis of set criteria, qualify as significant, in which case they are subject to additional obligations and are directly supervised directly by the eba.

market abuse rules for crypto-assets

mica also contains rules on market abuse covering topics such as disclosures of inside information, insider dealing, and market manipulation as relevant to crypto-assets. these are inspired by the rules in eu regulation 596/2014 which applies in respect of financial instruments.

some clarity on the regulatory treatment of decentralised practices

although arguably not to a definitive extent, mica does attempt to provide some clarity on the treatment of certain decentralised practices and web 3.0. this covers the treatment of participating in a blockchain’s consensus mechanism (aka “mining” or “staking”), decentralised finance, nfts, “airdrops” and “hard-forks”.

timelines and transition into mica

mica will enter into force on 29 june 2023. however, its provisions will become applicable on 30 december 2024, except the rules on e-money tokens and asset-referenced tokens which will become applicable on 30 june 2024.

offers of crypto-assets

offers of crypto-assets (excluding e-money tokens and asset-referenced tokens) to the public which ended before 30 december 2024 will be exempt from certain requirements. however, crypto-assets that were admitted to trading before the date of application of mica must comply with requirements on marketing communications and operators of trading platforms must by 31 december 2027 ensure that the white paper requirements for such crypto-assets are complied with.

casps

mica by default provides the option to existing casps, which provide their services in accordance with the law applicable in their respective member state before 30 december 2024, to continue to do so until 1 july 2026 without obtaining any additional authorisation. however, each member state has the discretion to reduce the duration of the transitional period or not provide it at all.

additionally, for applications submitted during 30 december 2024 and 1 july 2026, member states may choose to apply a simplified procedure for casp authorisation applications provided that, as at 30 december 2024, those casps were authorised under national law to provide crypto-asset services. member states, such as cyprus which already apply extensive regulatory requirements for casps, should be able to use this option.

issuers of asset-referenced tokens

entities which, before 30 june 2024, issued asset-referenced tokens in accordance with national law, may continue to do so:

• in the case of credit institutions, immediately, provided that they submit the notification required under mica before 30 july 2024, or
• in the case of issuers which are not credit institutions, until they are granted an authorisation under mica, provided that they submit an application for authorisation under mica by 30 july 2024.

mica as part of a digital regulation ecosystem

overall, the adoption of mica arguably marks a new era for the eu crypto-space. it should not however be viewed in isolation. mica serves a crucial role in the european commission’s wider strategy on digital finance and infrastructures and is complemented by a number of other eu legislative acts:

• the eu regulation on information accompanying transfers of funds and certain crypto-assets (travel rule regulation) was recently published in the official journal of the eu. the travel rule regulation recasts regulation 2015/847 on information accompanying transfers of funds and extends the application of the so-called “travel-rule” to transfers of crypto-assets. the travel rule essentially requires crypto-asset service providers to collect certain information about the sender and beneficiary of the transfers of crypto assets they carry out. subject to exceptions, this information must be verified by the crypto-asset service provider and transmitted to the crypto-asset service provider of the transfer recipient. unlike transfers of funds, the travel rule applies to all crypto-assets transfers involving a crypto-asset service provider regardless of the amount transferred.
• new crypto-asset specific rules under the proposed eu “single rule-book” regulation on aml matters aims to replace the currently applicable aml rules under the eu aml directives and establish the european anti-money laundering authority.
• the 8th directive for administrative cooperation in the field of taxation (dac8) was also recently adopted by the council. this aims to introduce automatic exchange of information reporting requirements for casps.
• the digital ledger technology pilot regime regulation focuses on dlt market infrastructures, their operation, and supervision.
• the digital operational resilience act (dora) creates uniform requirements concerning the security of network and information systems supporting the business processes of financial entities.

all crypto-industry participants should be familiar with obligations stemming from the above and think of mica as one of the key pieces of legislation within a wider ecosystem of rules relevant to crypto-assets.

if you or your business is impacted by mica and require more guidance, please contact the authors or your usual harneys contact to discuss further.

generally, luxembourg law recognises that a company incorporated under a foreign system of law can migrate or continue its corporate existence to luxembourg by transferring its registered and head offices without interruption of legal personality (inbound migration).

inbound migration can be achieved provided that the company’s country of origin permits the transfer without interruption of legal personality and the company adopts a luxembourg corporate form, adapting its memorandum and articles of association (or similar constitutional documents) (articles) to comply with luxembourg law.

download the pdf to read more.

overview of private credit in asia

private credit refers to the provision of loans to companies, typically small and medium-sized enterprises (smes) without investment-grade credit ratings, by non-traditional lenders such as private equity firms and hedge funds. it is the alternative to debt financing from banking institutions or capital markets.

over the past decade, private credit has experienced unprecedented growth, expanding from us$320 billion in 2010 to us$875 billion in 2020 (measured in assets under management (aum) figures) as reflected in the graph from preqin below. private credit is now the third-largest asset class in the alternatives space, closely following private equity and real estate. it is further projected that there will be an 11.4 per cent compound annual growth rate of private credit from the end of 2020, which would take the total aum of private credit to nearly us$1.5 trillion in 2025.

asia is no exception to witnessing the rising prominence of private credit, where aum of private credit doubled between december 2014 and june 2019 to around us$57 billion. ^[1] leading private credit manager, blackstone, is expecting a tenfold increase of assets in its asia-pacific private credit business as companies in the region eagerly look to diversify debt financing away from bank loans. ^[2]

macroeconomic tailwinds for the rise of asian private credit

the challenging lending environment created by regulatory changes at banks

banks in the asia-pacific region have become more cautious and risk-averse since the 2008 global financial crisis, leading to greater scrutiny of borrowers and tighter lending standards in order to lower the level of exposure on their balance sheets while adhering to basel ii capital requirements.

this regulatory change has made it more difficult for many businesses to access traditional sources of funding, including bank loans, bonds, and public equity markets. as a result, non-bank lenders have stepped in to fill the void, providing much-needed financing to businesses that are struggling to secure funding elsewhere.

rising demand for credit from smes

the demand for credit from smes has also contributed to the rise of private credit. smes are the backbone of many asian economies, making up more than 96 per cent of all asian businesses. ^[3] however, smes often struggle to secure financing from banks without suffering from higher transaction costs due to their size and lack of collateral. in contrast with traditional banks that are conservative in lending to smes, private credit providers are more willing to fund smes because they are less constrained by regulatory requirements and have more flexibility in their lending criteria than banks.

growing appetite to invest in private credit

from investment perspective, private credit can be a good addition to a mature investment portfolio, given the downside protection that private credit offers through an attractive risk-return profile, diversification benefits, flexibility to negotiate for bespoke lender protection, resilience from its income-generating abilities and lower volatility.
this is particularly the case in times of cloudy economic outlook and soaring interest rates, as private credit, which typically embraces a floating interest rate, is more likely to hedge against inflation and offer higher yields than those in traditional fixed income and equity markets.

private credit funds

what are the types of investments private credit funds make?

generally speaking, they either directly originate private debt or they purchase loans on the secondary market. in the case where a fund directly originates a loan, we go into a territory of a highly-customised set of terms of the loan which often requires extensive negotiation between the fund and the borrower. in terms of investment strategies, it can range from any from senior debt, direct lending to real estate, high-yield and mezzanine.

are private credit funds close or open-ended?

credit funds can be closed-end funds, like a private equity fund, or open-end, like a hedge fund. in closed-end credit funds (which is the focus of the remainder of this article) where investors are generally not given the right to initiate withdrawals, capital commitments are raised over a fixed period of time and then those commitments are drawn down over time. a fund of this nature would look to distribute income from interests and principal payments on the loans and, in some cases, from realisations on the sale of loans. at the end of the day, like all funds, the nature of the debt drives the structure, and liquidity and structure of the fund would need to match the underlying assets.

the structures for close-ended funds in asia are predominantly cayman islands-domiciled and the cayman islands exempted limited partnership remains a top choice, if not the gold standard, for managers and investments.

what are some of the features of private credit funds?

• generally speaking, they have lower target returns than private equity funds because they are inherently less risky than equity. in the event of bankruptcy, creditors or lenders are paid back before equity holders.
• they are designed to have shorter terms than private equity funds to tie in with the underlying loans with finite maturity dates. careful considerations are often required on the recycling provisions in order to ensure the intended term is maximised both from the manager’s and the investor’s perspective.
• ideally, management fees reflect the full amount of the loan, rather than just the drawn portion because the full commitment amount is technically already invested whether they are drawn or not.
• typically, credit funds undertake to distribute regular income on the back of regular interest and principal payments on the loans over the term of the loan received by borrowers, rather than only at the time of realisation of the underlying portfolio company, like in the private equity fund context.

the future is bright for asian private credit

despite the ongoing market volatility, the outlook for private credit’s continued growth in asia’s debt financing scene is generally positive, largely due to borrowers’ heightened awareness of private credit and private credit firms’ sophistication in strategizing amongst direct lending, distressed debt, special situations, mezzanine debt as well as derivative instruments to provide timely and tailored credit support to borrowers in need.

whilst historically private credit focuses on middle-market companies, the recent growth in fund sizes stands as proof that private credit has the capacity to finance larger deals while maintaining prudent fund diversification parameters. it has also enabled innovative approaches to better meet borrower needs, including the emergence of unitranche transaction where the lender issues a single credit instrument in replacement of a more complex capital structure that would subdivide the borrowed amount into junior and senior tranches of debt.

^[1] https://www.afr.com/companies/financial-services/private-markets-to-double-to-28-trillion-by-2027-20221005-p5bnga

^[2] https://www.bloomberg.com/news/articles/2022-05-30/blackstone-targets-5-billion-for-asia-private-credit-business?leadsource=uverify%20wall

^[3] https://www.adb.org/publications/role-smes-asia-and-their-difficulties-accessing-finance

the cayman islands government published proposed amendments to the proceeds of crime act (2020 revision) (poca) in the form of an amendment bill on 3 april 2023. poca applies to residents of the cayman islands and any companies or partnerships incorporated or formed in the islands. it is therefore something that anyone who owns or operates a cayman islands company or partnership should be aware of.

the bill has several objectives, including:

1. improve the terms of poca in the areas of intelligence gathering, sharing, and investigations
2. protection for self-regulatory bodies against liability through their activities. this will mainly be of interest to sectors such as real estate
3. conform to international best practices
4. modernisation of prosecution procedures: this involves clarifying the evidential basis required to demonstrate that property is derived from criminal activities or obtained through unlawful conduct.
5. enhanced powers for the financial reporting authority (fra) have been enhanced. if passed in its current form, the fra will be able to disseminate information and analysis results at its own discretion or upon request to various entities, including competent authorities responsible for combating money laundering and terrorist financing (eg cima and cara), supervisory authorities, and other institutions or persons designated by the anti-money laundering steering group.

a notable change that is being proposed in the bill is the potential removal of the defences to committing the key money laundering offences ^[1] by making a suspicious activity report (sar) filing (either to an internal money laundering reporting officer or directly to the fra). poca in the cayman islands is based largely on the uk proceeds of crime act 2002 and these defences have been integral to the regime in the uk and the cayman islands. the argument raised by the government is that because the cayman islands, unlike the uk, does not have a consent regime in relation to sars, that the existence of the defence makes little sense. however, most financial services providers, particularly banks, investment funds and any person that may assist with the flow of money for their clients, rely heavily on these defences when assessing their risk exposure and when dealing with customers. we understand that there are lobbying efforts being launched with government. we believe that a better solution may be to resource the fra or the financial crimes unit of the police appropriately and provide for a consent regime that matches the uk.

we will continue to monitor any further developments regarding these amendments and provide updates as necessary.

^[1] concealing, disguising, converting or transferring criminal or removing criminal property from the cayman islands, entering into or becoming concerned in an arrangement which facilitates the acquisition, retention, use or control of criminal property or acquiring, using or having possession of criminal property.

in episode one, hosts andrea charalambous and henno boshoff explain what a trust is and its benefits. they discuss the popularity of discretionary trusts and compare trusts to wills, emphasizing the immediate effectiveness of trusts and their advantages, such as minimizing probate and ensuring confidentiality. finally, andrea and henno address concerns about control by introducing reserved power trusts, vista trusts, and private trust companies (ptcs) as options.

the cayman islands department for international tax cooperation has commenced the issuance of compliance letters and penalty notices to those entities that have failed to submit accurate economic substance notifications and returns.

failing to submit accurate and complete economic substance notifications and returns can result in severe penalties, which is why we strongly recommend seeking advice before making the submissions.

for clients to whom we provide registered office services, we would like to remind you that when you submit your economic substance notifications and returns through harneys connect, the submission process does not include a review by one of our experts. it is, therefore, imperative that you carefully review and verify the accuracy of all information before submitting to avoid any penalties or compliance issues.

as your trusted advisers, we are committed to providing you with the highest level of service and support in navigating complex regulatory landscapes. our legal team is ideally placed to help you perform a full review of your entities to assess and advise on all aspects of compliance with economic substance legislation and, where appropriate, what actions must be taken.

for assistance, please reach out to any of our key contacts.

although luxembourg is a land locked country, since the early nineties, it has provided an attractive legal framework for the maritime industry.

luxembourg offers a favourable tax system for shipping companies, with the possibility of accelerated depreciation and tax credits available for investments. registration under the luxembourg flag is open to vessels owned more than 50 per cent by a resident of the european union/european economic area or by a commercial company having its registered office in a member state of the eu/eea. a ship-owner may also appoint an eu-based operator to register the vessel in its own name.

ship financing is tailored to suit the needs of the parties involved, with various solutions such as bank lending, bond issuances, and securitisations possible. maritime mortgages are also offered in luxembourg, making it attractive to banks and financial institutions.

download the pdf to read more.

the general data protection regulation (gdpr) becomes enforceable across the eu from 25 may 2018.

this flowchart is designed to assist international businesses to determine whether the requirements of the gdpr will apply to them.it focusses on those business generally based outside the eu/eea but with some business activity within the eu/eea. please note this is a summary guide and does not constitute a legal advice.

download the pdf to read more.

the bvi and the cayman islands have long been recognised as two of the world's leading offshore financial centres. both jurisdictions offer a wide range of investment products and services, including open-ended and close-ended funds, to meet the diverse needs of investors from around the globe. offshore fund vehicles are highly flexible, tax-efficient, appropriately regulated structures that allow you to issue fund interests to investors from different parts of the world, which can be established quickly and cost-efficiently to ensure you meet both your budget and timeline.

investment funds established in the bvi and the cayman islands fall into two broad categories: open-ended funds and closed-ended funds.

open-ended funds provide investors with voluntary redemption or repurchase rights, whereas closed-ended funds do not provide investors with those rights. typically, open-ended funds will invest in liquid assets which can be readily realised to fund redemptions (eg listed, liquid, tradable securities) and closed-ended funds will invest in non-liquid assets requiring time to liquidate/realise value (eg real estate, unlisted growth companies).

investment funds are regulated by the financial services commission (the fsc) in the bvi and by the cayman islands monetary authority (cima) in the cayman islands.

bvi

approximately one-quarter of all offshore hedge funds established worldwide have been domiciled in the bvi.

due to the flexibility and sophistication of the relevant legislation and the fsc, the bvi is becoming the home for more niche investments such as crypto-currency funds, hybrid funds and crowdfunding platforms.

the bvi offers five open-ended fund products and one closed-ended fund product, which makes it a suitable home for everyone: from the start-up manager looking to take the first step towards testing their investment strategy or running a small friends & family fund, all the way through to well-established institutional fund managers with billions of assets under management and a long-term track record looking to capitalise on the widespread international recognition for the bvi structures.

cayman islands

the cayman islands is the leading jurisdiction for the offshore investment funds industry due to its combination of flexible and appropriate regulation, an approachable and effective regulator, professional service provider expertise, high reputation among investors and a tax-neutral regime.

the jurisdiction maintains a tax-neutral standing towards corporate, income and capital gains, paving the way ahead for increased opportunities for foreign investment.

a leader in global tax information sharing, the cayman islands has fully adopted legislation to implement us fatca and the oecd global common reporting standard.

cayman islands law, derived from english common law and supplemented by local legislation, ensures that cayman islands investment funds are structured as internationally accepted vehicles.

funds in both the bvi and the cayman islands can be structured as a standalone company, a segregated portfolio company or a partnership (limited partnership in the bvi and an exempted limited partnership in the cayman islands) to meet different investor needs and investment strategies. sometimes, we also see a unit trust being established for domestic tax purpose (eg japan).

bvi vista trust

aside from setting up an offshore fund, some general partners, limited partners and investors also invest into, or co-invest with, the offshore fund via a trust for asset protection and estate planning purpose.

we have seen that over the last few years that there has been an increase in the use of bvi trust structures by investors in asia to hold and make investments (including investments into offshore funds). we have seen a change in attitude of high net worth (hnw) families perceive succession planning, and they now acknowledge the importance and value of such planning in preserving and protecting wealth for generations and beyond.

the bvi has a wide variety of succession planning options that appeals to a hnw family, especially if there is a need for the settlor to maintain control of the underlying companies until his/her passing. for the purpose of this article, we will only be discussing one of the more popular structures in asia – the bvi vista trust.

the bvi specialist trust legislation is the virgin islands special trusts act (vista). once established, a vista trust will directly hold shares in a bvi company (which can own any assets, including crypto and other digital assets). the bvi company can then act as the investment vehicle, make investments into offshore funds, and/or hold other assets.

the vista disapplies certain traditional trustee duties in relation to certain trusts that own shares in bvi companies. for instance, although a bvi company’s shares are held in a vista trust, the directors of that company are free to administer the company as they see fit, without intervention from the trustee (except in certain limited circumstances). further, key family members may, subject to local laws and tax advice, be involved in the management and control of the bvi company by taking up board seats on the bvi company. in addition, key family members may also take up the role of an office of director rules appointor (the appointor). this role is a specific feature of a vista trust and allows the appointor, which can be a committee of family members or trusted advisors, to have control over the members of the board of the bvi company. the bvi vista trust therefore addresses the need for families looking to have succession planning in place whilst retaining some level of control of the underlying companies.

from a confidentiality and asset protection perspective, the counterparty of the bvi company will only see the trustee as the legal owner of the bvi company and the settlor’s details will not appear in any public documents.

conclusion

both the bvi and the cayman islands offer versatile solutions for investments, estate planning and asset protection. with a wide range of products catering to differing investor needs and preferences, bvi and cayman islands will continue to be attractive jurisdictions for investments and asset protection.

this article was originally published on the institutional asset manager.

the cayman virtual asset (service providers) act (as amended) sets out a full regulatory registration and licensing regime for virtual asset service providers.

download the pdf to read more.

the key elements of the european general data protection regulation (gdpr) for start-up businesses to consider include:

broadly speaking, the gdpr applies to all entities processing personal data of data subjects residing in the eu, regardless of the entity’s location. follow our flowchart to find out more.

processing should have a lawful basis (eg consent, contract, or legal obligation). it must be transparent – you must tell an individual why and how you are processing their data.

the data you process must be adequate, relevant, and limited to what is necessary. keep the "need to know" data, and remove the "nice to have".

do not keep personal data longer than you need it. determine, document, and adhere to retention periods for each type of data you hold.

controllers of personal data must take responsibility for personal data. you must be able to demonstrate compliance with the gdpr.

data breaches must be reported within 72 hours. in some circumstances, this is to the local data authority and the individual concerned.

strict rules apply to automated decision-making, like profiling, including the right to object in certain circumstances.

personal data is any information relating to an identified or identifiable individual. for example, names, email addresses, online identifiers (like ip addresses), and location data.

you must record the purpose of your processing. you cannot change the purpose the processing was intended for (unless you get consent or have a clear legal obligation).

you must take every reasonable step to ensure the personal data you hold is not incorrect or misleading.

you must have appropriate security measures in place to protect against the loss, destruction, or damage of personal data.

individuals have various rights, including the right of access to their data, erasure (often called a “right to be forgotten”), and to object to processing, etc.

data protection officers must be appointed by entities in some circumstances, to independently and expertly monitor data protection compliance.

applying privacy by design

central to compliance is the integration of data protection from the outset of processing activities and business practices, from design and by default.

the british virgin islands’ virtual assets service providers act 2022 (the act) came into force on 1 february. the act is supported by the british virgin islands financial services commission’s (fsc) guidance on the prevention of money laundering, terrorist financing, and proliferation financing (aml/cft/cpf) and the fsc’s guidance on the application for registration as a virtual asset service provider.

registering as a virtual asset service provider

the act contains a prohibition that no person should carry on, in or from within the british virgin islands, the business of providing a virtual asset service without being registered by the regulator in that regard. importantly, a british virgin islands business company that carries on virtual asset services outside the british virgin islands is deemed to be carrying on the business of providing a virtual asset service from within the british virgin islands. the act, therefore, applies extra-territorially.

to the extent that any person is conducting a virtual asset service, that person will need to be registered with the fsc. any person who was conducting a virtual asset service business prior to the act coming into force should be looking to register with the regulator within the six-month transitional window, which expires on 31 july. failing to become registered will subject the person conducting the virtual asset-related activity to possible regulatory enforcement action or criminal sanctions.

it is important that persons who are conducting a virtual asset service business take regulatory advice to ensure that the new regime is applicable to them. once it is determined that a person is a virtual asset service provider, they should start working on the registration application which must be filed with the regulator.

if a person who was conducting a virtual asset service prior to the act coming into force submits an application for registration before the end of the transitional window, that person can continue to conduct that business while the regulator reviews and processes the application. this will ensure that there is no disruption to legacy business, as it would have successfully been grandfathered into the act's regime upon the granting of a certificate of registration under the act.

all applicants should work with their service providers to submit a full and complete application to the regulator within the transitional timeframe. any incomplete applications run the risk of not being processed by the regulator, which can lengthen the registration timetable or lead to the application being rejected altogether.

main considerations when applying for registration

applicants for registration under the regime need to consider:

governance issues: an applicant will need to consider the composition of its board of directors and must ensure that it always has two individual directors sufficient to meet the “four eyes” test. there may also be a requirement for an applicant to appoint a local resident as non-executive director.

virtual asset service providers approved authorised representative: an applicant will need to have in place an authorised representative approved under the act based in the british virgin islands, who must possess sufficient knowledge of the applicant's virtual asset service-related business, as well as an auditor.

this authorised representative will: act as the main intermediary between the virtual asset service provider and the regulator; accept service of notices and other documents on behalf of the vas provider; and keep — in the authorised representative’s office in the british virgin islands — records or copies of records that are prescribed for under financial services legislation.

ownership structure: an applicant will need to present full information on the ultimate beneficial ownership structure of the virtual asset service provider; all intermediary structures (if any) will need to be disclosed — complex structures may lead to delays.

auditor: an applicant will need to identify an auditor who will audit its annual financial statements. the auditor will need to be approved by the regulator and will have reporting obligations to the regulator under the act.

business plans: an applicant's business plan will need to be as detailed as possible, and at a minimum include matters such as corporate governance, capital reserves, technological audits, liquidity, risk management strategies, consumer protection provisions, related parties, and public disclosures, custody and safeguarding, escrow and lock-up provisions, interoperability, cessation of business and succession planning, and implementation of the travel rule.

policies and procedures: an applicant will need to have strong internal controls, including risk assessment frameworks, aml/cft/cpf and sanctions compliance procedures, outsourcing agreements and policies, data protection and cyber-security framework, statement of technological infrastructures, business continuity plans, custody and safe-keeping of assets framework, complaints-handling procedures, technology audits framework, and suitable insurance requirements.

all the necessary documents required for registration under the act are uploaded into the main registration form and submitted, most likely electronically, to the regulator for handling.

compliance with the aml/cft/cpf regime

the aml/cft/cpf regime was introduced through the anti-money laundering regulations 2008 (the regulations) and the anti-money laundering and terrorist financing code of practice 2008 (the code), and became effective on 1 december 2022. once it is established that a person is considered a virtual asset service provider, it will therefore be treated as a “relevant person” doing “relevant business” under the aml/cft/cpf framework and will need to ensure full compliance with both the regulations and the code.

in summary, this means that the virtual asset service provider would need to ensure that, as a part of the aml/cft/cpf regime, it is identifying procedures in relation to new and continuing business relationships; establishing and maintaining verification procedures, and, where there is reliance on third parties, that there are appropriate channels to obtain the identification documents from those third parties as a means of recording the identity of customers, maintaining records and underlying documents, appointing the necessary compliance and money laundering reporting officers and conducting annual training.

the virtual asset service provider will need to have suitable policies and procedures in place as a part of its internal controls for ensuring compliance with the aml/cft/cpf regime, and ensure that these policies and procedures are tested.

continuing obligations for virtual asset service providers

once registered under the act, virtual asset service providers must ensure they comply with all the continuing regulatory requirements that apply under the regime:

• notification/pre-approval requirements: for example, change of information provided, change of name, maintaining a financially sound condition, appointment of directors, appointment of authorised representative and auditor, submission of audited financial statements, maintenance of records, disposition or acquisition of significant or controlling interest in a virtual asset service provider, client assets, aml/cft/cpf and sanctions compliance;
• remaining fit and proper — as such, fulfilling the regulator's assessment that all vas providers are competent and that they conduct their business in line with the regulatory principles in the regulatory code 2009;
• maintaining adequate human and technological resources and policies, procedures, and mechanisms to ensure compliance;
• screening of employees: assessing the competence and probity of employees; and
• considering and adapting resources and procedures to any changes in scope of business and legislative developments.

enforcement under the act and associated regimes

failure by a virtual asset service provider (once registered) to comply with the requirements under the act or under the aml/cft/cpf regime can lead to various criminal offences. should a formal charge be laid, a competent authority (a court in this case) would be empowered to impose both monetary penalties and custodial sentences.

as well as court proceedings, the regulator would also be able to use the administrative penalty regime for any administrative breach of financial services legislation. as well as imposing an administrative penalty, the regulator can also conduct onsite regulatory inspections, suspend and revoke any regulatory approvals given to a virtual asset service provider, and issue public statements and advisory warnings about the provider on its enforcement website.

as with any new regulatory regime, it is important that both existing and potential virtual asset service providers looking to become registered under the act work closely with their service providers to understand the regime created by the act and its subsidiary legislation and guidance, to ensure they are in full compliance with the new framework.

this article first appeared in the thomson reuters regulatory intelligence on 28 march 2023.

although the last few years has shown continued growth globally for caribbean succession structures generally, we have seen particular interest from family offices for private trust companies (ptcs). all three of the british virgin islands, cayman islands and bermuda offer them, but why the growth of interest?

we see it primarily as a sign of a growing confidence and knowledge among settlors, particularly as against five years ago (which have been years of extensive education in growing civil law jurisdictions). settlors from jurisdictions newer to trusts are learning:

• to trust professional trustees, meaning we hear fewer questions like “what if they run off with the money?”; but on the other hand
• what they are comfortable with, meaning a familiar corporate entity like a ptc is often seen as attractive to top a trust structure; and
• how structures can be adapted round their circumstances, meaning more bespoke tailoring and discussion, and fewer cookie cutter requests.

a ptc puts the family at the heart of the structure rather than an institutional third party trustee. it also means that the family will not feel frustrated at a trustee’s (perceived) brake on entrepreneurship or on the holding of more high risk-assets.

how is a ptc different to any other company? obviously, the exact form of the ptc will vary between jurisdictions but will certainly mean a company designed by legislation to act as trustee (or protector, enforcer etc) of one or more trusts. it will be a particular “enhanced” type of that jurisdiction’s standard registered company, with some alterations to the model articles of association. the board will usually be the settlor, family members and advisors, with no requirement that they be based in the jurisdiction (albeit subject to certain restrictions if a bermuda ptc).

although the regulatory requirements differ slightly by jurisdiction, by and large, each ptc must have a licensed registered agent or registered office provider. that agent or provider will need to hold various basic documents, and in the bvi, will need to hold the details of the directors and shareholders (in cayman such details are given directly to the financial regulatory authority, albeit held privately). however there is no general requirement to file accounts. nor is there any “onshore-style” requirement to capitalise the company.

it is the registered agent’s / provider’s task to monitor compliance with the restrictions on ptc activity. for example in cayman, the activity must be “connected trust business” which basically means acting as ptc of one or more trusts for a family. the bvi has a similar concept of “related trust business”, or an alternative of “unremunerated trust business”, implying, obviously, that related trust business can be paid. given that most ptcs do not expect to receive payment, most go for the unremunerated option.

ptcs continue to develop via legislation. in 2021 the bvi removed the prohibition on ptcs carrying out activities other than trust business, which in practical terms removed any question marks as to ancillary activities like opening a bank account. it also permitted directors to receive remuneration, even where the ptc is undertaking unremunerated trust business.

we are often asked to choose a jurisdiction to base a ptc structure. frankly speaking, all of the bvi, cayman islands and bermuda have long-established trust industries. all have corporate entities that are used around the world and can mesh with local trusts to reduce legal costs and conflicts between laws. all have introduced innovations such as purpose trusts but stay within the mainstream of trust law and reporting. any structure in any of these jurisdictions will have no or minimal local tax. so often the choice is still driven by settlors’ friends or reputation or cost, with us-oriented families frequently opting for cayman for example. but the jurisdictions do have statutory quirks to mark themselves out.

bvi has the vista trust regime which delegates the trustee’s duties of investment and management to the board of directors of a bvi company which then holds the substantive trust assets underneath. although a lawyer can draft a bespoke reserved powers trust under any common law jurisdiction, vista gives an inexperienced settlor the statutory reassurance that the trustee will not sell their crypto assets, artworks, or struggling but beloved family business.

meanwhile cayman’s star trust is not in fact “vista but cayman”, as is often assumed. star instead allows a mix of beneficiaries and purposes, an unlimited perpetuity period, and transfers the beneficiaries’ rights to enforce the trust, and to trust information, to the enforcer. but it can be used in a way akin to vista by making one of those purposes the purpose of “continuing to hold the family business”. again this can all be drafted in a bespoke fashion, but statutory backing gives reassurance to settlors, family offices and trustees, and ultimately results in lower fees.

why would ptcs combine with such trusts? obviously, a key advantage of vista or star is to reduce client concerns when dealing with far-off institutional trustees, but surely ptcs remove the involvement of such trustees anyway? the issue is the ownership of the ptc shares. in the hands of the settlors they may bring back all the fallbacks of individual ownership that a trust avoids: tax residence, forced heirship, asset protection, etc. a simple vista purpose trust with a corporate trustee holds the ptc shares but, because of that vista delegation of investment and management, the trustee will have minimal involvement in the family trusts underneath, leaving it to the family members on the ptc board. and although the legislation allows vista trust deeds to regulate how the institutional trustee should exercise their shareholder powers to appoint and remove ptc directors, it does not specify the content of those regulations. we see rules specifying the person to direct the trustee, or specifying the future directors themselves, or being tied to some external shareholders’ agreement, all depending on the family’s onshore requirements (including management and control concerns).

alternatively, if a client really does not want two layers of trusts, the ptc ownership can be orphaned by making it a company limited by guarantee instead of by shares. a client who chooses a cayman structure can take this a step further with a foundation company. a foundation will be familiar to clients from civil law jurisdictions, and to ensure that the concept meshed with common law case law, cayman grounded its foundation style entity in a corporate structure. accordingly, foundation companies have many elements in common with companies, for example directors, but are much more customisable in terms of their bylaws. it is not necessary to have members, thus creating a truly orphan structure, and the rights and duties can be assigned to directors or other bespoke roles like “supervisors”. foundation companies have found roles in commercial transactions, and of course can be used as a family succession structure entirely without a trust involvement, but for those who want the advantages of both forms, they are a convenient way to orphan ptc ownership.

the following two examples are amalgams of real-life cases developed with family offices over the last couple of years.

four siblings together control a family business. they decide to have four discretionary fully managed trusts, one for each of their branches. they will have a ptc as trustee, with themselves as the board, the shares being held in a further vista purpose trust with a professional trust company as trustee. the rules in the purpose trust deed, which they agreed together in a family meeting, will set out how the board should be appointed, and will ensure that when one of them dies, someone from their branch of the family will take their place. if there is any dispute, the rules will refer back to their original shareholders’ agreement.

a family patriarch has spent his lifetime building his business. he does not want to see it split up and indeed has dreams of a dynastic legacy. he is not currently comfortable with his warring children having unfettered access. preferring a cayman structure, he opts for a star trust with his wife as enforcer and a succession mechanism for her eventual replacement. his children will be beneficiaries but do not have rights to information or to terminate the trust, and there will also be a stated purpose of holding onto the business. a cayman ptc will be the trustee, with its shares held in a foundation company, again with a mechanism for replacement directors.

as settlor education grows around the world, we see no reason why this trend of families, and family offices, taking control of their futures should not continue.

this article was originally published in the pcd group magazine.

we have seen that over the last few years that there has been an increase in the use of british virgin islands (bvi) trust structures in the middle east and this relates to the diversification of family planning, the continued popularity of the bvi as a reputable jurisdiction, as well as major shifts in the global economy. there has been a dramatic alteration in the way high net worth (hnw) families in the middle east generally perceive succession planning and the importance and value such planning can have in preserving wealth for future generations.

bespoke succession solutions

the bvi has a wide variety of succession planning options that a hnw family will consider attractive, especially where an operating business is held. where an operating family business exists, there most usually is a strong desire to keep the business within the family and for family members to be able to retain elements of control over its management in the future.

bvi private trust company structures

there has been an increase in the popularity of bvi private trust company (ptcs) structures in the middle east. the bvi has built a reputation as a leading jurisdiction in which to incorporate ptcs. setting up a ptc allows the settlors or their trusted advisors or family members to exercise a degree of control over the decisions made by the ptc. by sitting on the board of directors of the ptc, a hnw family can make decisions as and when required and these decisions are expeditiously carried out without having to wait on an independent trustee to deliberate on matters.

ptc structures also allow a hnw family to set up a number of different trusts under the ptc thereby enabling assets to be ring-fenced or individual trusts to be set up for different family members.

ptcs have become a popular option in the middle east for families looking for pre-initial public offering (ipo) structuring as well as integration with family office solutions, complimenting both onshore and offshore structures.

bvi reserved powers trust

the most common form of discretionary trust structures used by hnw families, (subject to further local advice in the countries where the family members are resident and domiciled and where the assets are considered situs) is the reserved powers trust. the popularity of reserved powers trusts stems from its ability to allow a settlor to reserve certain powers for him or herself (or to confer such powers on others) under the terms of a trust instrument. the bvi has comprehensive statutory legislation confirming that the reservation of such powers will not invalidate the trust. some of these powers include: the power to add and remove trustees, make alterations to the class of beneficiaries and change the proper law and forum of administration of the trust. it is also possible to reserve powers to direct the trustees in relation to the investment of the trust fund; for example to ensure that a family business is retained in the trust. it is also possible to reserve trustee powers concerning distributions over trust income and capital, both of which are appealing to hnw families who wish to implement a comprehensive succession plan, but retain a level of control.

bvi vista trust

the bvi specialist trust legislation is the virgin islands special trusts act (vista), which disengages certain traditional trustee duties in relation to certain trusts that own shares in bvi companies. when a bvi company’s shares are held in a vista trust, the directors of that company are free to administer the company as they see fit, without intervention from the trustee (except in extreme circumstances). key family members may be involved by controlling the bvi company as directors (subject to the standard onshore advice) thereby retaining control of the underlying assets within the limitation of the structure. in addition, key family members may take up the role of office of director rules appointor. this role is a specific feature of a vista trust and allows the appointor, which can be a committee of family members or trusted advisors, to have control over the members of the board of the bvi company. the bvi vista trust is key for families looking to have succession planning in place and still retain some level of control, as often the element of giving up significant control is seen as a key deal-breaker for hnw families in the middle east. the vista trust regime also allows for the option of the future disapplication of vista on a certain event during the lifetime of the trust, enabling a vista trust to convert into a pure discretionary or reserved powers bvi trusts. this disapplication of vista may occur on the death of the settlor where the settlor may be concerned that the family will not be able to manage certain affairs appropriately after his/her death.

popular bvi structures in the middle east

there are specific common scenarios in the middle east where bvi structures have proved particularly popular, such as:

operating family business structures

under normal circumstances, a trustee is to act prudently in relation to trust investments which can have unintended consequences in the context of controlling interests in company shares. this rule has particularly been found to be unfavourable where trusts are used as succession vehicles for family businesses. where the vista trust regime does not apply to a trust, the trustee is under a duty to be prudent and monitor the conduct of directors of the company and to intervene where necessary in the company’s business, e.g. to prevent the company from entering into an unduly speculative venture.

however, bvi vista trust structures allow a hnw family to retain control and run a family business without the concerns that the trustee will be involved in the running of the day-to-day business. thus, allowing the family to retain its sense of control and comfort in its personal business dealings.

forced heirship

specific bvi legislation, similar to a number of other offshore jurisdictions, has been enacted to seek to prevent claims for fixed shares in a deceased’s estate passing to certain family members. these provisions of the bvi trust laws are arguably the most robust and sophisticated in protecting trusts (and dispositions to their trustees) against such “forced heirship” claims. this has made the bvi a highly attractive jurisdiction for settlors who come from states in which such laws apply. this allows hnwi families to establish trusts in order to be able to determine the devolution of their assets and, in effect, replicate the testamentary freedom that in general applies in common law jurisdictions, such as the bvi.

blockchain structures

over recent years, the general risks involved in holding cryptocurrency as part of a trust fund have been extensively debated in the private wealth industry. a trust can undeniably provide an effective solution for individuals looking to put in place efficient succession planning for their digital assets. however, a number of professional trustees have been, and remain, cautious and often reluctant to hold assets of this nature, the trustee’s reluctancy to hold digital assets often relates to their volatility, risk and overall difficulty in aligning such holdings with the trustee’s various fiduciary duties, including the duty to safeguard the trust assets and preserve their value. however, a bvi vista trust can provide an outstanding solution to this quandary by diluting the trustee’s responsibilities in relation to the digital assets and instead allowing the settlor, or others, as directors of the bvi company in the trust to take a hands on approach in managing the digital assets.

family office structures

the concept of family offices in the middle east (in particular the united arab emirates) has gained popularity and momentum, with the number of single and multiple family offices increasing every year.

most commonly, there appears to be a need for a succession plan for the family office structures. this is where a bvi vista trust or bvi ptc structure (or a combination of the two) can come in play as the optimum succession-planning tool, mainly due to the ability for the family to retain effective control of the underlying structure.

conclusion

the middle east has grown exponentially with regards to the amount of hnw families relocating to the region to reside, due to the favourable legal landscape, political stability and financial opportunities. many of the domestic structures in the middle east offer sophisticated structuring; however the bvi still sits among the most flexible and efficient jurisdictions when it comes to bespoke structuring and succession planning. the covid pandemic stressed the sheer significance of wealth and succession planning and hnw families are constantly seeking ways to structure their global assets to provide them with adequate and prudent planning for the generations to come. in many cases, the collective use of domestic and international structures can achieve a higher degree of asset protection and security.

the content of this article intends to provide a general guide to the subject matter. please liaise with one of our lawyers should you need personal advice for specific circumstances.

this article was first published in the oath magazine in december 2022.

in the recently published decision ab limited v gh limited bvihc (com) 192/2021, the bvi commercial court ruled on an application to set aside an order enforcing three singaporean arbitration awards. the bvi court considered the legal principles discussed in soleimany and betamix to handle the tension between the pro-enforcement policy of arbitration awards in the bvi and the public interest to prevent the enforcement of illegal contracts.

the key issue under consideration was whether an order enforcing an award should be set aside on public policy grounds where, as accepted by the parties, the award contained a component that was illegal under the governing law, ie the compound interest issue.

here, the parties to a thai law governed share purchase agreement, engaged in a two-stage arbitration to resolve the dispute between them. the compound interest issue arose as the agreement provided that default payments would attract interest at 15 per cent compounded monthly. in phase one of the arbitration, at an expert witness ''hot tubbing'' session, the tribunal raised the issue of whether thai law permits the award of such interest. the thai law experts mistakenly agreed that share purchase agreements could impose compound interest up to 15 per cent, but it could only compound annually.

by the second stage of the arbitration, the thai law experts on a closer review of thai laws, agreed that compound interest was only recoverable in respect of loan agreements. notwithstanding this, by an apparent oversight, the tribunal awarded the claimants compound interest. the claimants sought the substitution of simple interest for compound interest, but the tribunal considered itself functus officio. the claimants nonetheless sought enforcement of the awards with compound interest in the bvi.

the bvi court noted that while public policy is heavily weighted in favour of enforcement, enforcement can be refused on the public policy ground of illegality. while the bvi court will not re-assess a tribunal’s finding of illegality, where an award is then made under the illegal contract, the bvi court is entitled to refuse enforcement if it would be contrary to bvi public policy. while the award of compound interest does not offend bvi public policy, comity also forms part of bvi public policy. therefore, the bvi’s public policy dictates that the bvi court will not enforce a contract that is deemed illegal according to the laws of a foreign friendly state, such as thailand.

the bvi court made it clear that its decision to set aside the enforcement of the award was based purely on public policy grounds and the need to protect the integrity of the court’s process from abuse. considerations of justice and fairness between the parties were not relevant considerations for the court when exercising its discretion to enforce or refuse the enforcement of an award. accordingly, the compound interest parts of the awards were set aside.

reproduced from practical law with the permission of the publishers. for further information visit www.practicallaw.com.

the bvi international tax authority (ita) published an updated version 3 of its rules and explanatory notes on es in the bvi (the rules) on 23 february 2023.

background

the economic substance (companies and limited partnerships) act (the es act) was introduced in the bvi, effective 1 january 2019, to address the concerns of the eu code of conduct group and the oecd forum on harmful tax practices regarding es.

the es reporting regime was introduced via amendments to the beneficial ownership secure search system act (the boss act).

why is this relevant?

all companies and limited partnerships registered in the bvi (entities, which include foreign entities) should ensure that they have adequate systems and controls in place to comply with their obligations under the es act and the boss act and are aware of their compliance and reporting obligations, even if the entity does not carry on any of the nine “relevant activities” or is otherwise able to claim exemption from the es requirements due to their tax status.

this is now a requirement of bvi law following amendments to the international tax authority act, and the ita has indicated that it expects to see robust written records (which may include resolutions of the director(s) or general partner(s) of the entity) to evidence that entities have properly considered their obligations and put systems in place to ensure compliance. regard must be had to the rules as the official guidance published by the ita.

entities should also ensure they have considered their reporting obligations, as every entity is required to submit an annual es declaration to the ita via its bvi registered agent within six months of the end of the relevant es financial period (the fp, which is not the same thing as an accounting or fiscal year). the es reporting regime has been expanded significantly for fps commencing on or after 1 january 2022, following amendments to the boss act in 2021.

what are the key changes in v3 rules?

v3 of the rules reflects certain significant amendments to the es act and boss act made during the course of 2021, and includes helpful further guidance and worked examples.

download our guide to read more.

the registered agent, colloquially known as the ra, fulfils a key role for bvi companies. somewhere between a mailbox, company secretary and compliance gatekeeper, the ra is the only entity able to make most filings with the bvi’s registrar of corporate affairs (the registrar), the usual keeper of the company’s statutory registers and, from a regulatory standpoint, a key player in the bvi’s anti-money laundering and compliance regime (as the principal person charged with collecting client due diligence information on bvi companies).

the ra system usually works extremely well and the bvi offers many highly professional outfits offering these services to a high standard. occasionally, however, an ra may (however inadvertently) hold up a matter or transaction by refusing to take a step which is within their power. based on practical examples from deals on which we have worked recently, this guide considers the rights of directors and members and the options available in this situation.

we also briefly examine the ways in which third parties may force ras to provide documentation or assistance and the obligations ras have to third parties generally.

the "client of record" concept

historically, when agreeing to act as ra, an ra typically contracted with the relevant company and one or more named individuals or entities as its “client of record”, from whom it was required to take instructions – often exclusively. this had no statutory basis but was commonly encountered in practice to ensure the ra would have clear instruction and reporting lines. many bvi companies were formed with the involvement of an intermediary, such as a company formation agent, service provider or a professional advisor, who was often the client of record.

perhaps inevitably, problems arose. the client of record was not necessarily a director or shareholder and could be an individual over whom the directors have limited control or influence – for example, an intermediary or a past or present employee or agent of the company. moreover, if the client of record was an individual, they could get sick, die, or go on holiday. this could leave shareholders (the owners of the company) and directors (in whom management and control is vested by statute) in limbo, without the ability to compel the ra to act.

occasionally, the client of record may have some interest in delaying the relevant action – for example, where they are affiliated with a party opposed to the transaction. on one deal in which the authors were involved, for example, the client of record was a service provider appointed by investors with an interest in delaying the transaction. that provider no longer wished to act for the company in any capacity and initially refused to take any further action (including to give timely instructions to the ra). the company was in financial distress and the ra needed to make a filing for the parties to close the deal and stave off looming insolvency, so another solution had to be found – and quickly.

in the worst cases, we have seen situations where the client of record has taken action against the interests of the beneficial owner or principal. for example, the privy council recently considered a case where the client of record fell out with the principal who had given them their instructions and was able to dispose of the relevant company’s only assets without the principal being aware. ^[1]

options for directors and shareholders

in part to address such situations, and seemingly with the intent of consigning the client of record concept to the history books, in 2015 the bvi legislature introduced section 91b into the bvi business companies act. it provides that, subject to a company’s memorandum and articles (maa), an ra shall:

• act on the instructions of the company’s directors if those instructions are set out in a resolution of directors and a copy made available to the ra; and
• recognise and accept the appointment or removal of a director or directors by members of the company.

unfortunately, the client of record concept has not gone quietly. some ras maintain the supremacy of their client of record and may refuse to comply promptly with a section 91b direction – particularly where the ra remains contractually obligated to take instructions exclusively from its nominated client or in contentious circumstances where the proper identity of the directors and/or members of a company is questionable (for example, where there is a dispute between members). there is no statutory penalty for non-compliance and the effects of non-compliance have yet to be tested in the bvi courts.

if the ra is holding up a transaction, or fails to comply promptly with a section 91b direction, the company may have contractual recourse against the ra. however, most ras’ standard terms include broad limitation of liability and indemnity protections for the ra so such recourse may be limited.

in the deal context, we often see two scenarios play out where an ra remains recalcitrant or is unresponsive – either:

• the ra maintains the company’s original registers and needs to update them (for example, to reflect changes to the members and/or directors) but does not need to make any filings with the registrar to close the deal; or
• closing the deal is dependent on the ra making a filing with the registrar.

in the first situation, if the only change is to the directors, there may be no critical issue - a change of directors need not be registered to be effective (although it does trigger filing obligations which may require the position with the ra to be resolved post-closing). conversely, legal title to shares in a bvi company is generally evidenced by entry of the shareholder’s name in the original share register (and a transfer of shares is effective on registration). however, bvi law does not require the original register be maintained by the ra and the directors generally have the power to resolve to maintain the original registers themselves (and then update them). the company is obligated under the act to send copies of the updated registers and notification of how they are being held (as well as certain prescribed beneficial ownership information under the beneficial ownership secure search system act) to the ra. the ra may then itself face liability if it fails to upload the beneficial ownership information to the confidential, encrypted ra “boss” database without reasonable cause.

where the ra must make a filing, the best solution may be simply to change ra – such a change may be approved by a resolution of members or, if authorised by the maa, the directors. it is generally preferable for the existing ra to file to change the ra. however, a bvi legal practitioner can force a change of ra provided certain conditions are met (which largely relate to ensuring adequate compliance information is collected). a forced ra change is typically the quickest method where the existing ra is completely unresponsive; however, time will need to be allowed to complete the compliance process and this can sometimes prove challenging where the company’s registers and records have been maintained by an intermediary or the existing ra.

on the deal mentioned above, the ra was faced with the prospect of the company commencing urgent court proceedings for an order to amend the maa (while an amendment is generally effective when registered by the registrar, the court may order that the amendment should have effect from a date no earlier than the relevant resolutions) and potentially against the ra itself if it failed to comply with a section 91b direction or to confirm that its compliance information on the company was up-to-date. happily, the situation was ultimately resolved amicably with the ra and their client of record.

rights of third parties against ras

if it can sometimes be difficult for directors of a bvi company to compel their ra to act, it is unsurprisingly almost impossible for a third party to do so. the ra generally has no duty of care, and no obligation to provide any information, to – for example – creditors of the company, shareholders in parent companies, beneficiaries of a deceased shareholder, estranged spouses of shareholders or journalists on a fishing expedition.

there are a few exceptions to this. first, the bvi is signed up to several international tax and information exchange agreements and the ra may be required to disclose information to the competent regulator where these apply. second, in financing transactions involving security over shares in a bvi company, the ra will usually receive an irrevocable direction by the directors and/or client of record authorising and directing it to act on lender’s instructions in an enforcement scenario.

finally, in some circumstances, a bvi registered agent may be compelled by court order to provide information. a norwich pharmacal order (named after the english case which gave rise to these types of disclosure orders) may be sought against an ra where there is wrongdoing by a shareholder or person affiliated with a company and the ra is held to have – however innocently – facilitated that wrongdoing. this principle was established in the unreported case of jsc bta bank^[2] and has been applied to force an ra^[3] to provide compliance information regarding a shareholder in one bvi company to a person who was a joint shareholder with that person in another company, which was facing a striking-off.

final thoughts

some of the problems outlined above could have been avoided if the issues had been considered when the structure was first established. at the risk of stating the obvious, directors or shareholders of, or third parties dealing with, a bvi company should always take appropriate bvi legal advice. where such issues do arise, however, there are tools available to bvi legal practitioners to assist clients.

^[1] ciban management corporation v citco (bvi) ltd, which was discussed in our update.

^[2] jsc bta bank v fidelity corporate services limited and others.

^[3] rui manuel cabecadas coelho de sousa v harneys corporate services limited.

with the focus on esg, aifmd ii and eltif 2.0, anyone reading the title may say “surely the market knows what is required? have we not moved past this question?”

however, non-eu sponsors and startups looking to raise capital in the eu, find the aifmd a bit of a minefield. emerging managers still look to structures that may fall outside the scope of the aifmd, as the on-going costs of the top tier structure offered under the aifmd require sufficient levels of assets to justify the costs, which may exclude startups.

luxembourg pooling structures, regardless of legal form and underlying assets, should be analysed against the definition of an aif to determine whether they are in or out of scope of the aifmd. the definition of an aif is very broad and covers any type of vehicle established for the purpose of raising capital from a number of different investors, with the aim of investing these funds into assets to generate returns and which does not qualify as a ucits.

the aifmd does not regulate the aif directly as it is a managers’ directive, requiring the appointment of an aifm by the aif, or the aif seeking itself to be treated as internally managed and thereby required to comply with the aifmd.

the ability to fall outside the definition of an aif is limited, hinging primarily on the structure not meeting all the elements of the definition of an aif. for example, a jv or family fund, invests their own money and therefore do not raise capital. there are other examples, such as managed accounts or securitisation structures, which in certain circumstances also fall outside the scope of the aifmd. explicit exemptions under the aifmd are narrow, including the group exemption and the partial (de minimis exemption) available to small aifms.

option 1 – partial exemption

to meet the requirements of the partial exemption, small luxembourg aifms must manage: - aifs which are not leveraged and offer no redemption rights for a period of five years, and with aggregate aum below €500 million. - aifs whose aum, including any assets acquired through the use of leverage, do not exceed €100 million.

small aifms are required to register with the national competent authority, the cssf (commission de surveillance du secteur financier) and have to comply with very few requirements of the aifm law as they are not supervised by the cssf for asset management purposes (limited reporting to the cssf). alternatively, these below-threshold aifms can opt-in by applying for a licence as an above-threshold aifm which benefits from a management and marketing passport across the eu/european economic area.

there is an on-going debate in the luxembourg market as to whether the partial exemption is a useful option for startup managers. the argument is that the costs of running a full-blown structure, does not vary that much from the running costs of a sub-threshold structure if one considers the limitations of the partial exemption option. a substantial portion of the costs of the smaller aifm are linked to its obligations to comply with the luxembourg aml law as they are subject to the cssf supervision for aml purposes.

it is true that smaller aifms do not benefit from the marketing passport under the aifmd but the sponsor does retain control over the investment management process and has limited interference from a third party which is often important for startup managers.

each project should be assessed on its own merits to determine whether or not the partial exemption is useful, remembering that the marketing passport under the full aifmd structure is only available to professional investors and not semi-professionals.

some startup managers may wish to have their own employees in luxembourg and delink their business from third party service providers as they grow their own team and business.

option 2 – setting up an authorised aifmd

before starting business, the new luxembourg aifm entity must be authorised by the cssf.

cssf circular 18/698 of 23 august 2018 on the authorisation and organisation of luxembourg investment fund managers provides good guidance on the requirements together with the “application questionnaire for the setup of a fully licensed alternative investment fund manager”.

specific requirements are applicable with respect to the members of the management body as well as the senior managers (conducting officers) in terms of the number of persons, skill, residency, and ability to travel to luxembourg and number of mandates. this may change slightly under aifmd ii particularly with respect to independence at the management body level.

the application will include a programme of activity outlining the organisational structure of the aifm and how it intends to comply with its obligations under the aifmd. a number of policies and procedures will also be filed as part of the application including but not limited to delegation and the remuneration policy. a number of supporting documents are also included, such as rental agreements, professional indemnity cover, corporate documents, information on controlling shareholders and information on the initial aif to which aifm services will be provided.

a large portion of the application will also focus on the distribution channels and how luxembourg aml requirements (depending on the distribution model) will be complied with.

with respect to timing, the cssf must determine if authorisation will be granted, within a period of three months from the date from which it receives the complete application. this may be extended by an additional three months.

it should be noted that the cssf authorisation is not a blanket authorisation to manage all types of alternative investment funds. authorisation is granted in respect of the alternative strategy disclosed in the application. for example, a licence would need to be extended to accommodate crypto as it would fall within the category of other investment strategies.

embarking on a business in a new jurisdiction is not taken lightly by sponsors and often option 3 is the preferred route.

option 3 – compliance through the appointment of a third party aifm/host aifm

there are a number of third party aifms selling their services to sponsors, where they undertake to assume the regulatory and compliance burden of the aifmd. the true benefit of the third party aifm option, is that access to the marketing passport is granted, without the cost of running a new business.

although, there is concern, particularly from non-eu sponsors about losing control over the investment decision making process. the extent to which the host aifm will control the investment decision making process will be dependent on the model adopted by the sponsor, which is either the delegation of portfolio management or the retention of this function by the host aifm with the sponsor providing investment advice only.

delegation

authorised aifm may delegate one of the components making up the investment management function, typically portfolio management to an eligible third party, while retaining risk management.

the third party is required to be an entity authorised for asset management and subject to supervision. if the delegate is a non-eu entity, a written co-operation arrangement must be in place between the aifm’s home state regulator and the supervisory authorities of the delegate, which satisfies the requirements set out in the level 2 regulations of the aifmd.

under the delegation model, the sponsor should understand which aifmd obligations the aifm wishes to impose contractually, and which obligations are inescapable under the aifmd and are “non-negotiable”. one of the points of using a host aifm, is to allow the sponsor to concentrate on what it does best. the sponsor should understand that the aifm has an obligation to act in the best interests of investors and its liability towards the aifs investors will not be affected by the fact that the aifm has delegated functions to a third party, or by any further sub-delegation.

advisory

under the advisory model, the aifm retains both risk and portfolio management and the third party sponsor provides investment advice.

each one of the above options has advantages and disadvantages and the commercial requirements of each project will determine which of the options is most suitable and appropriate.

the sub-threshold option could be used as an interim measure, until the assets under management justify appointing a thirdparty aifm or seeking full authorisation itself under the aifmd.

the beauty of the single market is that the authorised aifm is not required to be a luxembourg entity. other eu aifms may passport into luxembourg to manage a luxembourg fund, this opens other options for sponsors.

this article was originally published by agefi luxembourg.

british virgin islands (bvi) companies are among the most popular offshore holding structures in the world, and are popular throughout asia-pacific in particular. one common structure is to set up a cayman islands company as part of a typical red chip structure as a proposed listing vehicle and to set up multi-layered bvi companies as special purpose investment vehicles above and below the equity structure of the cayman islands vehicle in connection with an initial public offering (ipo) in hong kong.

bvi companies are also commonly used by venture capital and private equity investors in private equity transactions for joint ventures, downstream acquisitions and pre-ipo equity financing, as the bvi is a popular jurisdiction due to the jurisdiction being more cost efficient, and in some respects more flexible, than most other offshore jurisdictions, whilst also having all the usual. given the prevalent use of bvi companies in typical transaction structures, hong kong lawyers may benefit from keeping pace of the latest legal and regulatory developments in the bvi when advising their clients.

in early 2023, various changes to the bvi business companies act came into effect. collectively, these changes are the most far-reaching and significant updates in some time, perhaps since the bvi business companies act itself came into effect. the amending legislation consists of the bvi business companies (amendment) act, 2022 and the bvi business companies (amendment) regulations, 2022, both of which became effective on 1 january 2023.

the key changes can be summarised as:

• disclosure and transparency: the names of current directors of bvi companies can now be obtained via a company search or physically attending the offices of the relevant regulator in the bvi. the legislation also includes a framework for the potential future introduction of a register of significant controllers.
• financial returns: for the first time, bvi companies will be required to provide some financial information to their registered agent on an annual basis. this is expected to consist of a simple balance sheet and profit and loss statement. such financial return will not be publicly available nor publicly filed. limited exceptions, as discussed below, apply.
• striking off, dissolution, and restoration: companies which are struck off the register of companies (the register) for any reason are now dissolved immediately (subject to certain transitional provisions expiring in june). there are significant changes in the process of restoring a struck-off and dissolved companies.
• liquidations: there have been changes to the rules around who can act as a liquidator of a bvi company, and what documents and records a liquidator is required to obtain and retain.
• continuations: the process by which a bvi company may migrate to another jurisdiction has been amended to provide additional protections for creditors and shareholders.

director names

the names of the current directors of a bvi company can now be obtained through an online system, or in person at the offices of the registry of corporate affairs (the registry). the registry charges a fee for providing such list, and such information is not automatically provided as part of a “standard” company search. searches must be run against a specific company, rather than the name of a director.

since 2016, companies have been required to file a full register of directors on a non-public basis. this full register remains unavailable in a public search (unless the company has voluntarily elected for it to be disclosed, which is rare). this means that directors’ personal information such as date of birth and residential or correspondence address, as well as the names of former directors, are protected. the financial services commission (fsc) extracts publicly available names from these previously filed registers. entities that do not update their registers in a timely manner following a change or do not comply with their existing obligations) should take care to rectify the position as soon as possible.

due to the potential delay between the occurrence of a change and the update of the online record, there is a clear risk of relying solely on the list of directors obtained from the registry. the company’s private register (which, by statute, is prima facie evidence of the information contained) remains the more definitive document.

registers of persons with significant control

the amendments also include a primary legislative framework by which the bvi may introduce a public register of persons with significant control in the future.

as and when introduced, the government may prescribe by regulation the requirements for the maintenance and format of such registers. it also provides that such regulations may contain exemptions for publicly listed companies or companies with equivalent disclosure and transparency obligations. it further provides that the regulations may restrict access to the registers in relation to any person where it is in the public interest, where compliance with data protection laws is required, where a person is protected from specific risks, or where a person is a child or otherwise lacks legal capacity.

the bvi government, in a common position with the other british overseas territories and crown dependencies, had previously committed to introducing such a register by the end of 2023, subject to certain reservations. in a judgment dated 22 november 2022, the european court of justice has decided that open public access to the beneficial owner registers of european union member state companies is not valid under european law, as it is in contravention of articles 7 and 8 of the charter of fundamental rights of the european union. although the decision has no legal bearing on the bvi, it remains to be seen what impact this recent ruling will have on the timetable and politics around this issue.

financial records and accounts

for some time, all bvi companies have been required to maintain records and underlying documents which (a) are sufficient to show and explain the company’s transactions, and (b) are reasonably accurate at all times in determining the company’s financial position. these requirements remain in effect. these records may be kept at the registered office of the company in the bvi, or at such other place as may be notified to the registered agent.

it is important to note that the information filed with the registered agent will not be filed with any regulator or bvi government authority, nor will it be made publicly available. the registered agent will need to provide the information to a regulatory body if it receives a request which is within the scope of that body’s investigative powers and existing information exchange agreements.

however, subject to limited exceptions, bvi companies are now required to provide certain financial information to their registered agent on an annual basis in the form of an annual return (although, in practice, the first filings will not be due until 2024). further details, including the form of return, are due to be set out in supplementary regulations, which are expected to be published shortly.

based on public statements from the regulator and the draft regulations published during the consultation process, we expect the final annual return to consist of a relatively simple balance sheet and profit and loss statement. there is no requirement that the return be audited or based on audited financials, either locally or otherwise, and companies should be free to use whatever accounting policies they currently use.

the annual return will need to be filed within nine months of the end of an entity’s financial year (which we expect will not necessarily need to be a calendar year). the registered agent will have an obligation to inform the regulator if it has not received the annual return within 30 days of the due date. companies that fail to file in a timely manner will be subject to fines up to a maximum aggregate amount of us$5,000. where a company has accrued the maximum fine and still fails to file its return, it may be struck off.

there is an exception to the requirement to file an annual return for companies listed on recognised exchanges (on the basis that these companies are already subject to comprehensive financial disclosure regimes). there are also exceptions for companies that already provide information to bvi authorities. this will benefit entities which have a regulated status in the bvi and which provide financial statements to the fsc in such capacity. those companies which file annual returns with the bvi’s internal revenue department (such as entities operating locally) also benefit from an exception.

strike-off and dissolution

under both the new and old regimes, bvi companies may be struck off the register in a number of different circumstances. in practice, failure to pay the annual government licencing fees is the most common ground.

under the old regime, once struck off a company existed in a sort of limbo. the company’s existence would not formally end for seven years, but the company (and its directors, members, and any liquidator or receiver) were broadly prohibited from taking any action with respect to the company, other than taking steps to restore it to the register. a struck company could generally be restored at any time by paying any accrued fees and penalties, provided it also rectified any other defect in its compliance with law (such as appointing a new registered agent in the event of the resignation of the old one). if not restored prior to the end of the seven-year period, the company was dissolved.

under the new regime, any struck-off company is dissolved immediately. brief transitional arrangements apply to companies that were already in a struck-off or dissolved state on 1 january 2023.

it would be advisable to any person who owns a company that has been struck off and/or dissolved which still holds assets or business operations to take action to bring the company back into good standing as soon as possible.

restoration of dissolved companies

the process of restoration has changed significantly for companies in dissolution.

as discussed further below, there will remain a route by which a company may seek restoration via the courts in the bvi, but for the first time, there is a method of obtaining an out-of-court restoration of a dissolved company. to go down this route, companies must apply to the registry within five years of the date of dissolution. the transitional arrangements will apply to companies which are currently in a struck-off state so that they will be able to apply to the registry until 1 july 2023, unless the seven-year period since their strike-off date expires earlier.

there are several mandatory conditions for utilising the out-of-court process, including that:

• the company must have been carrying on business or in operation on the date of its striking off and dissolution;
• a licensed person must have agreed to act as registered agent of the company, and must make a declaration that it has updated and maintain all of the company’s information that a registered agent is required to maintain;
• the company has paid the restoration fee and any outstanding penalties in relation to the company; and
• the registrar is satisfied that it would be fair and reasonable for the company to be restored to the register.

the court may order restoration in a wider set of circumstances. the court may exercise its power if:

• the company was struck off the register and dissolved following the completion of its solvent or insolvent liquidation;
• the company was not carrying on business or in operation on the date of dissolution;
• the purpose of restoration is to (i) initiate, continue or discontinue legal proceedings in the name of or against the company; or (ii) to apply for property that has vested in the crown bona vacantia to be returned to the company (subject to a similar requirement for consent as discussed above); or
• in any other circumstance where the court considers that, having regard to any particular circumstances, it is just and fair to restore the company to the register.

the court may (but is not obliged to) order that the restoration be subject to a licenced person making a declaration in the same format as that required for restoration by the registrar.

regardless of which route of restoration is taken, a restored company is deemed never to have been struck off the register or dissolved.

liquidations

a person wishing to act as a liquidator of a bvi company must now satisfy a residency requirement. to qualify, an individual must have physically lived in the bvi for at least 180 days, either continuously or cumulatively, prior to their appointment. it is not entirely clear from the legislation whether this 180 days is assessed by reference to a specific period of time.

given the potential foreign language or time zone benefits of having a liquidator in location of the company’s principal operations or business, a joint liquidators may also be appointed where only one person meets the residency test.

liquidators are now also be required to take additional steps to obtain accounting records prior to the commencement of liquidation and to provide copies of all documentation they receive to the registered agent of the company being wound up.

continuations

companies wishing to continue their corporate existence outside the bvi must now give advance notice of their intention to depart, by placing an advertisement in the bvi gazette. they must also give advance notice to the shareholders and creditors. in practice, many bvi companies have no creditors and many continuations are approved by the sole shareholder. while this will result in some minor delays continuations, the additional protection for creditors and members is widely welcomed.

conclusion

the bvi has always taken its international obligations seriously and remains fully committed to its role at the forefront of combatting financial crime in all forms. the latest round of legislative amendments demonstrates its determination to align with international best practices and to ensure the effective and efficient exchange of information. after these changes, we envisage that the bvi continues to be one of the most attractive offshore jurisdictions in the world for investment vehicles, as the key advantages and benefits of using bvi structures remain, including but not limited to tax neutrality, corporate flexibility, stability and reliability, confidentiality and low set up cost.

this article first appeared in the february 2023 issue of the hong kong lawyer, the official journal of the law society of hong kong.

the recent decision by the european union to temporarily add the bvi to its list of non-cooperative jurisdictions for tax purposes, otherwise known as the blacklist, may cause some initial puzzlement given the jurisdiction’s long-standing commitment to meeting international standards. in practice however, it has been observed that its inclusion was due to a technical foot-fault (in common with a number of other leading fund domiciles) and is expected to be rectified in due course. the current position is likely to have very limited – if any – practical impact upon bvi funds, bvi managers (including bvi approved managers), their investors and underlying spvs.

so do i need to know more about the eu’s “defensive measures” on tax?

the defensive measures are tax rules within the eu member states designed to make trade with blacklisted jurisdictions less beneficial for eu persons, typically through the imposition of increased eu taxes. as such, they are only relevant to bvi funds or bvi managers where there is an eu nexus of some sort. consequently, the vast majority of bvi funds and bvi managers, which operate without an eu nexus, will be able to, essentially, disregard the defensive measures.

to state the obvious the overarching main principle is that, outside of the eu, eu law has no direct application and as such the temporary inclusion of the bvi on the blacklist will not automatically trigger any adverse legal, regulatory, or tax consequences for bvi funds or bvi managers.

within the eu, inclusion on this list may conceivably result in certain payments between bvi entities and eu member states triggering so-called “defensive measures” under local tax laws. we explore this further in our eu tax specific blog posts – please see here. however it should be stressed that this will only be relevant where the bvi fund or bvi manager has some degree of eu nexus. importantly however, for funds with a global investor and investment base outside of the eu, these measures will not apply and it is simply business as usual. to provide more specifics:

• any issue with accepting subscriptions? provided the proposed investor is based outside of the eu, the defensive measures cannot apply. it is highly likely that there will also not be any issues for investors within the eu making subscriptions, but we would be happy to discuss that further if relevant.
• any issue with redemptions? provided the relevant investor is based outside of the eu, the defensive measures cannot apply. again, there is very unlikely to be any issue where the investor is based within the eu either, but do feel free to reach out.
• can we make payment of fees to the manager and/or other service providers? in the event that the bvi fund or bvi manager makes payments to an eu based manager or service provider (such as management/advisory fees, administration fees, custody fees, legal fees etc), such payments should not be subject to the defensive measures either. again, nothing to consider where the relevant payment is made outside the eu.
• what about the underlying portfolio? we are sure that any manager of a bvi fund takes professional advice in relation to tax efficiencies before acquiring or disposing of its fund’s underlying portfolio. that should simply continue in relation to this aspect as well. it should be noted though that where a bvi fund is heavily exposed to underlying eu based positions, in particular in private equity, care should be given where receiving dividends in the ordinary course or indeed upon disposal of those assets during the period of the blacklisting. equally, if your bvi domiciled fund will be engaging in subscriptions or redemptions in kind with eu based assets, again please do discuss this with your tax advisors prior to continuing with these processes.

eu mandatory disclosure requirements?

finally, it should be recalled that the eu’s mandatory disclosure regime, known as dac6, may be triggered by eu based intermediaries (such as tax planners) dealing with entities on the eu blacklist, including bvi funds. in short however, where the investors and service providers are based outside of the eu, the disclosure requirements will not apply.

for more on dac6 please see here.

the above commentary is for information purposes only and should not be considered legal advice.

minority shareholder rights in the british virgin islands are codified under section 184i of the bvi business companies act 2004 (as amended) (the bca). under this section, minority shareholders of bvi incorporated entities can petition the bvi court for redress in circumstances where they feel that the affairs of the company are being conducted in a manner that is unfairly prejudicial to them. under this section, the bvi court enjoys a wide discretion to protect and provide relief to minority shareholders who make out their allegations of oppressive conduct against the company and those in control of it.

ordinarily, the rights that shareholders enjoy are governed by the terms on which they associate^[1]. however, the imbalance of voting powers often leads to the controlling majority meting out conduct that is prejudicial to the rights of minority shareholders; the court is concerned with offering relief in these circumstances.

in yao juan v kwok kin kwok & crown treasure [2022] ukpc 52, the privy council considered the classic elements of a claim for unfair prejudice under bvi law and what was the appropriate remedy.

download the pdf to read the full article, originally published by lexis psl.

^[1] joffe v, minority shareholders: law practice and procedure (5^th edn oxford university press 2015)

the incorporation of a luxembourg public limited liability company (société anonyme) (sa) or a private limited liability company (société à responsabilité limitée) (sarl), which are the two most widely-used business entities in luxembourg, generally requires a number of steps.

download the pdf to read more.

generally, companies incorporated and existing under luxembourg law can change their nationality and transfer their registered office to another jurisdiction, without interruption of legal personality.

cross-border corporate migration is the transfer of an existing company incorporated under the law of one jurisdiction to a new host country without interruption of its legal personality and without having to be wound-up. such a migration is often an efficient mechanism that will enable a company to maximise continuity of its operations in another jurisdiction, ensuring that its corporate history, assets and contractual relationships remain largely unaffected.

download the pdf to read more.

the cayman islands, bvi and bermuda are frequently the jurisdiction of first choice for the incorporation of companies with commercial and other interests in other countries.

however, as common law jurisdictions which generate a much smaller body of case law compared to say england, the cayman islands, bvi and bermuda pay particular heed to the decisions of other common law jurisdictions, in particular england.

the decisions of the english courts are not binding on these jurisdictions (save in respect of decisions of the uk privy council on appeal from the respective jurisdiction). however, these decisions are persuasive, particularly so when issued by the uk supreme court.

one such case is the recent decision of the supreme court in bti 2014 llc v sequana sa and others (sequana). the judgment is described by one of the judges, and subsequently much-heralded, as "momentous" and confirms the existence of the common law duty of directors to have regard to the interests of the company's creditors where the company is insolvent or is approaching insolvency (the creditor duty), and clarifies what that duty entails and when it is triggered.

key findings

in sequana, the uk supreme court considered for the first time and confirmed the existence of the creditor duty and further clarified that it is not a free standing duty owed directly to creditors. rather, it falls within the duty owed by the directors to act in good faith in the interests of the company. while solvent, the directors must have regard to the shareholders in exercising the duty.

however, as the company nears insolvency, the directors' duty to the company is modified such that they must also have regard for the company's creditors. with respect to when the (modified) duty arises, the court determined that the duty is engaged when the directors know or ought to know that the company is insolvent or bordering on insolvency (pushing the trigger point back from the court of appeal's formulation).

this article was originally published by westlaw today.

download the pdf to read the full article.

the following table shows the similarities and differences between the bvi, cayman, cyprus, anguilla, luxembourg, and bermuda corporate vehicles across 23 different areas.

this guide gives an overview of the two options identified in the luxembourg company law for the voluntary winding-up of an unregulated luxembourg company, highlighting the key differences between the two procedures.

download the pdf to read more.

following a meeting of the finance ministers of the 27 eu member states (ecofin) on 14 february 2023, it has been announced that the bvi will be added to the eu’s list of non-cooperative jurisdictions for tax purposes (eu list).

the council of the eu stated that: “british virgin islands are listed because they were found not to be sufficiently in compliance with the oecd standard on exchange of information on request (criterion 1.2). this is the first time this jurisdiction is listed.”

the decision comes after the global forum on transparency and exchange of information for tax purposes (global forum) assessment in november 2022 that the bvi was, on technical grounds, rated “partially compliant”. the analysis focussed only on the period 2016-2020, and therefore did not take into consideration important legislative developments in 2022 and 2023 that continue to ensure the effective and efficient exchange of information. under ecofin’s specific operating rules, the global forum rating triggered an automatic addition to the eu list without taking into account any mitigating factors.

however, the global forum has recognised that exceptional circumstances, including the bvi’s recent legislative updates, justify a supplementary investigation, which is already in progress. these legislative updates, including the bvi business companies (amendment) act 2022, and bvi business (amendment) regulations 2022, are focussed upon meeting the requirements set out by the global forum as part of its peer review process, as well as to continue to comply with international best practices. if upgraded by the global forum to its previous status as “largely compliant”, the jurisdiction should be removed from the eu list.

the addition of the bvi to the eu list will be effective when published in the eu’s official journal, which is expected to take place in the next few days. it is important to note that this eu decision is limited in scope to eu member states and is not directly applicable in any other region in the world.

the bvi has always taken its international obligations seriously and remains fully committed to its role at the forefront of combatting financial crime in all its forms.

if you have any questions or concerns, please reach out to your key contact at harneys.

one of the many flexible features of the bvi business companies act 2004 (the bc act) is the ability both to continue a foreign company as a bvi company under the bc act and also to continue a bvi company under the laws of another jurisdiction (commonly referred to, respectively, as a continuation and discontinuation or continuation out).

this guide provides a brief overview of the process and requirements for continuations and discontinuations.

download the pdf to read more.

this article reviews the need-to-know features of the legal and regulatory frameworks governing virtual currencies in the cayman islands, with particular regard to applicable securities and banking laws.

introduction to the legal and regulatory framework

owing to its neutral tax treatment, political stability and respected legal regime, the cayman islands is the global jurisdiction of choice for the formation of investment funds, which are increasingly investing in virtual assets and taking advantage of the investment opportunities in this space. the cayman islands has been, and remains, the leading domicile for virtual asset investment funds globally^[1]. a number of virtual asset exchanges have been launched by cayman islands entities.

the cayman islands special economic zone provides a simplified route to establishing a physical presence and employing staff in the cayman islands.

in mid-2020, the cayman islands government introduced a new framework for regulating virtual asset businesses, known as virtual asset service providers (vasps). the framework implements financial action task force recommendations on international standards on combating money laundering and the financing of terrorism and proliferation applicable to vasps (including virtual asset issuances, exchanges, transfer and custodian services, and financial services related to a virtual asset issuance); defines virtual assets and which virtual assets constitute securities; enables funds to use virtual assets as representations of equity interests; recognises virtual asset trading exchanges; and introduces a regulatory sandbox licence. no case law has yet considered issues arising in the virtual assets space.

structuring of virtual currency businesses

there is no direct taxation imposed on cayman islands entities and structuring will largely be driven by onshore tax considerations, cayman islands regulatory requirements and business needs.

exempted companies

the most common type of entity used by vasps to form investment funds investing in virtual assets, virtual asset issuances (commonly known as initial coin offerings and security token offerings) and virtual asset exchanges in the cayman islands is the exempted company. exempted companies conduct business based on a declaration by the incorporating subscriber that the operations of the company are to be carried on mainly outside the cayman islands.

an exempted company must have a minimum of one shareholder and one director. the appointment of officers is optional. there is no requirement for cayman-resident directors or officers.

exempted limited partnerships

exempted limited partnerships are more commonly used to form closed-ended funds investing in virtual assets, which may be investing in illiquid virtual asset issuances rather than more commonly traded virtual assets. the exempted limited partnership act (the elp act) governs the formation of exempted limited partnerships.

the elp act also contains provisions relevant to the affairs of an exempted limited partnership, being the primary legislation governing partnerships generally. an exempted limited partnership is a partnership consisting of at least one general partner (who has responsibility for the business affairs of the partnership) and any number of limited partners that is registered as such under the elp act.

an exempted limited partnership is not a separate legal entity. it is instead a set of contractual obligations affecting the partners, between themselves, where a general partner is vested with certain powers and obligations in relation to a business and the assets of the business.

exempted limited partnerships are often treated differently to companies for onshore tax purposes, typically being treated as fiscally transparent. the general partner holds the partnership’s assets in statutory trust for the partners and is tasked with managing the business and affairs of the exempted limited partnership. if the assets of the partnership are inadequate to satisfy the claims of creditors, the general partner is liable for the debts and obligations left unpaid.

foundation companies

a foundation company shares many of the features of an exempted company. a foundation company is a body corporate with limited liability and separate legal personality from its members and directors and other officers. it can sue and be sued and hold property in its own name. the key feature of a foundation company that often makes it an attractive vehicle for issuing virtual assets is that it is not required to have members following incorporation. this is a particularly useful structure for those projects that will ultimately be decentralised and governed by the community. during 2021 and 2022, foundation companies were especially popular as a vehicle through which decentralised autonomous organisations could contract with the world and hold assets. careful structuring, legal and regulatory analysis, is required for any projects considering such an approach.

a foundation company must, however, unlike an exempted company, appoint a qualified person as a secretary, namely a person who is licensed or permitted by the companies management act (revised) to provide company management services in the cayman islands, and that secretary must maintain a full and proper record of its activities and enquiries made for giving notice, and ensure that the company complies with cayman islands anti-money laundering, countering the financing of terrorism and anti-proliferation financing obligations when accepting transfers of virtual assets without consideration.

trusts

if ownership and autonomy are concerns, which may be relevant particularly for issuing virtual assets, they can be addressed to a certain degree by having a cayman islands charitable trust or star trust (introduced by the special trusts (alternative regime) act) hold all the shares in issue of the exempted company. a cayman islands star trust is a non-charitable purpose trust that can hold assets for a specific purpose. the trustee must be a licensed trustee in the cayman islands.

summary of cayman laws to be considered in the virtual currency space

the following cayman islands statutory and regulatory regimes must be considered when structuring a virtual currency business in the cayman islands:

• the virtual assets (service providers) act
• the securities investment business act
• the mutual funds act
• the private funds act
• the money services act
• the bank and trust companies act
• the proceeds of crime act, the proliferation financing (prohibition) act, the anti-money laundering regulations (the aml regulations) and existing guidance notes, and the terrorism act
• the stock exchange companies act
• the us foreign account tax compliance act and the organisation for economic co-operation and development’s common reporting standard
• the beneficial ownership regime
• the international tax co-operation (economic substance) act

download the article to continue reading and learn more about the below points as they relate to virtual currencies in the cayman islands:

• vasp regulation
• securities and investment laws
• banking and money transmission
• anti-money laundering
• regulation of exchanges
• regulation of virtual asset custodians
• regulation of issuers and sponsors
• tax
• other issues

this article formed part of the law reviews – the virtual currency regulation review fifth edition, published september 2022.

^[1] according to pwc’s 4^th annual global crypto hedge fund report 2022, 49 per cent of virtual asset investment funds are domiciled in the cayman islands.

the british virgin islands is at the cutting edge of global crypto and digital asset regulation with the bvi virtual asset (service providers) act, 2022 (vasp act), effective 1 february 2023. this means virtual asset service providers (vasps) within the regime must become registered with the bvi financial services commission (bvifsc).

the regime comprises:

• the vasp act itself
• bvifsc guidance to vasps on the prevention of money laundering, terrorist financing and proliferation financing (vasp aml guidance notes)
• bvifsc guidance on application for registration of a vasp (vasp application guidance)

in this practical guide, we set out what you need to know if your bvi entity is a vasp, how to prepare for and make an application to become registered, documents and information required, and fees and timings.

is your bvi entity a vasp?

our free initial assessment tool makes it easy to determine if your entity is or might be a vasp under the bvi aml and vasp regime.

under the beneficial ownership secure search system act (the boss act), all companies and limited partnerships registered in the british virgin islands (bvi) are required to report information regarding their beneficial ownership. the information must then be uploaded by their registered agent (ra) onto a confidential secure database, which is only accessible by competent regulatory authorities. there are exemptions for certain investment funds and listed companies (and their subsidiaries) and licensees under financial services legislation.

introduction

the boss act originally came into effect on 30 june 2017 and, broadly, created a secure database of beneficial ownership interests in companies incorporated in the bvi to be accessible by certain bvi competent authorities to enable the bvi to comply with commitments made to the uk in april 2016.^[1]

since then, the boss act has been amended on numerous occasions – most notably, to expand the beneficial ownership reporting obligations to other forms of “corporate and legal entity” (entity), which now includes all companies and limited partnerships registered in the bvi, and also to introduce the reporting regime under the economic substance (companies and limited partnerships) act 2018 (the es act). whilst the boss act can be relatively simple to apply to direct ownership structures, applying the legislation to corporate groups or complex ownership structures such as trusts and understanding the precise interaction with the economic substance reporting regime can be complex.^[2]

as a result, all bvi companies and limited partnerships are subject to certain obligations under the boss act. the practical impact of those obligations varies widely depending on the entity’s business activities, tax status and ownership structure.

from a client’s perspective, it is important to note that the key obligations under the boss act fall on an entity rather than its registered agent (ra) – although ras still have an important role to play in submitting the information onto the database and verification against the information they hold for aml/ctf purposes. entities and their directors (or general partners) and operators should be aware of their obligations under the boss act, as the potential penalties for non-compliance are significant.

is beneficial ownership information disclosed under the boss act publicly accessible?

no, information on beneficial ownership disclosed in the bvi under the boss act is not publicly accessible.

alongside the other uk overseas territories and crown dependencies, the bvi has also committed to work in collaboration with the uk government towards a publicly accessible register of beneficial ownership for companies, in line with international standards and best practices as they develop globally and, at least, as implemented by eu member states at some point in 2023 in furtherance of the eu’s fifth anti-money laundering directive. those developments are beyond the scope of this guide but it seems likely that beneficial ownership reporting will be an increased area of regulatory scrutiny in future and it is therefore timely to revisit the existing requirements under the boss act.

who is required to report beneficial ownership information?

broadly, the boss act imposes continuing obligations on all entities to identify and report certain information regarding their beneficial ownership, subject to certain exemptions.^[3]

an entity which is an “exempt person” and its ra are broadly exempt from such obligations, provided that the entity does not carry on any “relevant activity” for the purposes of the es act. the exempt person definition includes an entity that:

• is (or is a subsidiary of an entity that is) recognised, registered or approved under the securities and investment business act 2010 (the siba), which includes all open- and closed-ended funds regulated by the bvi financial services commission (fsc)^[4]
• has (or is a subsidiary of an entity that has) its securities listed on a “recognised exchange”, or
• is a “licensee” for the purposes of the regulatory code 2009 or the financial services commission act 2001, which includes holders of financial services licenses issued by the fsc

the majority of investment funds regulated under the siba should fall within limb (a) of this exemption, as there is an express carve-out from the definition of relevant activity in the es act for "investment fund business".

however, as of 1 october 2019, any licensee which was previously an exempt person but which carries on any relevant activity (for example, “banking business”, “fund management business” or “insurance business”) will no longer qualify as an exempt person.

what information does my entity need to identify?

unless it is exempt, an entity must:

• identify whether it carries on one or more relevant activities for the purposes of the es act and if so which relevant activities (and in practice an exempt person must also consider this question as if it carries on a relevant activity it ceases to qualify for exemption, as discussed above)
• identify any “parent”, “immediate parent”, “ultimate parent”, a “beneficial owner” or “registrable legal entity” (rle) of that entity (or, if it is registered on a recognised exchange, give details of its stock exchange registration)^[5] and
• ascertain:
  • with respect to any immediate or ultimate parent, the name (including alternative names) and incorporation number (or equivalent), taxpayer identification number (tin) or other identification reference number and jurisdiction of formation of such immediate or ultimate parent and
  • details of the entity's listing on a recognised exchange (if applicable)

the ra’s role is more limited – it must take reasonable steps to identify the beneficial owners and rles and collect the prescribed information for each entity for which it acts as ra. this requirement will be satisfied provided the ra takes steps to identify beneficial owners of the entity under applicable bvi aml/ctf legislation.

the details of an entity’s immediate or ultimate parent are strictly related to the economic substance reporting information but are mentioned here for completeness as, in practice, an entity is likely to wish to consider such definitions whenever there is a change to its direct or indirect ownership or control.

who is a beneficial owner?

a beneficial owner is “the natural person who ultimately owns or controls” the relevant entity.

a natural person means a real individual, so a company, partnership, trust or other type of legal entity or undertaking cannot be a beneficial owner under the boss act.

the definition includes (but is not restricted to):

• in the case of a legal person (other than an entity whose securities are listed on a recognised exchange), a natural person who ultimately owns or controls, whether directly or indirectly, 25% or more of the shares or voting rights in the legal person
• in the case of a legal person, a natural person who otherwise exercises control over the management of the legal person
• in the case of a legal arrangement:
  • the partner or partners who control the partnership
  • the trustee or other person who controls the legal arrangement, or
  • the settlor or other person by whom the legal arrangement is made
• in the case of an entity which is in insolvent liquidation, administration or administrative receivership under the insolvency act 2003, the natural person who is appointed as a liquidator, administrator or administrative receiver of the entity
• in the case of a receiver being appointed over 25 per cent or more of the shares or voting rights in an entity, the creditor who appoints the receiver, or
• in the case of a shareholder in the entity who would otherwise be a beneficial owner but is deceased, the natural person acting as an executor or a personal representative of the deceased's estate

persons holding interests jointly (whether as joint owners or tenants in common) are each treated as a beneficial owner for these purposes. there are also certain carve-outs and special provisions for security interests and exposures to financial performance of an entity arising under derivatives or similar contractual arrangements or where there is a bona fide dispute regarding beneficial ownership which is being adjudicated by a court or tribunal.

what is a registrable legal entity?

broadly, an rle is a type of entity through which it is considered unnecessary to trace beneficial ownership further. the definition is similar to – but slightly wider than – the “exempt person” concept.

an ra is not required to identify any beneficial owner of an entity holding its interest, directly or indirectly, in the entity through an rle (provided it identifies the rle for that purpose).

an rle in relation to an entity is a legal entity which:

• would be a beneficial owner of the entity if it were an individual; and either:
  • is an "exempt person" (as discussed above)
  • has its securities listed on a "recognised exchange"
  • is a "licensee" (as discussed above) or a "foreign regulated person" for the purposes of the anti-money laundering regulations 2008, or
  • is a sovereign state or a wholly-owned subsidiary of a sovereign state

unlike a beneficial owner, an rle must be an entity. in our view, this means that, in the case of partnerships or other forms of legal arrangement, it is necessary to determine whether the partnership or arrangement has separate legal personality.

what and when must my entity report?

unless it is exempt, an entity must notify its ra of certain prescribed “beneficial ownership information” (bo information) within 15 days of identifying those matters or becoming aware of any change in its prescribed bo information regarding its beneficial owner(s) or rle(s), as applicable. in addition to the

these requirements came into effect for companies from 30 june 2017 but, in the case of limited partnerships:

• for limited partnerships with separate legal personality, the bo information first had to be reported within 15 days following 1 october 2019 and
• for limited partnerships without legal personality, the bo information first had to be reported within 15 days following 1 january 2022

in practical terms, the 15 day deadline may be quite short. entities should ensure that they are able to identify their beneficial ownership and gather the prescribed information from their owners and controllers promptly – for example, under their constitutional or investment documents.

the potential penalties for non-compliance under the boss act are significant and range up to us$250,000 and/or 5 years imprisonment.

how is my entity’s information stored?

each ra is required to establish and maintain an ra database. the ra must enter particulars of the bo information for each entity for which it acts as ra within 15 days of being notified by an entity of a change or otherwise becoming aware of a change of any of the prescribed information relating to the beneficial owner(s) or rle(s). information maintained by an ra on an ra database shall be maintained for all entities for five years following the dissolution of the entity or the entity otherwise ceasing to be a “corporate and legal entity”.

entities’ information is stored on a secure encrypted system and subject to robust procedural safeguards under the boss act. certain designated persons have access to the system from a physically secure premise and secure it system. the designated person can be required to search the system if required to do so by a senior officer of the financial investigation agency, financial services commission, international tax authority or the attorney general’s chambers either in compliance with applicable law or in response to a valid request from the uk national crime agency financial intelligence unit, although the international tax authority also has access to the economic substance information on the system.

if you have any questions or would like further advice regarding the beneficial ownership or economic substance reporting requirements, please contact the author or your usual harneys contact.

please click this link to subscribe to our mailing list to receive legal updates regarding these subjects.

^[1] harneys’ original guide published around the introduction of the boss act is available via this link.

^[2] except where otherwise stated, this guide is generally concerned with beneficial ownership information reporting requirements and does not deal with economic substance reporting. harneys’ guides to the es act and related reporting obligations are available via this link.

^[3] “corporate and legal entity” means (a) a company as defined under section 3 of the bvi business companies act, 2004 (the bc act); (b) an existing limited partnership as defined under section 2 of the limited partnership act 2017 (the lp act); (c) a limited partnership as defined under section 2 of the lp act; (d) a foreign company as defined under section 3 of the bc act; and (e) a foreign limited partnership as defined under section 2 of the lp act. this guide focuses on companies incorporated under the bc act, as the most common form of bvi corporate vehicle.

^[4] for these purposes, an entity is a subsidiary of another entity (the “parent”) if the parent (a) holds, directly or indirectly, a beneficial interest in 75 per cent or more of the shares in the subsidiary; or (b) holds, directly or indirectly, more than 75 per cent of the voting rights in the subsidiary. a special 75 per cent test is applied because the default percentage interest for a beneficial owner is set at 25 per cent or more (as discussed below).

^[5] the concept of a “parent” is discussed at note 4 above. “immediate parent” means any entity or entities that own(s) directly 25 per cent or more of the ownership or voting interests in the entity (and the immediate parent may be a corporate or a non-corporate entity, for example, a partnership). “ultimate parent” means an entity that meets the following criteria: (a) it owns directly or indirectly a sufficient interest in the entity such that it is required to prepare consolidated financial statements under accounting principles generally applied in its jurisdiction of residence, or would be so required if its equity interest were traded on a public securities exchange in its jurisdiction of residence; and (b) there is no other entity that owns directly or indirectly an interest described in paragraph (a) above in the first mentioned entity.

where a group’s holding company is incorporated in the british virgin islands (bvi), it has access to the bvi courts for the purpose of attempting to restructure its debts.

this article discusses restructuring options available via the bvi courts (with a case study to illustrate an increased willingness of the judiciary to assist struggling companies that have a realistic prospect of trading their way out of difficulty), and potential obstacles to such restructuring.

this article first appeared on lexispsl on 14 november 2022.

in recent years, the courts of the british virgin islands have become increasingly receptive to third party litigation funding.

litigation funding in the bvi

in recent years, the courts of the british virgin islands (the bvi) have become increasingly receptive to third party litigation funding. the bvi commercial court’s judgment in crumpler & anor v exential investments inc (in liquidation) bvihc (com) 2020/81 confirmed that third party funding is permissible as a matter of bvi law in the insolvency context. although third party funding arrangements had been approved by bvi courts on previous occasions, this was the first reasoned written judgment on the topic and firmly established litigation funding in the jurisdiction, though it is yet to be tested in its application outside of the insolvency context.

at present there are no legislative or regulatory provisions governing third party funding in the bvi. as such, issues relating to third party funding will continue to be resolved by the courts as a matter of common law. it is expected that the bvi courts will continue to adopt a progressive and commercial approach in allowing appropriate funding arrangements in line with a growing number of common law jurisdictions, including england & wales, australia, hong kong, bermuda, the cayman islands and jersey.

until the recent judgment handed down in green elite ltd (in liquidation) v fang ankong & ors (bvihc (com) 2018/222) / (bvihcmap 2022/48), a practical issue that had not been addressed by the bvi courts was the extent to which a party can share documents obtained in proceedings with a funder.

permitted use of documents

bvi law places restrictions on the use of certain documents produced by parties to legal proceedings. different restrictions apply depending on the type of document involved which, by way of a non-exhaustive overview, can be summarized as follows:

1. disclosure (discovery): under rule 28.17 of the eastern caribbean supreme court civil procedure rules, 2000 (the cpr), a party to whom a document has been disclosed may only use the document for the purpose of the proceedings in which it was disclosed unless (a) the document has been read to or by the court, or referred to in open court or (b) the party disclosing the document and the person to whom the document belongs or the court gives permission.
2. witness statements: similarly, pursuant to cpr 29.12, a witness statement may only be used for the purpose of the proceedings in which it is served unless (a) the court gives permission for some other use, (b) the witness gives consent in writing or (c) the statement has been put in evidence.
3. affidavits: the permitted use of affidavits is not governed by the cpr. however, if an affidavit is delivered under compulsion, then the implied undertaking at common law applies to restrict its use. the implied undertaking at common law provides that a document can only be used for the purpose in which was disclosed and not for an ulterior or collateral purpose.^[1]
4. documents produced under compulsion: a court order compelling a party to deliver a document typically includes an express undertaking limiting the use of such documents. depending on the form of the compelled disclosure, any express undertaking must be considered together with the applicable cpr provisions addressed above in relation to disclosure (cpr 28.17) and witness statements (cpr 29.12) or the implied undertaking at common law in the case of an affidavit.

it is not necessary to seek permission from the court or consent from the disclosing party/witness (as applicable) where the proposed use is permitted pursuant to the relevant restriction(s) outlined above.

in the case of disclosure and witness statements, whether an intended use is permitted will often turn on whether the use is "for the purpose of the proceedings" within the meaning of cpr 28.17 / cpr 29.12, or not for some collateral use when the implied undertaking applies.

green elite

issues relating to the permitted use of documents recently arose in the bvi commercial court case of green elite ltd (in liquidation) v fang ankong & ors bvihc (com) 2018/222.

in summary, the proceedings arose from a dispute among the business partners behind green elite as to whether an understanding regarding the distribution of certain sale proceeds was legally binding. notwithstanding the dispute, the relevant transaction was completed by green elite and the resulting proceeds (some hk$150 million) were distributed to three employees, who were also directors of the company. an opposing shareholder then brought proceedings that led to the appointment of liquidators over green elite on the basis that it had lost its substratum and to investigate the circumstances surrounding the distribution of the sale proceeds.

the liquidators then issued proceedings seeking tracing remedies to recoup the sale proceeds, claiming that the directors breached their duties and should account for the sale proceeds. soon after the proceedings were commenced, the liquidators successfully applied to the court for an order authorising a third party funding arrangement with a dutch entity, delco participation bv, which is also a 50 per cent shareholder of green elite.

on 17 january 2022, the bvi commercial court handed down judgment finding that the sale of the entirety of green elite’s assets and the consequent distribution of the sale proceeds to the company’s directors did not meet the proper purpose test under section 121 of the bvi business companies act 2004 and were therefore liable to be aside. the court ruled that the company was entitled to trace the sale proceeds and found the directors jointly and severally liable to account for all the monies received from the sale proceeds.

compelled asset disclosure

soon after judgment was handed down, a post-judgment injunction was obtained which included, among other injunctive reliefs, a worldwide freezing injunction against the first defendant.

the freezing injunction included an order for ancillary disclosure requiring the first defendant to disclose details of his assets, initially in the form of a lawyer’s letter and then in the form of a sworn affidavit. the injunction included the usual express undertaking that the party receiving the disclosure would not, without the permission of the court, use any information obtained as a result of the disclosure order for the purpose of any other proceedings.

in accordance with the injunction order, the asset disclosure was initially provided in a disclosure letter. for logistical reasons, the asset disclosure was then repeated and confirmed in a witness statement before it was finally confirmed in an affirmation sworn by the first defendant.

the liquidators filed an application seeking permission to share the asset disclosure with the third party funder. the purpose for sharing the information was to allow the funder to consider the proportionality and appropriateness of further litigation expenses in the proceedings. in support of the application, the funder provided an undertaking that (i) it would not disclose any information contained in the asset disclosure to anyone (save for its legal counsel) and (ii) it would not use the documents or information contained therein for any purpose other than to consider the funding of any steps to be taken post-judgment by green elite.

bearing in mind that the intended use of the information was for the purpose of the same proceedings, the application was made out of an abundance of caution.

the application was opposed on various grounds, including that it was necessary for the litigation funding agreement itself to be disclosed (which disclosure was resisted on grounds of legal privilege). it was also asserted that the disclosure includes the first defendant’s confidential financial information and that it was not necessary for the liquidators to share this information with the funder. further, it was argued that the proposed use of the documents was purely to seek a litigation advantage in related hong kong proceedings (notwithstanding that the trial of those proceedings had been completed and the parties are only awaiting delivery of final judgment).

at a hearing that took place in july 2022, the application was granted by justice jack [ag] of the bvi commercial court. in permitting disclosure to the funder, justice jack relied on the principles laid down in caldero trading ltd v beppler [2012] ewhc 1609 (ch), an english high court judgment involving the issue of sharing compelled disclosure with a third party funder.

the decision was appealed to the court of appeal of the eastern caribbean supreme court (the ec court of appeal).

ec court of appeal judgment

on 20 october 2022, the ec court of appeal dismissed the appeal in a lead judgment by justice of appeal godfrey smith [ag].^[2]

considering that the freezing injunction included an express undertaking and that the compelled asset disclosure was provided in the form of a letter, a witness statement and an affirmation, the ec court of appeal found at paragraph 28 of the judgment that “[w]hether one looks at the express undertaking given by the respondent in the order (set out at paragraph 8 above) or cpr 28.17 or 29.12, the use of the information by the litigation funders is ultimately in or for the purposes of the proceedings”^[3]. in so doing, the court found that sharing the disclosure with the funder was for the purpose of the proceedings in which the disclosure was given and was therefore a permitted, and not collateral, use.

the ec court of appeal’s judgment upheld the lower court’s reliance on caldero and, in so doing, provided a helpful distillation of the key principles arising from that judgment.^[4]

in addition, the ec court of appeal held that all three forms of compelled disclosure (the disclosure letter, the witness statement and the affirmation) also passed the implied undertaking test at common law.^[5] the court framed the matter as follows: “can the use to which delco intends to put the disclosed documents – “to consider the proportionality and appropriateness of further litigation expenses in these proceedings” – be properly construed as ancillary to that for which the disclosure order was made, namely, to police or ensure the efficacy of the freezing order, or is it for an ulterior purpose?”^[6]

finding that the intended use is plainly ancillary to the freezing injunction, the ec court of appeal upheld the bvi commercial court’s findings in this regard^[7], including that:

• the purpose of the compelled disclosure is to allow the freezing injunction to be policed but also to ensure that a rational enforcement strategy can be put in place

• sharing information regarding the defendant’s assets is necessary to allow the liquidators to openly discuss appropriate enforcement strategy with the funder, and

• the funder is entitled to assess the value of frozen assets that may be amenable to enforcement

in support of the conclusion that the funder should be entitled to examine the compelled asset disclosure, the judgment quoted the following passage from the english court of appeal’s judgment in excalibur ventures llc & ors v texas keystone inc & ors [2016] ewca civ 1144:

“litigation funding is an accepted and judicially sanctioned activity perceived to be in the public interest. what the judge characterised as ‘rigorous analysis of law, facts and witnesses, consideration of proportionality and review at appropriate intervals’ is what is to be expected of a responsible funder…”^[8]

the ec court of appeal also upheld the finding at first instance that in circumstances where there is no question as to the status of the funder or that the funding arrangement exists, the exact terms of the funding agreement are immaterial in determining whether the intended use is permissible.

conclusion

the result in green elite is welcome confirmation that sharing documents obtained in proceedings with a funder is closely connected to the conduct of proceedings. however, given the scarcity of bvi case law on litigation funding generally and the permitted use of documents, the ec court of appeal’s ruling provides clarity on the extent to which documents obtained in proceedings may be shared with a funder.

as a cautionary point, in green elite permission was sought for the narrow purpose of allowing the funder to assess the appropriateness and proportionality of litigation expenses in the proceedings. any use which extends beyond the proceedings in which the documentation/information was disclosed will almost certainly be considered a collateral use, thereby requiring leave of the court (unless one of the exceptions apply in cpr 28.17 or cpr 29.12, as applicable). it is also worth noting that should the proposed sharing of information/documentation with a funder become a live issue, the bvi courts may require the funder to give an appropriately robust undertaking, including that the documents will be kept confidential and will only be used for the purpose of the proceedings.

in any event, the ec court of appeal’s ruling in green elite should provide funded litigants with a significant degree of comfort when assessing whether or not leave of the court is required before a document or information can be passed on to a funder. the decision also demonstrates that bvi continues to be a funder-friendly jurisdiction, which adopts a pragmatic view as to the commercial needs and rights of third party litigation funders.

this article was originally published by westlaw today on 29 november 2022.

^[1] see the eastern caribbean court of appeal’s judgment in fang ankong v green elite ltd (in liquidation) bvihcmap 2022/48 (para 27) (judgment dated 20 october 2022) applying caldero trading ltd v beppler [2012] ewhc 1609 (ch) (paras 58, 59 and 71).

^[2] fang ankong v green elite ltd (in liquidation) bvihcmap 2022/48 (judgment dated 20 october 2022).

^[3] id at paragraph 28.

^[4] in particular, see id at para 27.

^[5] id.

^[6] id at paragraph 29.

^[7] id at paragraphs 36 and 40.

^[8] excalibur ventures llc & ors v texas keystone inc & ors [2016] ewca civ 1144 at para 31.

most lenders contracting with companies registered in the british virgin islands (bvi) will do so with "standard" companies limited by shares. however, for those seeking to enter into transactions which involve them (i) taking security from a segregated portfolio company (spc) or (ii) taking security over the shares of an spc, there are a number of matters peculiar to this specie of company which any lender would do well to be mindful of.

a bvi company may either be incorporated as an spc or subsequently re-register as one. changes to bvi law since this specie of corporate vehicle was first conceptualised now mean that spcs which, prior to the relevant change, had been regulated by the bvi financial services commission and largely restricted to funds and companies conducting insurance business, can now also be used for unregulated business activity, including, but not limited to, holding assets for high net worth individuals, engaging in property development and management, including in real estate, aircraft and other property and to create bankruptcy remote vehicles which may be used in structured finance and capital markets transactions.

though not as commonly used as standard companies, the expanded range of activity in which spcs may engage is certainly worth noting as there is nothing which prevents the use of such vehicles in financing and other transactions.

features of spcs

as a primary feature, spcs possess multiple portfolios which are segregated from each other, with the additional benefit of statutorily segregated assets and liabilities between the segregated portfolios and for any lender, these companies are easily identifiable because of the requirement for the abbreviation "spc" or the words "segregated portfolio company" to appear in their name and for their constitutional documents to include a statement confirming their status as segregated portfolio companies.

while an spc is a single legal entity and its segregated portfolios are not legal entities separate from the company, an spc is characterised by what are essentially multiple pools of assets which broadly fall into two categories and are either (i) segregated portfolio assets (these are assets which are held within the various segregated portfolios of the spc) or (ii) general assets of the company (these are those assets which fall outside of those comprised in and held by any of the segregated portfolios).

each segregated portfolio must be identified or designated separately, with identifying words "segregated portfolio" and the assets of each segregated portfolio (as well as any general assets not owned by any segregated portfolio but by the spc) must be separately maintained and separately identifiable from those of any other segregated portfolio or the general assets of the spc.

an spc may also issue shares (in multiple classes and series) (i) in respect of each segregated portfolio (with any proceeds of such shares being counted among the assets of the relevant segregated portfolio) and (ii) more generally in the spc itself (with any proceeds of such shares being counted among the general assets of the spc).

similarly, any distributions and dividends may be paid on shares issued (i) in respect of a segregated portfolio or (ii) in respect of the spc generally, in each case, upon satisfaction of the solvency test for distributions and in making the relevant determination the board of directors need only have regard to the assets and liabilities attributable to the specific segregated portfolio in the case of the former or to the assets and liabilities attributable to the spc generally in the case of the latter.

actions taken by spcs

as with a standard company, an spc will typically act through its board of directors. any actions taken by an spc or any segregated portfolio with the intention of binding the spc or the relevant segregated portfolio shall be done by the spc, whether acting on its own behalf (for any of its direct actions) or acting for and on behalf of the relevant segregated portfolio where acting on behalf of a specific segregated portfolio.

the same applies to the execution of any deeds, contracts, instruments under seal or otherwise to be executed by the spc or any segregated portfolio which is meant to be binding on it or to operate for its benefit.

in either case, it is the spc that would need to execute the relevant documents, whether on its own behalf or on behalf of the relevant segregated portfolio as the case may be. this comes back to the notion of an spc being a single entity for the purposes of the concept of separate legal personality while providing a uniquely flexible structure which permits the effective housing of separate and distinct portfolios which are for all intents and purposes segregated from each other under the umbrella of a single spc and possessed of an ability to engage in different activities or take different actions independently of each other and of the spc itself.

where the circumstances are such that the spc takes actions on behalf of a specific segregated portfolio and the relevant documentation is in writing, it should always be made clear on the face of that documentation that the execution by the spc is made in the name of, by or for the account of the relevant segregated portfolio(s). this is vitally important and to fail to do so would be to risk having the relevant documentation/actions be construed as ones executed/taken on behalf of the spc itself instead of the relevant segregated portfolio(s).

also worth noting is the fact that it is also possible for a segregated portfolio to enter into contracts or other agreements with another segregated portfolio of its spc or with a segregated portfolio or another spc. in each case, the foregoing continues to hold true such that the relevant agreement(s) must be executed by the spc itself and must make clear that the same is done for and on behalf of the relevant segregated portfolio(s).

ring-fencing of assets and liabilities

where a contract or agreement is entered into by an spc with the intention to bind a segregated portfolio, the rights and obligations under the contract or agreement are those of the contracting segregated portfolio and do not extend to the other segregated portfolios. the assets and liabilities of each segregated portfolio are effectively ring-fenced so that the assets and liabilities of each segregated portfolio are attributable only to the relevant segregated portfolio and do not extend to those of any other segregated portfolio.

insofar as a contracting segregated portfolio has incurred liabilities to a creditor, only its assets are available to satisfy the relevant liabilities. any such creditor would have no recourse to the assets of any other segregated portfolio but insofar as the assets of the contracting segregated portfolio are insufficient to satisfy its obligations, the creditor may have recourse against the general assets of the spc.

any liabilities incurred by a segregated portfolio in circumstances which are not related to the relevant segregated portfolio or any other segregated portfolio(s) or which are otherwise not attributable to a segregated portfolio shall entitle the relevant creditor to have recourse to the general assets of the spc (and not those of any of the segregated portfolio).

registration of security interests

the bvi security registration regime applies to spcs much in the same way as it does to standard companies. an spc entering into a financing transaction with a lender for and on behalf of a segregated portfolio can grant security over the assets of that segregated portfolio by making it clear on the face of the security document that the spc has granted the security for and on behalf of the relevant segregated portfolio and once granted, the spc will be required in the ordinary course to (i) register particulars of the security on behalf of the relevant segregated portfolio in its privately maintained register of charges and (ii) in order to preserve priority for the creditor under bvi law, a public filing should also be made in the register of registered charges of the spc which should also contain appropriate language to demonstrate entry by the spc into the relevant security for and on behalf of the contracting segregated portfolio.

the priority position with respect to the security will relate only to the specific segregated portfolio and will have no bearing on that of any other segregated portfolio.

security over shares

taking security over the shares issued by bvi companies is a customary feature of offshore financing and other commercial transactions. whether the company whose shares are charged is a standard company or an spc with one or more segregated portfolios, security may, subject to the provisions of its constitutional documents (or in the case of a regulated company, the approval of the bvi financial services commission), be taken over the shares in issue.

while in a broad sense, many of the considerations which are relevant when taking security over the shares in a standard bvi company will also apply to security over shares in an spc or a segregated portfolio, there are certain other matters which may apply in the case of the latter. for instance, where an spc is regulated by the bvi financial services commission (the fsc) further consideration would need to be given to the ability to transfer the mortgaged shares when structuring the security documentation.

subject to any special considerations which may be relevant to the taking of security over the shares of the spc or a specific segregated portfolio of the spc, the documentation which creates the security interest over the shares may take a similar format to that used to document security over the shares in a standard company.

many of the usual considerations will apply at the time of structuring the transaction and security documentation (such as what law should properly govern the share security, the nature of the company whose shares are being charged, the nature of the shares subject to the security interest and the preferred method of enforcement) and care will need to be taken to ensure that the security documentation reflects both the commercial will of the parties as well as the commercial realities in which the parties are operating and against which the transaction is being structured.

for instance, the most typically deployed method of enforcement for share security over shares in bvi companies tends to be the appointment of a receiver (with a view to having the receiver vote the shares to replace the board of directors with one which is more sympathetic to the interests of the creditor and ultimately realise the debt owed).

this approach typically works best when taking security over all or a majority of the shares in the relevant company but when taking security over the shares in an spc or a segregated portfolio it is possible that the security may not cover all of the shares in issue — where this is not the case, any receiver which is appointed will not necessarily be able to take control of the spc and operate it in a way which generates funds to repay the debt owed.

share security will typically take the form of equitable security and upon entry into the share security, a shareholder will ensure deliver of certain ancillary documents to the creditor (these include unsigned share transfer forms, original share certificates, signed but undated directors' resignation letters with authority to date them upon enforcement and signed but undated proxies).

each deliverable is tantamount to a weapon or tool in the arsenal of a creditor, aimed at facilitating enforcement should it become necessary but these may or may not be appropriate or obtainable when dealing with security over the shares of an spc or any segregated portfolio and by extension the options for enforcement of the relevant security interests may well be affected as a result.

ultimately, the commercial terms and the enforcement options will vary from one transactions to another and so it is always advisable for bespoke legal advice to be sought in each case.

this article was originally published in westlaw today.

the recent amendments to the british virgin islands trustee act (the act) has rightly resurrected an old rule commonly known as the rule in hastings-bass which is restricted by the decision of futter v hmrc and pitt v hmrc [2013] uksc 26 (pitt v holt).

in hastings-bass v irc [1975] ch 25 it was established that a trustee could apply to set aside a decision where it had taken or failed to take into account, relevant considerations in making a decision, which have resulted in unintended consequences.

the rule in hastings-bass was widely valued by fiduciaries mainly because they were cloaked with standing to ask the court to set aside either unauthorised decisions or those made without adequate deliberation when exercising their power. the rule in hastings-bass was sufficiently wide to cover decisions made by trustees that relied on expert tax advice that turned out to be wrong and resulted in adverse tax consequences. the court then had discretion to set aside the exercise of the power.

however, the court's exercise of this discretion was narrowed by the decision of pitt v holt where the court decided that only decisions taken by the trustee in breach of duty could be set aside. the court held that it was generally inappropriate for trustees to commence proceedings of this nature since they were not to be regarded “as uncontroversial proceedings in which they can confidently expect to recover their costs out of the trust fund”.

the pitt v holt restriction arguably triggered statutory intervention in numerous jurisdictions including the british virgin islands. the british virgin islands legislation has now achieved two things. first, it has clarified that the court has an equitable jurisdiction to set aside a voluntary disposition on the ground of mistake, and second, it confirms that a trustee has standing before the court to seek an order setting aside a disposition into a trust based on mistakes that may not have amounted to a breach of duty on the part of the trustee.

section 59a of the act confers jurisdiction on the bvi court to set aside the exercise of a fiduciary power once satisfied that the person exercising the power, failed to consider relevant factors (whether of fact, law, or a combination) or conversely considered irrelevant factors in the exercise of his fiduciary power. but for this failure, the person who holds the power (i) would not have exercised the power; or (ii) would have exercised the power, on a different occasion; or (ii) would have exercised the power in a different manner.

significantly, the conditions set out in section 2 of the act may be satisfied without it being alleged or proved that the trustee acted in breach of trust or in breach of duty. undoubtedly, the section has provided reassurance to bvi trust companies when carrying out their decision making function.

the act makes clear that section 59a shall not be taken to limit or otherwise affect the court‘s jurisdiction under the doctrine of mistake. therefore, the test in pitt v holt will continue to apply in circumstances not catered for. that is, where a settlor seeks to set aside a mistaken disposition into a trust. a settlor will be required to satisfy the following test for the court to exercise its equitable jurisdiction to set aside a mistaken disposition:

1. there was a mistake on the part of the settlor either as to the legal effect of the disposition or as to an existing fact which is basic to the transaction;
2. the mistake is of a relevant type; and
3. the mistake is sufficiently serious and it would be unconscionable, or unjust, to leave the mistake uncorrected.

when considering the seriousness of the mistake, the court will objectively evaluate the facts of each case and consider whether it would be unjust, unfair, and unconscionable to leave the mistaken disposition uncorrected. consequently, a settlor should be mindful that the court will carefully consider the facts of each case and may not exercise its decision where the settlor has failed to satisfy the test in pitt v holt. for this reason, the restoration of the rule in hastings-bass is fully welcomed in the bvi.

this article was first published on mondaq.

in the season finale of piano lessons, phil and marc are live from coinalts 2022 in san francisco.

this episode was recorded during coinalts on 3 november 2022 and was edited as the ftx insolvency unfolded. our sympathies to all those affected by this event and we are working with our clients to protect them against the fallout where we can.

key takeaways:

• accessing international exchanges in one of the hot topics from the conference
• panel guest punk 6529 sends out rallying cry to the community – digital assets will come back stronger than ever
• the bvi vasp act is one its way and will be in by end of year: token issuers will not be part of this legislation

marc piano is no longer with harneys. he now works at horizons global, an h3 verified service provider.

in the recent case of bec limited v a2 and a1, the eastern caribbean court of appeal confirmed for the first time that an order dismissing an application to set aside a statutory demand is a final order, in respect of which a party is not required to obtain leave to appeal.

at first instance, the commercial court refused bec's application to set aside a statutory demand issued by certain creditors in respect of a debt owed by bec and its wholly owned subsidiary as a result of a costs award in arbitration proceedings before the london court of international arbitration. bec appealed to the court of appeal without seeking leave and in response, the creditors applied to strike out bec's appeal as being a nullity on the ground that the order was interlocutory and leave was required to appeal it. it was not disputed that if leave was indeed required, bec's appeal would be liable to be set aside as a nullity.

the creditors argued that an order arising out of an application to set aside a statutory demand is an "intermediary question" in the procedure to wind up the company and therefore interlocutory.

in assessing whether the order was final or interlocutory, the court of appeal applied the well-known "application test" as set out at rule 62.1(3)(b) of the eastern caribbean civil procedure rules and explained in oliver mcdonna v benjamin wilson richardson: an order or judgment is final if it would be determinative of the issues that arise on a claim, whichever way the application could have been decided.

the court of appeal considered that an application to set aside a statutory demand was not a claim in the true sense as it is not determinative of any rights or obligations of the parties to the claim and does not result in an enforceable order; it is instead sui generis (or "of its own kind") and is not governed by the principles relating to orders that are a prerequisite to filing substantive proceedings. it is simply a mechanism by which a creditor can obtain an order as to the company's deemed insolvency based on the unpaid debt in question, and nothing more.

the court of appeal also held that although a statutory demand is usually issued with a view to commencing liquidation proceedings, it is not a prerequisite and a creditor can apply to appoint liquidators on any of the alternative grounds of insolvency set out in the bvi insolvency act, with or without the aid of an unsatisfied statutory demand. in other words, a creditor can either issue a statutory demand and proceed to winding up proceedings regardless of the outcome of any application to set aside the statutory demand or it can proceed directly to apply to wind up the company and prove its case that the company is insolvent at that stage. accordingly, a statutory demand and any application to set it aside is a standalone process and not a procedural "intermediary" step in the winding up of a company. the resulting order was therefore final, and not interlocutory.

the court of appeal also confirmed that where a ground on an application to set aside a statutory demand has been fully ventilated, the debtor company cannot resurrect the same ground in the subsequent winding up proceedings for the purposes of opposing them on the basis of the issue estoppel principle. conversely, if a company elects not to apply to set aside a statutory demand, it is not precluded from disputing the debt at the hearing of the winding up application. this is a welcome clarification in light of previous authorities in the jurisdiction that suggested that the statutory demand procedure was not truly optional.

further, bec applied for a stay of the order dismissing the application to set aside the statutory demand. the stay application was advanced on the basis that if the order were not stayed, the appointment of liquidators would have had disastrous consequences, namely that (i) it would have constituted a change of control of the company thereby giving a third party certain rights, entitling it to take over the interests of bec's subsidiary in certain lucrative oil contracts; and (ii) the appointment of liquidators, who would likely have taken over the running of the company and its subsidiary, would have caused significant operational losses.

when considering the stay application, the court of appeal held that because the order was declaratory in nature and did not create any enforceable rights, it was not capable of being stayed. this is notwithstanding the fact that the order authorised the creditors to apply for the appointment of liquidators over the company, which the court of appeal considered simply gave the creditors an option to proceed with a winding up petition, without insisting that it be done. in the circumstances, the court of appeal considered that the more appropriate course of action would have been for the company to apply for an injunction to restrain the creditors from exercising their right to apply to wind up the company.

although the stay application was refused, the court indicated that all was not lost for the company. the court retained a wide discretion as to whether or not to make an order appointing liquidators, even if the grounds upon which the court could appoint liquidators have been made out. as such, the company could still raise issues relating to the effects of the appointment of liquidators at the hearing of any ensuing winding up application.

this decision confirms that an order resulting from an application to set aside a statutory demand is final and no leave is required to appeal it. this is an exceedingly welcome clarification in circumstances where the intended appellant would have had to proceed on both the 'final' and 'interlocutory' basis before the court of appeal so as not to prejudice its position in the event one of those routes was ultimately determined to be inappropriate. additionally, a statutory demand is not a prerequisite to an application to appoint liquidators as the latter can be made on alternative grounds whether or not the statutory demand is set aside. finally, even if, in principle, it is not possible to obtain a stay of the relevant order dismissing the application to set aside a statutory demand, a prohibitory injunction may be applied for in appropriate circumstances and, in any event, a company may be able to resist a winding up application on exceptional grounds given the court's wide discretion not to put a company into liquidation even in circumstances where the requisite test is satisfied.

harneys acted for the successful party, bec limited.

this article was first published on mondaq.com.

key takeaways:

• there are plenty of “decentralised ponzis” as jamie dimon states, but the crypto ecosystem as a whole is touching on important questions of financial stability.

• the mango dao hack was a sophisticated stress test that highlights potential shortcomings of dao governance.

• nft prices made the news during 2021 and early 2022. that’s no longer the case, but what is “value” anyway?

we’ll be at coinalts in san francisco on 3 november 2022! find out more and register here: https://coinalts.xyz/

marc piano is no longer with harneys. he now works at horizons global, an h3 verified service provider.

you will be aware from our updates issued on 18 august and, more recently on 20 september and 13 october, that on 1 january 2023, various significant amendments to the bvi’s business companies act 2004 (the bca) will come into force.

the purpose of this note is to try to answer some of the more frequently asked questions relating to the transitional arrangements affecting “existing struck off companies” and “existing dissolved companies” as a result of the changes to the rules relating to striking off, dissolution, and restoration.

the table below summarises the position with respect to such companies.

definitions

1. existing struck off company: a company which at 1 january 2023 was struck off and not restored.
2. existing dissolved company: a company which at 1 january 2023 was dissolved but has 10 years from the date of dissolution to apply to be restored.
3. existing period means either
   1. the period of seven years from the struck off date during which an existing struck off company could apply for restoration; or
   2. the period of 10 years from the date of dissolution during which an existing dissolved company could apply for restoration.

faqs

q1. what are the relevant time periods for making an application for restoration for an existing struck off company or an existing dissolved company?

these are set out in the table below.

q2. what happens to an existing struck off company which does not apply for restoration within the statutory time period?

it will be deemed to be dissolved on the date following the last date for restoration and if it then chooses to apply for restoration, it may be subject to an additional penalty of us$5,000 which will be payable in addition to the standard fees payable as part of the restoration process. the additional penalty does not apply if the application for restoration is made by a person other than a creditor, former director, former member, or former liquidator of the company.

q3. what happens to an existing struck off company and an existing dissolved company once restored?

where such a company is restored by the court, it is deemed never to have been struck off the register and dissolved.

you will be aware from our updates issued on 18 august and, more recently on 20 september, that on 1 january 2023, various significant amendments to the bvi’s business companies act 2004 (the bca) will come into force.

the purpose of this note is to try to answer some of the more frequently asked questions relating to the changes affecting the striking off and dissolutions regime (which is now merged) and restorations.

q1. what are the circumstances when a company can be struck off and dissolved?

the registrar has power to strike a company off the register of companies (the register) if the:

1. company does not have a registered agent;
2. company defaults on its filing obligations;
3. registrar of corporate affairs is satisfied that it has ceased to carry on business or that the company is carrying on a; business without the requisite licence, permit or authority;
4. company fails to pay its annual fees or any related penalty; or
5. company has had its licence cancelled or revoked by the financial services commission.

q2. how will i know if my company has been or is about to be struck off?

the registrar is required to send a notice to the company giving no less than 90 days’ notice of the striking off and must also publish notice of the intention to strike off in the bvi gazette (the gazette).

q3. can i prevent my company being struck off during this 90 day period?

yes – if you are able to rectify the issue that is causing the striking off, for example by paying up outstanding fees and penalties or appointing a new registered agent.

q4. what if i take no action?

at the expiration of the time specified in the notice, the company may be struck off and dissolved and the registrar will publish notice of the striking off in the gazette.

q5. what is the date of the striking off?

the date of the notice published in the gazette.

q6. what about dissolution? i have heard that the rules on this have now changed?

yes they have. in addition to being struck off, the company will be immediately dissolved on the date the notice is published in the gazette. companies will no longer remain “struck off” for seven years, before being dissolved.

q7. in shorthand what does this mean?

if a company is struck off for any of the reasons set out in q1 above, it will be immediately dissolved and will cease to exist.

q8. what is the effect of striking off and dissolution?

where a company has been struck off and dissolved, the company, and the directors, members and any liquidator or receiver thereof shall not:

1. commence legal proceedings, carry on any business or in any way deal with the assets of the company;
2. defend any legal proceedings, make any claim or claim any right for, or in the name of, the company; or
3. act in any way with respect to the affairs of the company.

it should be remembered however, that the fact that a company has been struck off and dissolved does not:

1. absolve the company from any liability that arose or would have arisen prior to its striking off and dissolution or that arises as a result of it committing any of (a), (b) or (c) above;
2. prevent claims from creditors against the company; or
3. affect the liability of any of the company’s members, directors, officers or agents.

q9. what about restoration? can this still be done, by whom and how?

yes. the company, or a member, creditor or liquidator may apply to either the registrar (in certain circumstances) or to the court for the restoration of the company.

the simplest way to restore a dissolved bvi company (noting that we are talking about a company which is dissolved post 1 january 2023 here – we discuss the transitional provisions below) is by making an application to the registrar. this can be made within five years of the date of publication of the dissolution notice in the gazette.

the application must meet the following conditions:

1. the company was carrying on business or in operation at the date of its striking off and dissolution;
2. a licensed person has agreed to act as registered agent of the company;
3. the registered agent has made a declaration in the approved form that the company’s records have been updated as required;
4. if, following the striking off and dissolution of the company, any property of the company has vested in the crown bona vacantia, the financial secretary:
   1. has signified to the registrar the crown’s consent to the company’s restoration to the register; or
   2. has, within seven days of receiving a request to give the crown’s consent to the company’s restoration to the register, failed to respond to the request giving the crown’s consent or refusing consent;
5. the company has paid the restoration fee and any outstanding penalties in relation to the company; and
6. the registrar is satisfied that it would be fair and reasonable for the company to be restored to the register.

q10. what are the requirements with respect to the company’s records?

the registered agent is required to maintain and update those records relating to the company that it is required to keep – including the statutory registers and customer due diligence and certain financial records (such as the new financial return companies are to prepare). records must be kept for at least five years after the dissolution.

q11. my company has assets, what will have happened to them as a result of the striking off/dissolution and what do i need to do to claim them back?

historically, the assets of dissolved companies in the bvi vested in the crown bona vacantia and were to be returned on restoration but there was no statutory procedure detailing how a company should request their return.

under the new provisions, where property has vested in the crown, a request for consent to the restoration of the company (and the related return of any property) needs to be made to the financial secretary.

q12. what if the financial secretary fails to respond?

if the financial secretary fails to respond within seven days of receiving a request to restore a company, the registrar can still move to restore the company.

q13. what is the effect of restoration by the registrar?

where a company is restored to the register by the registrar, it is deemed never to have been struck off the register and dissolved.

q14. what if my company is not carrying on business or is not operational at the time of strike-off and dissolution? can it still be restored?

yes. by an application to the court, made within five years of the date of publication of the dissolution notice in the gazette in certain circumstances, including where :

1. the company was struck off and dissolved following the completion or termination of its liquidation (voluntary or insolvent);
2. on the date of dissolution, the company wasn’t carrying on business or in operation;
3. the purpose of the restoration is to:
   1. initiate, continue or discontinue legal proceedings for or against the company;
   2. make an application for the company property that has vested in the crown to be returned to the company;
4. in any other circumstance where the court regards it just and fair to restore the company.

q15. who can make the application for restoration?

a wide number of stakeholders including the attorney general or other competent authority in the bvi, creditors, former directors, former members, or former liquidators.

also, among others, a person who was in a contractual relationship with the dissolved company and someone who with a potential legal claim against the company and importantly, any other person who can establish an interest in having the company restored to the register.

q16. is the financial secretary involved in a court restoration as well?

yes, as with a restoration by the registrar, an application for consent needs to be made to the financial secretary if there is any property which has vested in the crown bona vacantia and which is to be returned to the company on its restoration. the same provisions with respect to a failure respond to the request for consent apply as before.

q17. will the restoration order have conditions attached by the court?

yes. most likely.

it may impose other conditions, but in every case the court will need to be satisfied:

1. that a licensed person has agreed to act as registered agent;
2. the registered agent has made a declaration that the company’s records have been updated as required
3. the restoration fee and any outstanding penalties have been paid.

q18. what is the effect of restoration by the court?

similarly to where a company is restored to the register by the registrar, where it is restored by the court, it is deemed never to have been struck off the register and dissolved.

in this episode, phil and marc keep up with the kardashians, discuss the development of bitcoin, wander the vast - and the empty - metaverse, and speculate as to when we might see the end of the third crypto winter.

key takeaways:

• some metaverse platforms – and the concept generally – are much-hyped but still in very early stages.
• what bitcoin was designed for is different from what some passionately want it to be.
• another crypto winter – is it “different this time”?

marc piano is no longer with harneys. he now works at horizons global, an h3 verified service provider.

in the recent cayman islands’ decision of re seahawk china dynamic fund fsd 23 of 2022 (ddj) 9 august 2022 an investor petitioned to wind up an extremely successful open-ended hedge fund on the just and equitable ground. the petitioner, mr lau chun shun, coming from the ultra-high wealth “nine dragon” family, was the majority holder of the participating shares of the fund. all management shares were held by the fund’s “key man”, an “extremely successful” (para 87) investment manager, mr hao liang, who it was noted in the judgment “has been interested in financial markets since the age of 13” and “various internet articles describe him as an investment prodigy”.

the nature of the shareholder remedy

it was an ambitious petition. what would justify terminating a successful hedge fund? a just and equitable winding up order is a draconian and nuclear option in the relief that can be granted by a court to an aggrieved shareholder. in fact, in the cayman islands, it is the only direct shareholder remedy. its great deficiency, of course, is that it is a terminal endeavour. if the petitioning shareholder is correct, the company, or in this case, the fund, must be wound up. at the core of this remedy, is the protection of aggrieved shareholders, offering them an equitable solution where the affairs of a company are, inter alia, being conducted in a manner that results in the petitioner suffering a loss of trust and confidence in the probity of the operation of the company, or where the operation of the company results in oppression, or is prejudicial to the interests of the shareholder.

as noted by justice doyle at para 62, “if the actions of the directors have resulted in a justifiable loss of confidence in the management of a company, an aggrieved contributory has a statutory right to petition for the winding up of the company on the just and equitable ground. it cannot be deprived of that right merely because the company can point to other remedies which, alone or in combination, might arguably go all or some way to obtaining compensation for what has occurred. a petitioning contributory may legitimately take the view that it prefers the company to be wound up to having to pursue piecemeal a series of actions, by litigation or otherwise, or by a combination of litigation and other steps, that might be capable of redressing some, or even all, of its concerns.”

allegations must be proven

in order to win on a just and equitable contributory petition, the allegations have to be serious. however, and indeed more importantly, they also have to be proven. the allegations raised in re seahawk china dynamic fund were serious, including allegations of financial misfeasance, regulatory breaches, serious lack of probity and above all, dishonesty. the petition was filled with “exaggerated allegations of dishonesty and secret asset stripping” as described in the judgment, and can only have been pleaded in full knowledge that severe reputational damage, for not only the key man but also the fund, would arise as a consequence. needless to say, the petition was vehemently opposed, not just by the key man but also by the majority of the fund’s minority third party investors.

the relationship between the petitioner and the key man began to sour in early 2021; the precise cause of the cooling relationship remains unclear, but appeared to derive from a misunderstanding by the petitioner as to how performance fees due to the key man were to be calculated and paid. while the parties had agreed to pay the performance fees in kind, by transfer of a fixed number of participating shares to the key man, the value of which fell into issue due to (ironically) a material increase in the fund’s nav. justice doyle found that the petitioner, failing to understand the basic mechanics of fund operation, felt that he had been wronged or slighted in some way, and at perhaps his wife’s instigation really wanted to teach the key man a “lesson” so that the latter would “remember the pain”.

as clearly pointed out by justice doyle:

103. "in view of the evidence put before this court i need to make a general point. i accept that in the world of money and investment business wealthy people do not always bother themselves with what they may describe as “boring lawyer’s detail” but when individuals choose to make serious allegations of dishonesty without cogent evidence to support them they should not be surprised when their claims are dismissed with adverse judicial comment against them.

130. … as i think the draftsman of the petition realised any honest breaches of fiduciary duties in the circumstances of this case would not have been sufficient to justify the court taking the drastic step of winding up this solvent company. this may also in part go some way to explaining why mr lau has grossly overstated his case from its very inception.”

the test for assessing credibility in the witness box

in litigation, loose allegations do not survive forensic examination, and the credibility of witnesses is of paramount importance. the payment of performance fees was a central allegation raised by the petitioner, claiming the key man engaged in an “unauthorised scheme” to secretly strip away funds from the petitioner (who claimed the fees were owed to his investment management company) and from the fund. the point was quickly dispelled on the evidence; far from the key man stripping away the fees, he was in fact owed substantial fees for the year ending 2021 by the fund that had been withheld from him. serious allegations such as this, founded on dishonesty and a serious lack of probity, tend to make a court sit up and pay attention. it was primarily on the strength of this allegation that the petitioner (wrongly) secured the appointment of provisional liquidators at an ex parte hearing in early february 2022, shortly after the petition was filed.

the justice doyle noted some important points as to how evidence is to be assessed in the grand court, citing with approval the decision of uk secured finance fund plc (in liquidation) v uksff subsidiary limited (unreported 28 march 2022, isle of man high court) at para 20 therein:

“it is important to bear in mind the distinction between reliability and credibility. a witness account may be tainted by unreliability for a number of reasons: in ability to remember, filing in gaps, wishful thinking, the way statements are prepared by lawyers as part of the adversarial process, to name a few. credibility relate to the honesty and truthfulness of an account, ie is a witness lying ….”

the live evidence

in cross-examination it became readily apparent that the petitioner had little real understanding of the operation of a fund, nor was he confident with his own evidence. as is not unusual, at the time of the investment and subsequently, the petitioner relied on trusted advisers to do the legwork for him. the extent of this reliance became obvious during cross-examination; the petitioner did not know his own case, could not recall his own evidence, and had scant understanding of the serious allegations he had made. in delivering judgment, justice doyle noted:

87. “… i did not find [the petitioner] a convincing witness. his claims were overstated and at times grossly exaggerated. they appear to have been constructed after he had decided to part ways with mr liang and in an attempt to justify putting an end to the company and adversely impacting mr liang’s reputation as an extremely successful investment manager. his evidence was insufficient to justify this court making a winding up order.

130. the overall impression i get is that mr lau has used the unauthorised scheme and the late trade allocations to reverse engineer his wish to terminate his relationship with mr liang with “extreme prejudice”. … it appears that he has focussed on them and made exaggerated claims of dishonesty and serious lack of probity as a way of justifying the termination of his relationship with mr liang with extreme prejudice. …

138. furthermore, mr lau has acted unreasonably in not pursuing a redemption of his shareholding in accordance with the terms of his investment and the terms of the company’s constitutional documents, as an alternative remedy to killing the company and adversely impacting the reputation of mr liang by unreasonably insisting on a winding up order and an official liquidation.”

justice doyle concluded:

83. “it is probably an understatement to say that i did not find mr lau an impressive witness. his evidence and recollections were extremely vague and it was plain that he had relied on others to deal with the detail. … his reliability and credibility were badly damaged in respect of his lack of recollection and detail and in respect of certain non-disclosure issues. it would appear, based on his response to the questions put to him on the non-disclosure issues, that his main focus at the ex parte stage was in getting the order rather than complying with his disclosure duties ….

84. in addition to leaving the detail to others it cannot be said that he had a handle on the overall situation or on the main issues in this case. ... it appeared that these had been drafted by others (as is often the case) and he had simply signed them largely relying on others involved in the drafting process. mr lau did appear to find it difficult to answer simple questions in a straight forward way and tried on occasions to pre-empt any perceived damage to his case by long-winded self-serving explanations. he could not resist trying to get in, whenever he felt he could, something which he thought would be prejudicial to mr liang.

85. mr lau struck me as an individual who did not dirty his hands with the detail and was content to leave persons he described as his “co-workers” and his in-house lawyer “alan” (whose surname he did not mention) to do the running in this respect. mr lau’s admission that he was not aware of the precise terms on which he was investing, to most people, a significant amount of money was somewhat startling. …”

as to one of the petitioner’s witnesses, ms kong, justice doyle held that: “ms kong’s loyalty was to her ‘boss’ mr lau. she was plainly on the side of mr lau. … ms kong could also not resist frequently trying to get in as much prejudice against mr liang, as she felt was possible” (para 89). it was further held that: “i am also persuaded that the ‘investigation’ undertaken by ms kong was not an independently, fairly, competently and comprehensively undertaken investigation. again, there is much to be said for the submission that she had an axe to grind.”

it was further found by justice doyle that there was a conflict which explained this witness taking sides with mr lau in that: “she wanted to encourage mr lau to develop a business relationship with her husband and to use his fund. it was in her best interests and the best interests of her husband to ’rubbish’ mr liang and find fault. her ‘investigation’ was not a professional undertaken investigation. … the partisan investigation was in effect akin to a witch hunt with a foregone conclusion in mind …” (para 125).

after a seven-day hearing, with live evidence from no less than nine witnesses, justice doyle had little hesitation in dismissing the petition, describing it as “what should have been a relatively simple case”, and returning operation of the fund to its key man.

the issue of quasi-partnership

on the allegation that the fund was operated as a “quasi-partnership” and that the petition had a legitimate expectation to participate in the management of the fund:

107. “… i do not think that mr lau had any real interest in the overall management of the company. i note the evidence in respect of mr lau’s request for meetings to discuss investment strategy and mr lau imparting information in respect of the policies of the prc and comments on certain specific investments but this goes nowhere near evidencing serious involvement in the management or oversight of the company. … i gained the impression that mr lau was just “playing at it” when it suited him and was not in a position to make any real significant contribution to the management or oversight of the company. being named as a director may have offered him some status and the perception of some credibility within his family but it was apparent that mr lau had very little appreciation of the duties of directors.

132. mr lau did not have a legitimate expectation of participating in the management of the company as a director while he was a member. indeed i go further, on the evidence i am satisfied that mr lau had no real interest in participating in the management of the company at any meaningful level and was not in any event in a position to make a significant contribution to the management of the company. he lacked the necessary skills, experience, and willingness to do so.”

on the allegation of a breakdown in trust and confidence justice doyle held:

“108. of course there was some “trust” between mr lau and mr liang. mr liang “trusted” mr lau to come up with the money to invest and mr lau “trusted” mr liang to make a significant financial return for his family.

110. … i accept that the dividing line in hong kong and the prc between business and pleasure may not be as distinct as it is in other parts of the world but i am convinced that it would be wrong to describe the relationship between mr lau and mr liang as tantamount to a quasi-partnership. mr lau was an investor. mr liang was an investment manager. the commercial relationship, at its core, was as simple as that. …
111. … i am driven to the conclusion that there has not been a justifiable loss of confidence in the management of the company, due to the matters pleaded.
112. the overall impression i get is that mr lay has used the unauthorised scheme and the late trade allocations to reverse engineer his wish to terminate his relationship with mr liang with “extreme prejudice” in apocalypse now terms. … it appears that he has focussed on them and made exaggerated claims of dishonesty and serious lack of probity as a way of justifying the termination of his relationship with mr liang with extreme prejudice. …”

on the allegation of oppression, justice doyle held:

134. “… when he became an investor mr lau should have been aware that mr liang held all of the management shares and that the participating shares enjoyed no voting rights. mr lau has the right to submit redemption requests on the terms provided for in the company’s constitutional documents. mr lau is not being forced to remain a member of the company. there is an agreed, fair and reasonable route for his exit, namely the redemption route.”

on this latter point justice doyle noted that the petitioner had not demonstrated a right to any relief from the court.

alternative remedy

in any event, the petitioner had available to him a reasonable alternative remedy - redemption pursuant to the terms of his investment subject to the fund’s constitutional documents. this was an obvious and reasonable alternative to winding up, which the petitioner had unreasonably failed to pursue.

the need to investigate

in addition to seeking the winding up of the fund, the petitioner asked that the court order an investigation into the allegations raised.

justice doyle acknowledged that the court of appeal in gfn corporation limited left open for further consideration the issue of whether the need for an investigation stands on its own as a ground for winding up a company. justice doyle referred to a number of cayman islands’ judgments which concluded that the need for an investigation can in fact stand by itself. accordingly, justice doyle held that if he was going to depart from that line of reasoning, he would need to be satisfied that the other first instance judges were “plainly wrong”. justice doyle was not convinced that they were. similar to the court of appeal in gfn corporation limited, justice doyle was not required to resolve the issue in the circumstances of the case before him. fundamentally, the issues that the petitioner claimed required investigation in this case had already been addressed in the course of the proceedings (not least by way of two reports prepared by the provisional liquidators appointed).

from a legal standpoint, the door may remain ajar to argue that an independent investigation is not sufficient to take the “drastic step of making a winding up order and in effect killing the company”. from a practical perspective, as a defensive strategy a company facing a winding up petition may consider welcoming an open independent investigation into its affairs by jpls or by other means in order to nullify any concerns, such that the court may conclude, as justice doyle did, that “another investigation is simply not necessary”.

refusal to wind up

the court dismissed the petition, ordered the petitioner to pay to the fund the costs and expenses of the jpls, and ordered indemnity costs in favour of the key man and minority investors. in addition, the petitioner agreed he was liable for costs on an indemnity basis. the grand court rules envisage that indemnity costs may be granted. gcr o.62 r.4(11) provides that:

“the court may make an inter partes order for costs to be taxed on the indemnity basis only if it is satisfied that the paying party has conducted the proceedings, or that part of the proceedings to which the order relates, improperly, unreasonably or negligently.”

the court has held that there is no prohibition on the recovery of the costs of foreign lawyers when an order is made on the indemnity basis (sagicor gen. ins. (cayman) ltd. v. crawford adjusters (cayman) ltd [2008] cilr 485 and re wyser-pratte eurovalue fund [2010] (2) cilr 233). further the court has power to order an unsuccessful pay make an interim payment on account of costs. this includes where costs are awarded on an indemnity basis.

aftermath

although an appeal is now pending, the provisional liquidators have been discharged and the fund has been returned to the control of its directors, who face the task of restoring the fund.

harneys acted for the successful respondent, the key man.

in this episode of piano lessons, phil and marc discuss meta vs apple’s tactics on digital asset integration, musk’s texts around a blockchain-based social network, price speculation from a us regulator, and why there has been a lull in litigation and insolvencies in the space.

key takeaways:

• elon musk’s quest to integrate social media and web3 pose some intricate challenges around free speech and data privacy.
• crypto was created as a response to systemic issues plaguing traditional finance. if the play is to cater to eventual institutional dominance, what’s the point of the tech?
• digital assets are part of a diverse sector. certain players will be affected by market irregularities, while others will thrive.

marc piano is no longer with harneys. he now works at horizons global, an h3 verified service provider.

is disney animating a path into the metaverse? in this episode of piano lessons, phil and marc discuss disney’s potential foray into digital assets, the role of crypto if national currencies collapse, and why “decentralised” projects still need lawyers.

key takeaways:

• disney is seeking legal counsel to navigate nfts, defi, and web3 – with a huge ip stable this could be an exciting development.
• if national currencies collapse, could crypto take their place?
• smart contracts and decentralisation aren’t making lawyers redundant – in a fast-moving regulatory environment, they’re more important than ever (but we would say that).

marc piano is no longer with harneys. he now works at horizons global, an h3 verified service provider.

the digital assets revival of zoltar, crypto ceos on the run, and one-coin-to-rule-them-all? in this episode, phil and marc delve into the current commentary in the crypto community.

key takeaways:

• ripple labs and the sec may finally be looking for a quick end to their long-running dispute.
• many popular tokens have a vast, enthusiastic following that can make it challenging to understand the crypto environment. do your own research when looking to invest.
• will the ethereum merge lead to more interest in eth over other altcoins and nfts?

marc piano is no longer with harneys. he now works at horizons global, an h3 verified service provider.

you will be aware from our update issued on 18 august 2022 that on 1 january 2023, various significant amendments to the bvi’s business companies act 2004 (the bca) will come into force.

the purpose of this note is to try to answer some of the more frequently asked questions relating to the changes affecting voluntary liquidators of solvent bvi business companies (a company).

are there any changes to the circumstances in which a company can be liquidated?

no. a company may only be liquidated under part xii of the bca if:

• it has no liabilities; or
• it is able to pay its debts as they fall due and the value of its assets equals or exceeds its liabilities.

if the company is not solvent or there are any doubts as to solvency, legal advice should be sought immediately. in addition, the appointment of a voluntary liquidator under part xii of the bca is not permitted if:

• an administrator or liquidator of the company has been appointed under the insolvency act 2003 (the insolvency act); or
• an application has been made to the court to appoint an administrator or a liquidator of the company under the insolvency act and the application has not been dismissed.

are there some new regulations that affect who can act as a voluntary liquidator?

yes, that is right. amendments to the bca allow for regulations to be issued with respect to the qualifications and categories of individuals who are permitted to act as voluntary liquidators and which explain what types of record must be collected and retained by a voluntary liquidator.

what are the new rules and when do they apply?

any voluntary liquidator appointed on or after 15 october 2012 will need to meet the following criteria:

• has liquidation experience of not less than 2 years;
• has professional competence to liquidate the specific company concerned;
• is able to demonstrate that he or she:
  • holds an insolvency practitioner’s licence issued by the financial services commission pursuant to the insolvency act; or
  • has an appropriate professional qualification (such as in law or accountancy) and experience of providing legal or financial advice or support to companies in the financial services sector; and
• is fully conversant with relevant financial services legislation connected to the business of the company to be liquidated, including the financial services commission act and the bca,

as previously, they must also not have been disqualified from acting as the voluntary liquidator of a company because of one of the following reasons, noting the new requirement at (h) which is discussed further below:

• a disqualified person or an individual subject to an equivalent disqualification under the laws of a country outside the virgin islands;
• a restricted person or an individual subject to an equivalent restriction under the laws of a country outside the virgin islands;
• a minor;
• an undischarged bankrupt;
• an individual who is, or at any time in the previous two years has been, a director of the company or an affiliated company;
• an individual who acts, or at any time in the previous two years has acted, in a senior management position in relation to the company or an affiliated company and whose functions or responsibilities have included functions or responsibilities in relation to the financial management of the company or an affiliated company;
• an individual who is a close family member of an individual specified in paragraph (e) or (f); and
• an individual who is not resident in the virgin islands in accordance with section 2(2) of the bca.

i have heard that there is now a residency requirement of sorts – is that the case?

yes, that is correct. the definition of “voluntary liquidator” in the bca has been amended to provide, relevantly that it means a liquidator who is resident in the virgin islands or an insolvency act liquidator ”. an insolvency act liquidator already has a residency requirement so the new change for voluntary liquidators brings them in line with insolvency liquidators. also, as noted above, not being resident in the bvi is a trigger for disqualification.

what does “resident in the virgin islands” mean for this purpose and if there are joint liquidators does it apply to all of them?

to qualify, an individual must have physically lived in the bvi for at least 180 days, either continuously or in aggregate, prior to their appointment.

what if i was appointed as a liquidator of a company prior to 1 january 2023, but i do not satisfy the new residency requirements

although the liquidator must have the qualifications to act sent out in the answer to q3 above if they were appointed after 15 october 2012, the additional residency requirement only applies to those who are appointed after 1 january 2023.

what about joint liquidators, do they both need to satisfy the residency requirement?

no. where there are joint liquidators at least one of them needs to satisfy the residency requirement.

what are the new record keeping obligations?

a voluntary liquidator now has an obligation to collect the records kept and maintained by the company which are in such form as are sufficient to show and explain the company’s transactions and will at any time enable the financial position of the company to be determined with reasonable accuracy and which include any annual return. in other words, the accounting records of the company must be collected by the voluntary liquidator.

what does the voluntary liquidator need to do with these records?

at the end of the liquidation, the voluntary liquidator is required to send copies of the records he has collected to the registered agent who then needs to keep and maintain them for at least 5 years from the date of receipt. the liquidator must also send to the registered agent a copy of every document he has either filed with the bvi registry or was required by the bca to provide to the directors or members of the company.

what if the company is a regulated entity, are there any additional obligations on the voluntary liquidator?

yes, the voluntary liquidator must send a copy of any record it has collected and retained as described in the answer to q8 above to the financial services commission.

host phil graham and “crypto wizard” marc piano return to discuss the latest endeavours in the world of digital assets. this week, (after musing on bill murray’s nft mishap and the possible emergence of trump-coin) phil and marc discuss a coinbase-funded lawsuit against ofac, the long-awaited ethereum merger, and what happens if/when a dao gets sued.

key takeaways:

• a lawsuit has been brought against ofac alleging they have overstepped their authorities by sanctioning tech. by not taking a tech neutral approach, they have arguably overstepped their authority, as tech such as tornado cash has been used for legitimate purposes.
• ethereum announces moving to proof of stake model from proof of work – from mining to operation of validators by those who stake their tokens. this arguably affects the fundamental economics by changing ethereum to a deflationary token.
• daos don’t exist as a legal entity in its own right. be sharp about who you want to sue and why if things go wrong, and what your lawyers can and can’t do when setting things up – daos are a very niche area.

marc piano is no longer with harneys. he now works at horizons global, an h3 verified service provider.

in this brand new series, bvi partner phil graham and cayman islands senior associate marc piano are here to demystify the digital asset space, and share their experiences and perspectives on everything crypto, blockchain, web3, and tech. in this episode, phil and marc talk crypto winters and avalanche warnings, daos (or should we say ados?) and more.

key takeaways

• the cryptoleaks website has published allegations of blockchain platform avalanche having weaponised law to take attack other market participants. this shows that any bad behaviour – whether the allegations are true or not - will eventually come to light due to the high levels of scrutiny by regulators, market participants and watchers, and governing bodies.
• the colloquial use of “dao” may indeed be a misnomer – most of daos aren’t truly autonomous, but are aspiring towards it.
• despite the commentary of a current crypto winter, the industry is busier than ever. unlike the previous crypto winters, builders are focussing on innovative offerings with a sustainable offering. this is not a cash grab – it’s an adoption of the technology with a genuine use case, attracting financing and solidifying that this technology is here to stay.

marc piano is no longer with harneys. he now works at horizons global, an h3 verified service provider.

effective 1 december 2022, all bvi persons falling within the new definition of “virtual asset service providers” (vasps) will be required to comply with bvi anti-money laundering, counter-terrorist financing, and anti-proliferation financing laws and regulations, namely:

• the anti-money laundering regulations 2008 (as amended) (the aml regulations); and
• the anti-money laundering and terrorist financing code of practice 2008 (as amended),

together the (bvi aml regime).

virtual asset projects or businesses with a bvi vehicle should seek legal advice on whether their bvi vehicle might be a vasp and, if so, prepare for compliance with the bvi aml regime.

although an individual could be a vasp, this alert focusses on entities.

is this the new bvi vasp law?

no, these are changes to the bvi aml regime which is designed to include vasps. the primary bvi vasp legislation has not yet been published. the obligation on vasps to comply with the bvi aml regime from 1 december 2022 is separate to any obligations that may be contained in the bvi vasp legislation when it is published.

we will issue a separate client alert and client guide on the primary bvi vasp legislation, when it is published.

what has changed?

the anti-money laundering (amendment) regulations, 2022 (the amending regulations) were gazetted on 19 august 2022.

the anti-money laundering and terrorist financing (amendment) code of practice, 2022 was gazetted on 29 august 2022 (the amended code of practice).

while most of the provisions of the amending regulations and the amended code of practice are now in force and effective, those that relate to vasps will not come into force until 1 december 2022. on and from this date, providing a virtual asset service will be considered “relevant business” under the aml regulations. vasps will be treated as “relevant persons” and will therefore need to comply with the bvi aml regime from 1 december 2022. at a very high level these obligations include requirements to:

• appoint a money laundering reporting officer (mlro) – see our client guide for more details on the mlro’s role and its responsibilities
• establish and maintain policies and procedures and internal controls for customer identification (ie collecting and verifying customer due diligence and conducting politically exposed persons, fraud, adverse media, and sanctions screening), record keeping and internal reporting, which are appropriate for the purposes of detecting and preventing money laundering, terrorist financing, and proliferation financing – this includes reporting suspicious transactions
• make staff aware of, and provide training on, the various policies, procedures, and internal controls
• comply with the new “travel rule” in relation to transfers of virtual assets. the travel rule requires originating and beneficiary vasps to obtain, verify, and maintain complete information on the originator and beneficiary of each transfer of virtual assets, before the transaction is executed, or accepted. intermediary vasps have separate obligations related to ensuring all such information is complete and to detect missing or incomplete information. vasps holding both sides of the transfer must determine whether a suspicious activity report should be filed and, if required, make the filing. originating and beneficiary vasps can deem verification of such information if:
  • it is to or from an account maintained by the vasp and the vasp has verified the identity of the account holder; or
  • it is not to or from an account maintained by the vasp, does not exceed us$1,000 in value, does not form part of several operations that appear to be linked and together exceed us$1,000, and the relevant vasp does not otherwise suspect money laundering, terrorist financing, proliferation financing, or other financial crime.

under the amended code of practice, the requirement for a vasp to collect customer due diligence is subject to a us$1,000 base for one-off transactions.

one important change that applies to all persons that are required to comply with the aml regulations is that the fine for a breach of any provision of the aml regulations (and a breach is a criminal offence) on any type of conviction (indictment or summary) is now up to us$150,000. previously, that amount was the maximum penalty for a conviction on indictment only, but may now also be imposed on a summary conviction.

the comments above only deal with the changes that are relevant to vasps and both the amending regulations and amended code of practice contain other significant changes to the bvi aml regime, in general, which will be the subject of separate client guides.

why are these changes being made?

these changes are being made as the bvi is geared towards implementing recommendation 15 (new technologies) of the financial action task force’s (fatf) recommendations on international standards on combating money laundering and the financing of terrorism and proliferation. the changes are also guided by the fatf’s guidance for a risk-based approach to virtual assets and virtual asset service providers (the fatf guidance).

what is a vasp?

the amending regulations’ definitions of a virtual asset, virtual asset service, and vasp are largely derived from the fatf glossary.

under the amending regulations:

• a “virtual asset” means a digital representation of value that can be digitally traded or transferred, and can be used for payment or investment purposes, but does not include: (a) digital representations of fiat currencies and other assets or matters specified by enactment or guidelines; or (b) a digital record of a credit against a financial institution of fiat currency, securities, or other financial assets that can be transferred digitally.
• a “virtual asset service” means the business of engaging, on behalf of another person, in any vasp activity or operation (as outlined in the definition of “vasp”), and includes: (a) hosting wallets or maintaining custody or control over another person’s virtual asset, wallet, or private key; (b) providing financial services relating to the issuance, offer or sale of a virtual asset; (c) providing kiosks (such as automatic teller machines, bitcoin teller machines, or vending machines) for the purpose of facilitating virtual assets activities through electronic terminals to enable the owner or operator of the kiosk to actively facilitate the exchange of virtual assets for fiat currency or other virtual assets; or (d) engaging in any other activity that, by enactment or guidelines, constitutes the carrying on of the business of providing virtual asset service or issuing virtual assets or being involved in virtual asset activity.
• a “vasp” means a virtual asset service provider who provides, as a business, one or more of the following activities or operations for or on behalf of another person: (a) exchange between virtual assets and fiat currencies; (b) exchange between one or more forms of virtual assets; (c) transfer of virtual assets, where the transfer relates to conducting a transaction on behalf of another person that moves a virtual asset from one virtual asset address or account to another; (d) safekeeping or administration of virtual assets or instruments enabling control over virtual assets; (e) participation in, and provision of, financial services related to an issuer’s offer or sale of a virtual asset; (f) perform such other activity or operation as may be specified by enactment.

the approach taken by the bvi here is very similar to that taken by other international financial centres, such as the cayman islands. although there are some differences in the wording of the definitions in the fatf guidance, in practice they are essentially the same.

do i meet the definition of a vasp?

any analysis like this will always be fact specific.

however, our general view is that entities in the business of doing one or more of the following are more likely than not to be considered vasps:

• virtual asset exchanges (with or without any fiat on-ramp and off-ramp) – this may include nft marketplaces and decentralised exchange/swap services if transaction fees are charged
• virtual asset payment or transfer services, particularly if there are any fiat on-ramps and off-ramps
• selling virtual assets on behalf of another person or entity
• virtual asset custody, including hosted wallets (ie the customer does not have access to the private key)
• market making or providing liquidity or other financial services in connection with token issuances, exchange listings or auctions
• operating token sale “launchpads”
• operating staking pools and liquidity pools for profit where there is control of third party virtual assets (ie as opposed to non-custodial staking)

our general view is that entities that are only conducting token issuances on their own behalf, ie proprietary trading, are unlikely to be vasps.

what do i need to do now?

if you are located in the bvi or operating a bvi entity in the virtual asset space, we recommend that you seek advice from bvi legal counsel with demonstrable expertise and experience in the virtual assets sector to determine whether you are operating as a vasp well before 1 december 2022.

if you think you are likely to be a vasp, you should start preparing now to be compliant with the bvi aml regime.

for more information, please contact the authors, your usual harneys contact, or send a query to our dedicated virtual assets team at bvivaspqueries@harneys.com.

is your bvi entity a vasp?

our free initial assessment tool makes it easy to determine if your entity is or might be a vasp under the bvi aml and vasp regime.

with effect from 31 august 2022, a members’ scheme of arrangement involving a cayman islands company would no longer be subject to the “headcount test”.

historically, a members’ scheme of arrangement requires the approval by a majority in number representing 75 per cent in value of the members or class of members (as the case may be) present and voting either in person or by proxy at a general meeting. the “majority in number” requirement, commonly known as the “headcount test”, has given rise to severe debates in the hong kong privatisation context over the years, with the two main controversies being as follows:

• minority blocking the majority’s intent. a scheme supported by an overwhelming majority of the votes attached to the issued shares could be blocked by the minority, where the number of shareholders representing such majority is less than 50% of the total number of shareholders present and voting at the relevant general meeting. this has been the prime reason for the failure of various attempted privatisations by way of schemes of arrangement, including that of new world china land limited and glorious property holdings limited.
• how hkscc nominees limited is counted. with the bulk of listed shares being held through hkscc nominees limited in the modern days, it is far from clear as to how hkscc nominees limited is to be counted in a scheme of arrangement. various approaches have been tested and accepted by the court in the cayman islands, including the “split-vote approach” (where hkscc nominees limited has one “yes” vote and one “no” vote (ie only counted twice)), the “multi-headed approach” (where hkscc nominees limited has multiple “yes” votes and multiple “no” votes, depending on the instructions given by ccass participants (ie can be counted more than twice)), and the “single-vote approach” (where hkscc nominees limited has one vote only, depending on whether there are more shares registered in its name voting for or against).

the companies (amendment) act 2021 of the cayman islands, which becomes effective on 31 august 2022, abolishes the “headcount test” for members’ schemes of arrangement. reading this together with rule 2.10 of the hong kong code on takeovers and mergers, going forward a members’ scheme of arrangement would require (i) the approval by at least 75 per cent of the votes attaching to the disinterested shares that are cast either in person or by proxy at a general meeting, (ii) the number of votes cast against the resolution to approve the scheme being no more than 10 per cent of the votes attaching to all disinterested shares and (iii) the sanction of the court of the cayman islands.

it should be noted that the “headcount test” will remain applicable to creditors’ schemes of arrangement.

since its adoption, the luxembourg law on financial collateral arrangements, dated 5 august 2005 (the financial collateral law), has been the key to facilitate, accelerate, and ensure the enforcement procedure of financial collateral arrangements, and to help preserving financial stability in luxembourg.

the financial collateral law is generally regarded as the most efficient and attractive legal framework in the eu for creditors in financing transactions. since its adoption, luxembourg has developed a strong practice in structuring cross-border and domestic financing, refinancing, and restructuring transactions.

luxembourg proved to be a strategic jurisdiction for the finance parties with respect to enforcement of security interests, as its financial collateral law offers, amongst others measures, bankruptcy remote security instruments, and a broad range of efficient and out-of-court enforcement procedures in the most secured creditor and protective manner in europe.

on 7 july 2022, the luxembourg parliament (chambre des députés), adopted the draft law 7933 (the law), amending, amongst other laws, the financial collateral law.

the law aims to reinforce contractual flexibility between parties and legal certainty to the benefit of secured lenders. it codifies certain existing market practices and jurisprudential positions as regards enforcement options and methods, and as well as modernises the regime of public auctions of the pledged assets.

those improvements can only be welcomed, being in line with the spirit of the financial collateral law and reinforcing its creditor-friendly position to support and further boost the lending activity in luxembourg.

the law entered into force on 24 july 2022. the main amendments to the financial collateral law are as follows:

enhanced legal certainty regarding enforcement events

the financial collateral law already provided for a definition of “enforcement event” being an event of default, or any event, as agreed between the parties, i.e. including events other than payment defaults.

in the past, the luxembourg jurisprudence also confirmed the creditor-friendly orientation that the mere breach of a financial covenant could itself trigger the enforcement of a pledge governed by the financial collateral law^[1].

the law now reinforces and clarifies this flexibility in the contractual structuring of an enforcement event that already constituted one of the most attractive features of the financial collateral law compared to other european countries. it does so by adding the term “whatsoever” (“quelconque”, in french) to the range of events that could trigger an enforcement. an enforcement event means an event of default, or any other event whatsoever, as agreed between the parties on the occurrence of which, under the terms of a financial collateral arrangement, or the relevant financial obligation agreement or by operation of law, the collateral taker is entitled to realise or appropriate financial collateral or a close-out netting provision comes into effect.

the law thus emphasises the concept that non-repayment is not required to allow enforcement, and strengthens the concept of freedom of contract by which the parties can freely provide that any event agreed between them (e.g. the breach of a contractual representation or covenant) will be recognised as an enforcement event.

following and in-line with the amendment to the definition of enforcement event described just above, the law now clarifies that when the financial obligations secured are not due and payable at the time the pledge is enforced (i.e. in the context of an enforcement of a security interest with no payment default), the proceeds of the enforcement shall be applied in discharge of the underlying secured obligations, unless otherwise agreed between the parties. this welcomed clarification removes any doubt present in the past as to whether the enforcement proceeds, in a scenario where the underlying secured obligations have not yet become due and payable, could be applied immediately in discharge of such secured obligations or should be held as continuing security.

modernised enforcement methods

public auctions

in the past, the financial collateral law provided the pledgee with the possibility to enforce pledged assets, amongst other enforcement methods, “by private sale on normal commercial conditions, by sale over a stock exchange or by public auction”.

under the previous version of the financial collateral law, public auctions were, by default, required to be effected by and at the luxembourg stock exchange (the luxse) based on a specific governmental license. the reference to the luxse has become outdated as its status has changed (i.e. by operation of a law of 2007, the luxse has become one of the many private professionals of the financial sector). thus, following the entry into force of the law, public auctions will now be executed by default by a luxembourg bailiff or sworn notary, based on a new detailed procedure introduced by the law. the law provides that the parties may still agree to deviate from the procedure set out therein for public auctions. this amendment may resuscitate the interest for this enforcement method that was rarely, if at all, used in the past being preferred to other more efficient, more expedited, and less costly enforcement methods as the appropriation or the private sale.

sale on a stock exchange of financial instruments admitted to trading

in respect of the enforcement by way of sale of collateralised financial instruments admitted to trading, the law has replaced the reference to the “sale over a stock exchange” with the “sale over a trading platform”. this grants the flexibility that the enforcement - by the sale of such pledged assets - can be effected on a platform on which they are admitted to trading. assets admitted to trading to multilateral trading facilities (mtf) or organised trading facilities (otf) may now be disposed of, by way of enforcement, on the platform where they are admitted to trading.

appropriation of units or shares in a collective investment undertaking

an additional new feature introduced by the law in the financial collateral law relates to the determination of the value at which pledged units or shares in a collective investment undertaking can be appropriated.

the law distinguishes between units or shares of a collective investment undertaking that:

1. are admitted on a trading platform that can be appropriated at market price.
2. are not admitted on a trading platform that can be appropriated at the price of the last net asset value published by or for the collective investment undertaking, provided that the last publication of the net asset value is not older than a year.

redemption of units or shares in a collective investment undertaking

the law introduces an additional enforcement method regarding the pledged units or shares issued by a collective investment undertaking. by inserting a new paragraph to article 11 of the financial collateral law, the law provides the pledgee with the possibility to request the redemption of these units or shares at the redemption price determined in accordance with the constitutional documents of the relevant collective investment undertaking. such request of redemption constitutes a new available enforcement method introduced by the law, alternative to appropriation and private sale, and which does not require the involvement of a third-party buyer. it could be particularly beneficial to pledgees that may not be able to appropriate the pledged units or shares because of regulatory or internal-policy reasons.

insurance claims

regarding pledges over insurance claims deriving from insurance contracts, the law now clarifies that the pledgee may exercise all rights resulting from the relevant insurance contract, including the exercise of the repurchase right or demand payment from the insurance company for any sums due under the insurance contract. this amendment is particularly well received as it also removes any doubt arisen in the past as to the qualification of insurance contracts as financial collateral and the consequent applicability of the financial collateral law to pledges over insurance contracts.

other notable amendments

the law clarifies that a transfer of title for security purposes can be also granted to a person acting on behalf of the beneficiaries (e.g. a security agent), a fiduciary or a trustee. if the transfer of title for security purposes is carried out on a fiduciary basis, the transferee must be a professional of the financial sector. in this regard, the law clarifies that payment institutions and electronic money institutions qualify as professionals of the financial sector and are therefore eligible under article 13 of the financial collateral law to act as agents, fiduciaries, or trustees holding the security for beneficiaries.

furthermore, the law clarifies that the insolvency remoteness of set-off arrangements and security interests applies to national and foreign law insolvency procedures.

the law also clarifies that confiscation measures (“séquestre”, in french) do not prejudice financial collateral arrangements or set-off arrangements and set-off measures (including their enforcement).

in the aim of increasing the legal certainty around security over fungible precious metals, the law clarifies that pledges over the fungible precious metals that fall within the scope of the luxembourg grand ducal regulation dated 18 december 1981 on the deposit of fungible precious metals are also governed by the financial collateral law, unless the grand-ducal regulation of 18 december 1981, as amended, provides for a specific regime or when the nature of the precious metals does not allow it.

^[1] luxembourg court of appeal, 22 january 2020, no 6/20 iv-com, roll no cal-2017-00004.

the cayman islands competent authority for beneficial ownership regulation has published guidance notes on complying with beneficial ownership obligations in the cayman islands.

these guidance notes provide guidelines that should be adopted by in-scope entities, relating to the provision of required particulars and other information related to beneficial ownership obligations under cayman islands law.

the cayman islands beneficial ownership framework has been prepared with stakeholder input and reference to international standards and best practices. the objectives are to support the preservation of the integrity of the financial sector, to strengthen the co-operation and information sharing between law enforcement agencies and competent authorities in the fight against crime globally, and to ensure the cayman islands maintains its position as a premier financial centre.

companies, limited liability companies, limited liability partnerships, beneficial owners and trusts, and corporate service providers should be aware of the general registrar’s power to impose administrative fines for breaches of the beneficial ownership regime.

the guidance notes can be found here.

if you have any questions or require assistance with your beneficial ownership compliance obligations, please reach out to your usual harneys contact.

on 1 january 2023, various significant amendments to the bvi business companies act 2004 will come into force.

the key revisions include the following:

• a streamlined process for the dissolution of bvi companies, and a more modern regime for restoration.
• limited changes to the information on directors which will be publicly available to registered virrgin users.
• changes to the accounting and record keeping requirements for bvi companies.

the amendments are being introduced to ensure the bvi keeps pace with international best practices and with international standards established by standard-setting bodies such as the global forum on transparency and exchange of information for tax purposes and the financial action task force. the jurisdiction remains committed to its place at the forefront of combatting financial crime in all its forms.

in this client update, we will use the term amended act to refer to the principal legislation as it will be in force in january.

striking-off and dissolution

bvi companies may be struck off the register in a number of different circumstances but are most often struck because they have failed to pay their annual fees.

once struck, under the current law, they enter a state where that company (and its directors, members, and any liquidator or receiver) may not take any actions. in the current system, it will remain in that state for seven years, unless it is brought back to good standing. a struck company may generally be restored at any time by paying any accrued fees and penalties, together with rectifying any other defect in its compliance with law (such as appointing a new registered agent where the old one has resigned). if it does not get brought back into life prior to the end of the seven years, it will be dissolved by operation of law.

the amended act effectively abolishes this period, so that struck off companies will be dissolved immediately.

brief transitional arrangements will apply to companies which are currently in a struck off or dissolved state. however, we would strongly urge all clients with struck or dissolved companies with underlying assets or business operations to take immediate action to bring the company back into good standing.

restoration of dissolved companies

for companies that are in a dissolved state, the process of restoration will change significantly.

under the current law, dissolved companies are only restorable by court order. the amended act introduces a simpler method for companies in this state to restore by application to the registrar of corporate affairs (the registrar) within five years of the date of dissolution^[1], subject to meeting certain requirements. chief among these is that a licenced person has agreed to take on the role of ra for the restored company and has declared that information they hold is up to date and in compliance with various bvi regulations. there is also a requirement to take steps to notify the crown if any property has vested in it.

a company may still also be restored by court order, in any of the following scenarios:

• the company was struck off the register and dissolved following the completion of a liquidation.
• on the date of dissolution, the company was not carrying on business or in operation.
• the purpose of restoration is to (i) initiate, continue, or discontinue legal proceedings in the name of or against the company; or (ii) to apply for property that has vested in the crown bona vacantia to be returned to the company.
• in any other circumstance where the court considers that, having regard to any particular circumstances, it is just and fair to restore the company to the register.

when a company is restored under either limb, it is deemed never to have been struck off/dissolved.

publicly available director names

the british virgin islands financial services commission (fsc) will be making available the names of the directors of bvi companies to registered users of the online virrgin system. there is expected to be an additional cost to the search. searches will need to be run against a company name, rather than the name of a director.

clients should note the full register of directors, which companies have been required to file with the fsc on a private basis since 2016, will not be public. the information available will not include dates of birth, or addresses. the names of former directors will not be available.

we understand that the fsc will extract this information from the registers they have on file, without the need for new or additional action from clients. entities which have not kept their register up to date or which are otherwise not in compliance with their existing obligations should however take care to rectify the position as soon as possible.

financial records and accounts

in addition to their existing record keeping obligations, bvi companies will be required to provide certain financial information, in the form of an annual return, to their registered agent. the form of return has yet to be finalised, but we expect it to consist of a simple balance sheet and profit and loss. this will not need to be audited.

the annual return will need to be filed within nine months of the end of an entity’s financial year (which we expect will not necessarily have to be a calendar year). the registered agent will have an obligation to inform the fsc if it has not received the annual return within 30 days of the due time.

the information filed with the registered agent will not be made publicly available, and nor will the registered agent be obliged to file them with any regulator or bvi government authority.

there are exceptions that will apply to listed companies, companies which pay tax in the bvi and certain bvi regulated entities.

liquidations

a residency requirement has been introduced for persons being appointed to act as liquidators of bvi companies on a solvent basis. to qualify, an individual must have physically lived in the bvi for at least 180 days, either continuously or in aggregate, prior to their appointment.

in recognition of the fact that there may be foreign language, or time zone, benefits in having local liquidators in the place where companies have their main operations or businesses it will also be possible to appoint joint liquidators where only one meets the residency test. liquidators will also now be required to take additional steps to obtain accounting records before commencing a liquidation.

register of persons with significant control

the amended act provides for the framework by which the bvi might in the future introduce a public register of persons with significant control, although it is important to note no changes are expected to come into force on 1 january. the bvi government had previously made a commitment to introduce such a register by 2023, subject to certain caveats including such registers becoming an international standard.

the amended act provides that the government may by future regulations, specify the requirements for the format of such registers. it also provides that the regulations may contain exemptions or restrict access to certain person’s data.

next steps

by the end of 2022, all bvi companies should ready themselves to comply with the legislation.

harneys will be providing further updates on the legislation, as market practice develops, and regulatory guidance becomes available, and we will be providing greater detail on some of these topics in due course.

any clients who have particular concerns should feel free to contact the authors or their usual harneys contacts.

^[1] transitional arrangements will apply to companies which are currently in a struck off state so that, unless the seven years since their strike-off date expires earlier, they will be able to apply to the registrar until 1 july 2023.

this article broadly discusses the key restructuring tools available in all three jurisdictions and examines, in particular, the broad-based similarities and often-overlooked differences between the regimes.

given that the cayman islands, bermuda and the bvi all have in place robust and modern insolvency regimes that remain largely faithful to their common law origins, it is often misconstrued that these regimes are identical. while it is fair to say that these regimes have wide-ranging similarities, key differences exist amongst them. these differences will only be further magnified once the companies amendment act 2021 takes effect in the cayman islands on 31 august 2022 (amendment act).

scheme of arrangements

the scheme of arrangement is the key debt restructuring mechanism that is commonly utilised across all three jurisdictions. offshore schemes are broadly similar to english schemes and governed by similar principles (save for minor distinctions including, for instance, the unavailability of cross-class cram-downs and express legislation for rescue financing in the offshore jurisdictions).

in general, the provisions governing the use of schemes is practically identical across all three regimes. accordingly, the procedure leading up to the court’s sanction of a scheme including the requisite voting thresholds for the approval of a scheme (ie, majority in number representing 75 per cent in value of the creditors or members present) is broadly similar across all three offshore jurisdictions.

in this regard, it is noteworthy that in the cayman islands context, pursuant to the amendment act, the headcount test (ie, the need to obtain the approval of majority in number) will no longer be required in the context of members’ schemes. however, in the context of creditors’ schemes, the voting thresholds remain uniform across all three regimes.

moratoriums

across all three jurisdictions, an application to convene a scheme meeting in and of itself does not avail the debtor of an automatic statutory moratorium. as such, the debtor remains vulnerable to creditor claims until the scheme is sanctioned by the court. this deficiency in relying solely on schemes of arrangements as the restructuring tool of choice is commonplace amongst all three regimes. in order to find a solution to the lack of a statutory moratorium, the established procedure in all three jurisdictions (prior to the amendment act) has been to strategically utilise their respective provisional liquidation regimes in conjunction with the promulgation of a scheme to create the necessary breathing space for debtors. we elaborate further in the next section.

rescue regimes

in bermuda, the appointment of provisional liquidators, whether for restructuring purposes or otherwise, will trigger a limited statutory moratorium which prevents legal proceedings (including insolvency actions) being commenced or continued against the company while the provisional liquidators are in office. as such, provisional liquidators are typically appointed in conjunction with the promotion of a scheme of arrangement to afford the company the benefit of a moratorium. the intent is that the provisional liquidator will oversee the company’s restructuring process (via a scheme) by remaining in place while the restructuring is effected and will be subsequently discharged, without a winding up order ever being made, once the restructuring is complete and the company returns to solvency.

to take advantage of the de facto debtor-in-possession process available in bermuda, the company must demonstrate that it is insolvent or in the zone of insolvency. upon meeting that threshold criteria, the court has a broad discretion in deciding whether or not to appoint provisional liquidators, and if so, on what terms. when exercising its discretion, the court will take into account all relevant considerations, and in particular, regard will be had to the prospects of success of a debt restructuring. while the company need not present a full comprehensive restructuring plan at the time of making the application, it must be able to show a reasonable prospect of success and more than just a statement of intent or mere speculation. in making this assessment, the court will commonly have regard to the expressed wishes of the unsecured creditors.

similarly, the bvi courts have also approved the use of “light-touch” provisional liquidators for the purposes of facilitating the restructuring of a company. in order to appoint provisional liquidators with “light-touch” powers, it is first necessary to present an originating application for the appointing of liquidators to the court. the company can then make an ordinary application to appoint a provision liquidator in circumstances where the company consents, the court is satisfied that it is necessary to maintain the value of assets, or it is in the public interest.

however, unlike in bermuda and the cayman islands (prior to the amendment act), no automatic moratorium against creditor actions or claims arises simply by virtue of the provisional liquidators’ appointment. nonetheless, the bvi court has shown a willingness to order contingent moratoriums within the appointment order for provisional liquidators such that the company will not have to apply for a stay each and every time a suit or action is commenced against it.

the position in the cayman islands prior to the amendment act is substantially similar to that in bermuda whereby restructurings are implemented through the combined use of a scheme of arrangement and the appointment of provisional liquidators. this will no longer be required under the amendment act. once implemented, the cayman islands will have a restructuring regime separate from its statutory corporate liquidation regime. this will not only enhance the regime cosmetically by liberating it from its liquidation-oriented terminology and processes but will also substantively alter the way in which restructurings can be implemented in the cayman islands. for example, a debtor will be able to seek the appointment of restructuring officers (rather than provisional liquidators) and will no longer need to be the subject of a winding up petition. further, an automatic moratorium against enforcement action applies from the time the debtor files its application with the court rather than when the court makes the order appointing the restructuring officers. as a matter of cayman islands law, this moratorium is also expressed to have international effect, albeit it is a matter for a foreign jurisdiction whether it will recognise and give effect to that moratorium.

treatment of secured creditors

unlike the position under english law, where no enforcement of security over the company’s property may take place while a moratorium is in place (except for certain financial markets collateral security charges), the rights of secured creditors is generally treated as sacrosanct across all three offshore jurisdictions. the appointment of a provisional liquidator (in all three offshore jurisdictions) or a restructuring officer (in the cayman islands under the amendment act) does not affect the rights of secured creditors. a creditor who has security over the whole or part of the assets of the company is entitled to enforce on the security without the leave of court and without reference to the provisional liquidator or restructuring officer.

accordingly, should breathing space be sought from secured creditors, forbearance agreements should be sought and expressly negotiated with each of them.

recognition and assistance of foreign proceedings

the offshore courts will recognise foreign insolvency proceedings and assist foreign representatives appointed therein. in the bvi and the cayman islands there is specific legislation to facilitate international cooperation in insolvency proceedings, and in bermuda the common law is relied upon - we will examine all three further below. it is also noteworthy that courts of all three jurisdictions have adopted the jin guidelines, which set out modalities for communication and cooperation amongst courts, insolvency representatives and other parties involved in cross-border insolvency proceedings.

the insolvency legislation in bvi has two parts dealing with cross-border issues: (i) part xvii sets out the uncitral model law on cross-border insolvency, which has not been brought into force; and (ii) part xix, which provides a basic statutory framework for judicial assistance in insolvency proceedings. part xix allows foreign representatives in certain types of insolvency proceedings (ie, collective judicial and administration proceedings in which the property and affairs of the debtor are subject to control and supervision by a foreign court), taking place in designated jurisdictions to apply to the bvi court for assistance. however, the current position under bvi law is that a foreign insolvency official who is recognised by the bvi court will not be treated as having all the powers of an equivalent insolvency official appointed by the bvi court.

in the cayman islands, part xvii of the companies act provides for international cooperation in insolvency proceedings and the grand court is entitled to provide recognition and ancillary relief to a “foreign representative” who has been appointed to a “debtor” in the course of a “foreign bankruptcy proceeding” in the country in which the debtor is incorporated. these provisions are commonly relied on for the local recognition of extant chapter 11 proceedings in relation to companies incorporated in or subjected to the laws of the united states. in respect of cayman islands incorporated companies that are subject to overseas insolvency proceedings (which fall outside the ambit of part xvii of the companies act), the grand court commonly draws on common law cross-border insolvency principles to recognise and assist overseas attempts to effect a restructuring. for instance, the grand court has on numerous occasions appointed provisional liquidators to companies in the cayman islands (at the behest of either the company or creditors) where they are subject to extant chapter 11 proceedings in the united states.

unlike the bvi and cayman islands, there are no statutory provisions relating to the conduct of cross-border insolvency proceedings or for cooperation with foreign officeholders in bermuda. however, there have been various judicial decisions which show that the court will carefully consider cross-border cooperation, and is likely to be co-operative.

however, notwithstanding the largely facilitative approach adopted towards foreign insolvency proceedings by three jurisdictions, it is unlikely that a foreign scheme would be automatically enforceable in these jurisdictions. like cross border restructuring the world-over, specific recognition of a compromise will also be needed, in some form, to bind all creditors. otherwise, foreign schemes may be undermined when, for example, a dissentient creditor applies to the court of the offshore jurisdiction for a liquidation order, thereby frustrating the foreign scheme.

to mitigate this risk, it is recommended that a parallel scheme, similar to seeking a chapter 15 recognition and/or discharge order, be promulgated in the offshore jurisdiction where the debtor is incorporated in conjunction with the foreign scheme. this is cost effective and straightforward.

group restructurings and release of rights against third parties

it is often the case that global restructuring proceedings may take place outside the offshore jurisdictions but with the ultimate holding company of the group or some of the group’s subsidiaries incorporated in one of the offshore jurisdictions. these offshore holding companies and/or subsidiaries may have also provided guarantees which may trigger cross-defaults across the group.

in such cases, as aforementioned, it may be advisable for parallel schemes to be promulgated in each of the relevant offshore jurisdictions and for provisional liquidators to be appointed over each of the relevant offshore entities. in this regard, we note that the position under english law that allows for a scheme of arrangement to include a mechanism providing for the release or variation of creditors’ rights against third parties, including guarantors, equally applies across all three offshore jurisdictions. offshore guarantors can therefore be released from their obligations under the offshore schemes that are promulgated in parallel with a foreign scheme.

additional restructuring tools in the bvi

it is notable that besides schemes of arrangement, the bvi has two unique tools in its restructuring arsenal, which are not available in either bermuda or the cayman islands.

first, the bvi business companies act provides for plans of arrangement whereby the board of directors of a company are permitted to, amongst other things, approve arrangements to reorganise or reconstruct a company and implement the same after obtaining court approval for the proposed arrangement in accordance with the court’s directions. in practice, plans of arrangements are typically entirely consensual and represent an effective and efficient tool for reorganising companies in a single stroke (as opposed to a scheme of arrangement).

second, part ii of the bvi insolvency act creates an avenue for a company in financial distress to enter into arrangements with their creditors under the supervision of a licensed insolvency practitioner and thereby restructure its debts without any court involvement. such an arrangement can bind all creditors as long as the arrangement is approved by creditors holding 75 per cent of the value of the company’s debt with the exception that the rights of secured creditors cannot be compromised without their written consent and the arrangement cannot result in preferential creditors receiving less than they would in liquidation. creditors’ arrangements are designed to be a simple and efficient alternative to plans and schemes of arrangements that do not require court approval.

conclusion

it is clear that each of the offshore regimes have in place robust restructuring tools. if deployed properly these tools can protect businesses with offshore entities from predatory creditors while providing sufficient breathing space for business viability to be restored or, at the very least, for the general run of creditors to obtain a better recovery than in liquidation.

this article first appeared on lexis psl.

the june 2022 edition of corporate rescue and insolvency journal is now available to subscribers on lexis library.

this edition features an article by partners jessica williams and jayson wood: cayman islands launches new restructuring office regime.

additional articles explore the sanction of the restructuring plan in smile telecoms holdings ltd, the new restructuring officer regime in the cayman islands, and third-party enforcement of pension rights.

the cri journal can be accessed here.

in this episode, partner joshua mangeot and director of fiduciary and custodial kerry graziola discuss the various amendments in 2021 to the economic substance (companies and limited partnerships) act (the esa) and the beneficial ownership secure search system act (the boss act) and provide an update regarding steps being taken by the international tax authority (ita) to monitor entities’ compliance.

by way of background, the boss act was amended twice in 2021 – first, with effect from 1 july 2021 via the beneficial ownership secure search system (amendment) (no. 1) act, 2021 (the first amendment) and the beneficial ownership secure search system (amendment) (no. 2) act, 2021 (the second amendment and together with the first amendment the 2021 amendments). many of the key changes made via the first amendment were summarised in our client update of 19 july 2021.

key takeaways

• we expect the third version of the ita economic substance (es) rules and explanatory notes (the rules) to be published later this year. we understand that publication has been delayed by the eu commission and, as a result, the rules do not yet reflect the 2021 amendments.
• the main changes made by the second amendment relate to limited partnerships without legal personality (which includes foreign limited partnerships without legal personality registered in the bvi) (relevant lps) being added to the es and beneficial ownership (bo) reporting regimes and expand the es prescribed information to be reported by a “corporate and legal entity” (an entity) for each es financial period (fp) beginning on or after 1 january 2022.
• many relevant lps are investment funds – and amendments to the es act in 2021 confirmed the industry view that “investment fund business” is not a relevant activity.
• broadly, the 2021 amendments:
  • significantly expanded the scope of the es reporting regime for fps beginning on after 1 january 2022
  • provided that relevant lps must report their bo information within 15 days of identifying those matters following 1 january 2022, other than where the relevant lp is an “exempt person” which does not carry on any es “relevant activity” (an exempt person)
  • introduced an obligation to identify, and report certain prescribed information in respect of, any “immediate parent” and “ultimate parent” (as defined) of every entity, other than an exempt person
  • expanded the scope of jurisdictions which may receive information under the spontaneous information exchange mechanism in schedule 4 to include the overseas competent authority for each state in which an immediate parent or ultimate parent of the entity is registered
• although the first reports under the new reporting regime for most entities incorporated or formed prior to 1 january 2019 will be filed in 2023, entities should ensure they are aware of the new requirements now and may need to discuss the changes with their accountants and legal advisors.
• we are already seeing the ita take steps to investigate entities to determine compliance. the ita has broad investigation powers to request any information it reasonably requires from any person to determine compliance and generally has up to six years from the end of an fp to make a determination, subject to some limited exceptions.

the harneys es classification solution

our classification solution has already been updated to reflect the 2021 amendments and provides a cost-effective way for bvi companies and limited partnerships to demonstrate formally that they have considered their position under the es act. our automated classification solution helps to classify your entity, provides tailored real-time legal advice, and is accessible through our online platform, at your convenience. classify your entity here.

if you have any questions regarding the amendments or how they may apply to your bvi entity, contact our team of economic substance specialist lawyers by emailing bvieconomicsubstance@harneys.com.

economic substance (es) is a perennially hot topic, and the concept arises in numerous contexts in the tax and accounting world. this article considers the es regime introduced in the british virgin islands (bvi) in 2019 following the requirements of the organisation for economic co-operation and development's (oecd's) forum on harmful tax practices (fhtp) and the european union's code of conduct group for business taxation (cocg).

background

the bvi was not alone in adopting es requirements – similar requirements are now applied across the world's other major zero and low-tax international financial centres.

the focus of the fhtp and cocg was on nine geographically mobile, income-generating "relevant activities". each relevant jurisdiction would have to ensure that any entity carrying on any relevant activity and benefiting from the tax advantages offered by its regime would demonstrate es (or be subject to enforcement action in the case of non-compliance).

at the international level, jurisdictions were required to introduce notification regimes whereby information required to assess profits booked in their jurisdiction as a whole from such activities could be made available to other jurisdictions with corporate income tax systems to allow them to calculate their own taxpayers' tax liabilities.

where can i find the legislation and guidance?

in the bvi, the economic substance (companies and limited partnerships) act, 2018 (the act) was introduced effective 1 january 2019, and potentially applied to all companies and limited partnerships with separate legal personality (plps) registered in the bvi. there was a six-month transitional period for companies and plps existing prior to that date. the act was amended in 2021 to bring limited partnerships without separate legal personality (nplps) within the regime from 1 july 2021, again, subject to a six-month transitional period for pre-existing nplps.

for simplicity, we refer to all companies, plps and nplps (including foreign entities) registered in the bvi as entities.

the es reporting regime was introduced via amendments to the beneficial ownership secure search system act, 2017 (the boss act). the boss act was amended in 2019 and 2021 to allow the bosss' secure encrypted database to receive es information via each entity's bvi registered agent (ra).

the guidance provided to jurisdictions by the cocg and fhtp was high-level, and the timetable allowed for implementation might be described as ambitious (at best); jurisdictions were effectively given six months to implement the requirements. as a result, the act set out a framework with detailed guidance appearing in regulations and official explanatory notes.

draft guidance was issued by the bvi international tax authority (ita) in april 2019 on the interpretation of the act and the ita's approach. the final rules and explanatory notes (the rules) were published in october 2019, with minor amendments, and updated in february 2020 to reflect comments from bvi industry, and the cocg and fhtp.

further additions will be made to the rules in 2022 to reflect the amendments to the act and the boss act in 2021, in particular, to expand the scope of the es reporting requirements in line with cocg and fhtp requirements, and provide additional guidance for limited partnerships.

how is compliance assessed?

clients setting up bvi companies and limited partnerships (and their advisers) need to consider whether es requirements apply to their business as every entity registered in the bvi is now required to submit an es return (generally annually). in some cases, this can be complex and entities may need to seek qualified bvi advice. business activities should be monitored on a continuing basis to ensure compliance with the act.

every entity must identify whether it carries on any "relevant activity" at any point in time. the act specifies nine types of relevant activity, and expressly confirms that "investment fund business" is not relevant activity. regulated open-ended and closed-ended funds generally fall within an exemption (although "fund management business" is a relevant activity).

compliance is assessed by reference to an entity's activities during each "financial period" (fp). an entity's fp may not be the same as its fiscal or financial year, although it is possible to align the two by application.

by default, fps run consecutively for 12 months each and:

• the first fp of a company or plp incorporated in the bvi prior to 1 january 2019 commenced on 30 june 2019
• the first fp of a company or plp incorporated in the bvi on or after 1 january 2019 commenced on its date of incorporation
• the first fp of an nplp formed in the bvi prior to 1 july 2021 commenced on 1 january 2022
• the first fp of an nplp formed in the bvi on or after 1 july 2021 commenced on its date of formation

many entities are either not carrying on any relevant activity or qualify for exemption due to their tax status.

entities that do not carry on any "relevant activity" during an fp are not subject to es requirements, but must still file a "nil return" and should ensure that they are familiar with their reporting obligations under the boss act.

generally, an entity carrying on or receiving gross income from any relevant activity at any time during an fp is required to demonstrate adequate es in the bvi for that activity.

entities that are treated as tax resident in a jurisdiction outside the bvi (provided that jurisdiction is itself not on the eu's taxation "blacklist") are also not subject to es requirements, but still need to determine whether they carry on any "relevant activities" and claim such an exemption with supporting evidence. part 4 of the rules expands the traditional concept of tax residence to include certain "transparent" entities and certain entities whose income from relevant activities is subject to tax. broadly, a "non-resident" claim will result in a spontaneous exchange of all the information regarding the entity on the boss act ra database with relevant overseas tax or other competent authorities.

what are the es compliance requirements?

the es requirements depend on the nature of the relevant activity and only apply if the entity is not able to claim exemption as a tax non-resident during the relevant fp.

there is a simplified regime for entities carrying on the business of being a "pure equity holding entity" (pehe), which is defined as a "holding business". this should not automatically be conflated with being a holding company in the broader commercial sense. a pehe is narrowly defined as an entity that only holds equity participations in other entities and only earns dividends and capital gains.

a pehe meets its es requirements if:

• it complies with its statutory obligations under the bvi business companies act, 2004, or the limited partnerships act, 2017 (as applicable)
• it has, in the bvi, adequate employees and premises for holding equity participations and, where it manages those equity participations, it has, in the bvi, adequate employees and premises for carrying out that management

the rules acknowledge that the holding of equity participations can be (and, in many cases, is) entirely passive in nature and that, in such cases, the requirement for adequate employees and premises may be capable of being met by the bvi ra and the existing registered office.

an entity conducting any other relevant activity must demonstrate that:

• the relevant activity is directed and managed in the bvi (which, among other things, requires board meetings with a quorum of directors physically present in the bvi)
• having regard to the nature and scale of the relevant activity, the entity:
  • has an adequate number of suitably qualified employees physically present in the bvi (employed directly or employed by another entity)
  • has adequate expenditure incurred in the bvi
  • has physical offices or premises as may be appropriate for the core-income generating activity (ciga)
  • conducts ciga in the bvi

income from intellectual property was considered by the cocg and fhtp to be at higher risk of base erosion and profit shifting (beps) activity. accordingly, an enhanced es requirement applies to entities carrying on intellectual property business. broadly, the general es requirement (summarised above) is enhanced by requiring any relevant equipment to be physically located in the bvi, and creating various presumptions that the entity is not compliant, which may be rebutted in certain circumstances requiring a very high degree of es in the bvi. however, in practice, those requirements may be extremely onerous. any entity that may earn identifiable gross income or gains of any description from intellectual property rights in intangible assets should consider its position under the act and may need to seek specialist advice.

how must entities report?

an entity must submit its prescribed es information under the boss act via its ra to be uploaded to the ra database within six months of the end of the relevant fp. the scope of the information to be reported varies widely in complexity, depending on the entity's business activities and tax status.

the boss act was amended in 2021 to require entities to identify, and in some cases report on, any "immediate parent" and "ultimate parent" of the entity. the scope of es information to be reported has also been extended for fps commencing on or after 1 january 2022 and entities that have already reported for previous fps should ensure that they are familiar with the revised boss act requirements and rules.

although they are both set out in the same legislation, the es and beneficial ownership reporting obligations under the boss act run on different deadlines. beneficial ownership information that is required to be reported under the boss act must generally be notified to the entity's ra within 15 days of being identified (whether initially or in the case of any change to such matters).[1]

what are the penalties for non-compliance?

broadly, enforcement action may be taken by the ita and other relevant bvi authorities in the case of:

• any failure by an entity to:
  • identify or report the information required by the boss act, which includes whether or not it carries on any relevant activity
  • to comply with applicable es requirements
• any failure by any person (which potentially includes directors or partners and certain other individuals associated with the relevant entity) to provide information or the provision of inaccurate or misleading information to the ita

failure to identify or report information required by the boss act or to provide information to the ita without reasonable cause (or the intentional provision of false information) is a criminal offence carrying significant penalties.

failure to comply with the es requirements is not an offence. however, it may lead to fines and requirements to take remedial action and, in extreme cases, the entity may be struck off the relevant corporate register or liquidated via court order. the penalties are increased significantly for certain "high risk ip legal entities".

entities that are determined to be non-compliant or carry on intellectual property business may be the subject of spontaneous information exchange of all the information regarding the entity on the boss act ra database with certain relevant overseas competent authorities, including where a beneficial owner, immediate parent or ultimate parent of the entity resides.

conclusion

all bvi companies and limited partnerships should consider:

• whether the entity may carry on any relevant activity
• if so, whether the entity is treated as having a tax residence in another jurisdiction under the rules (and whether that jurisdiction is, or is at risk of being, "blacklisted" by the eu for tax purposes)
• if the entity is subject to es requirements, how it will meet its compliance and reporting requirements (and any potential reorganisational or restructuring options)

this article first appeared on the website of the taxes committee of the legal practice division of the international bar association, and is reproduced by kind permission of the international bar association, london, uk. © international bar association.

the privy council has dismissed essar's challenge to the cayman islands court of appeal (cica) decision. it found that the appeal did not raise an arguable point of law and the cica was right for the reasons it gave. the privy council's judgment confirms the cica decision as the most authoritative decision from an offshore appellate court on the availability of norwich pharmacal relief in parallel with statutory mechanisms for gathering evidence for use in foreign proceedings.

the parent of the essar group, essar global fund ltd (egfl), and its investment manager, essar capital ltd (ecl), appealed to the cica against an order that they disclose financial information about essar steel ltd (in administration) to arcelormittal. the order was needed to facilitate enforcement proceedings by arcelormittal to obtain payment on an icc arbitral award for over us$1.5 billion made in a us seated arbitration, in circumstances where it was alleged that essar was wrongly seeking to evade payment on the award.

the cica dismissed the appeal on 3 may 2021. it provided guidance on two key areas:

• disclosure pursuant to the norwich pharmacal jurisdiction can be obtained in support of foreign proceedings notwithstanding the evidence (proceedings in other jurisdictions) (cayman islands) order 1978 (evidence order). the evidence order only concerns the giving of evidence for the purposes of foreign proceedings. the basis of the norwich pharmacal jurisdiction is a duty to provide information about wrongdoing, not an obligation to provide evidence. there is no reason that the duty should be confined to domestic wrongdoing. if proceedings have not been instituted in a foreign jurisdiction and are not contemplated in a jurisdiction with pre-action disclosure protocols, there is no basis for treating the evidence order as impliedly excluding the norwich pharmacal jurisdiction.
• the test for wrongdoing is the existence of a good arguable case as set out in the niedersachsen case. the applicant must also show that the wrongdoing gives rise to a cause of action, right, or some other form of redress. it was sufficient for arcelormittal to establish a good arguable case of wilful evasion of the arbitral award, since most jurisdictions will recognise that such conduct is wrongful.

the privy council's decision now requires egfl and ecl to immediately disclose financial information about the essar group to arcelormittal. this decision ends the series of challenges raised by the essar group-related companies in connection with the norwich pharmacal order.

case: essar global fund ltd and essar capital ltd v arcelormittal north america holdings llc, jcpc 2021/051 (11 may 2022).

this update was originally published on practical law arbitration on 8 june 2022 and is reproduced with the permission of thomson reuters.

the republic of cyprus (roc) was established in 1960. as it was a british colony, much english common law had taken root and it was left in the roc to grow with occasional pruning, by parliament; grafting and cross-fertilisation by our judges, influenced by english judgments, guided by the jurisprudence of the european court of human rights. eu law is the supreme law of cyprus.^[1]

our laws would appear familiar to an english lawyer. they are like a different dialect of the same language; sometimes with lapses of grammar, other times with terms long out of fashion in their country of origin, and occasionally new flourishes appear that become characteristic of the dialect. our common law looks home from time to time to see what incremental developments it may wish to follow. sometimes a blunt friend from strasbourg or luxembourg reminds us to live up to principles that the roc has committed itself for the benefit of its people.

the law of defamation took root by way of the civil wrongs law, cap 148 (“the law”), which attempted to codify the common law as it was then. that statute has been subject to a number of amendments^[2], the most important of which has been the decriminalisation of defamatory speech.^[3]the statute has remained mostly intact and english precedents are highly influential.

libel and slander

defamation is divided into libel and slander. libel occurs where the mode of publication is a permanent form and slander is where the form is transitory. broadcast media are considered permanent.

libel is actionable per se (ie without proof of damage), whereas slander is actionable or where there is proof of special damage or where the defamation concerns the specific allegations set out below.

slander is actionable without proof of special damage only where the slander (a) imputes a crime to the plaintiff; (b) is calculated to injures or prejudices the reputation of any person in their profession, trade, business, calling or office; (c) impute to the plaintiff a contagious or infectious disease; (d) impute adultery or unchastity to a woman or girl.

article 17(4) mentions that it is not necessary for the defamatory meaning to be completely expressed. it would suffice for the defamatory meaning and the person to whom it is directed to be discernible from the context in which statement is made.

basic elements

strict liability

defamation does not require malice or negligence. it can occur through inadvertence.

section 17(2) makes clear that defamation can occur notwithstanding that it repeats hearsay, refers back to the authority that provided the statement, belief in its truth, or was unintended.

the mental element of the defendant both during and after the defamation can be taken account of by the court in the measure of damages and good faith is an essential element of the defence of fair comment.

note there are other torts that may include all the elements of defamation within them, which are committed by malice. (for example, malicious falsehood and malicious prosecution.)

constituent parts

section 17 of the law sets out the constituent elements of defamation. there is defamation where the defendant has made a statement:

a) containing a defamatory meaning;
b) ascribing it to the plaintiff; and
c) which is communicated (or published) to a third party.

it is to be recalled that in the case of slander, either special damages must be proven or the defamatory meaning must fall within the four categories mentioned above.

companies are capable of being defamed, but under section 7 of the law they cannot claim unless they establish loss.

procedure and evidence

the particulars of defamation must be specifically pleaded in each case, including all the facts establishing its constituent elements.

an innuendo must also be specifically pleaded. the court would not find an innuendo where its findings on a case of defamation was not fully made out, but where the facts might have made out an innuendo.

the burden of proof lies with the plaintiff for each element and the standard of proof is on the balance of probability.

cyprus does not have juries and judges determine both facts and law.

legal costs are up to the courts’ discretion, but are almost invariably borne by the losing side.

defamatory meaning

section 17 defines defamatory statements are ones that contain a meaning that would (i) impute a crime; (ii) misconduct in public office; (iii) injure or prejudice someone in the way of their profession or calling, trade or business; (iv) exposes someone to hatred, contempt or ridicule; or (v) is likely to cause a person to be shunned or avoided.

in comparison to english common law the threshold appears higher. this is surprising, because the lord atkin’s definition in sim v stretch,^[4]was as to whether the words used tend to lower the plaintiff in the estimation of right-thinking members of society generally and it predates the statute by over 20 years. this is perhaps a consequence of pure oversight of the colonial authorities who simply copied the definition from the civil wrongs law of 1932.

nevertheless, it is submitted that in an appropriate case, the courts may apply section 17 widely enough and/or holistically and indeed in a recent case, the district court of paphos specifically referred lord atkin’s definition.^[5]

it remains to be seen whether need for “serious harm to reputation” contained in the uk defamation act 2013, will become an ingredient of defamatory statements that do not fit easily within section 17 of the law.

each publication must be assessed in its entirety and be assessed from the natural meaning of the words used.^[6]the impression they would give to a reasonable person is what must be examined and not what they would convey to particular persons.^[7]

publication

section 18 sets out various means by which publication can take place including words and gestures. it provides that the defamation must have been communicated to at least one other person other than the plaintiff or the defendant’s present spouse.

quaintly, section 18(2) mentions that an open letter and postcard whether sent to the defamed person or not constitutes publication.

the recipient of the publication must be in a position to realise to whom it refers and the inference must be reasonable and not the result of suspicious extrapolation. ^[8]it would suffice if the person is identified as the holder of a particular office.^[9]

innuendo

there are two types of innuendo, legal innuendo and false innuendo. a legal or true innuendo occurs where extrinsic facts are required to be established before the case for a defamation can be made out. a false innuendo is where the defamatory implication is taken from the natural meaning of the words used.

defences

section 19 of the law lists (a) justification, (b) fair comment, (c) privilege (absolute and qualified) and (d) offer of amends.

justification

proof that the statement is true is sufficient. it may even suffice for the thrust of the statement to be true, even where the particular details in the statement may not all be entirely accurate.^[10]it is sufficient for the “sting” to be removed.^[11]

fair comment

the defence of fair comment is available where it concerns a matter of public interest, even where it involves a section of the public.^[12]a mere statement of fact does not constitute a comment for these purposes.^[13]there must be an honest belief that what is being written is true.^[14]bad faith or malice will deprive the defendant of the fair comment defence.^[15]

for the defence to succeed, it must relate to an opinion and not a fact. however, the availability of a reynolds defence may have caused this defence to have been subsumed.

reynolds defence- responsible journalism

the defence of responsible journalism has been applied by the cyprus courts, notwithstanding its displacement or refinement by statute in the uk. ^[16]it is said to be part of the defence of qualified privilege.^[17]

the reynolds defence, contains a number of factors that should be weighed to determine whether, notwithstanding the false content of a publication, it is nevertheless protected as a result of being a consequence of responsible journalism. these include: the seriousness of the allegation, the public interest in the subject matter, the sources, the steps taken to verify, the existence of a prior investigation, urgency, whether the other side’s story was presented, the tone of the article and the timing.^[18]

defence in case of defamatory matter in a newspaper

section 24 affords a narrow defence to newspapers where they pay a sum of money into court, which is sufficient for amends. in order to avail itself of the defence, the newspaper must show an absence of malice b) that there was no lack of reasonable care; and that before the commencement of the action or soon afterwards offered to publish a full apology.

privilege

there is absolute and qualified privilege.

the incidences of absolute privilege are set out in section 20 of the law. these include statements made in the course of proceedings by judges, advocates or witnesses or fair and accurate reporting of anything said therein; statements made by the president to the cabinet, by the legislature; in any report made by the police or armed forces.

there is qualified or “conditional privilege” in matters published in good faith in, among other contexts where: it is made under a legal, moral or social duty and the recipient has a corresponding interest in receiving it; disciplinary statement where there is a right to issue it, whether by contract or otherwise; a complaint; or if the matter is a fair and accurate report of what was published by a legislative body.

good faith shall not apply where a) the defendant knew the statement was untrue; b) failed to take reasonable care to ascertain its truth and was untrue; c) acted with intent to injure in a substantially greater degree or substantially otherwise than was reasonably necessary for the interest for which privilege was claimed.

offer of amends

section 22 of the law applies in cases where the defamation occurred innocently and the defendant may succeed, if it can be shown that the defamation occurred despite the exercise of reasonable care and that he made an offer of amends consistent with the requirements of section 22.

the offer of amends is an offer expressing itself to be made under section 22 and must be made accompanied by an affidavit specifying the basis of the innocence of the publication.

the offer should contain an undertaking to publish a suitable correction and a sufficient apology, and to take such reasonable steps as may be practicable to notify persons to whom the defamatory publication was distributed and to notify them of the error accordingly.

if the offer is accepted, then no action can be taken in respect of the defamation. however, the court will retain jurisdiction as to the adequacy of its compliance and in relation to legal costs.

if an offer fulfilling the requirements of section 22 was rejected, then the defendant can have a full defence to the claim for defamation.

limitation

section 6(4) of the limitation law, l.66(i)/2012, as amended, stipulates that in the case of defamation or malicious falsehood, no claim may be filed after the passing of one year following the relevant publication.

remedies

damages awarded are usually award general and/or special damages, which are compensatory in nature. aggravated damages may be awarded where appropriate, but exemplary or punitive damages may not be claimed. ^[19]nevertheless, this is not entirely clear in some of the case law where in addition to defamation, malicious falsehood has been claimed. ^[20]further, damages take into account the actions of the defendant upon being accused of having defamed.

where appropriate, the court may grant an interim prohibitory injunction restraining publication of defamatory material pending trial. this is, however, an exceptional step that can only be taken when: (a) the relevant statement is undoubtedly defamatory; (b) there is nothing which leads to the conclusion that the statement may be true; (c) there is no possibility that another defence might succeed; and (d) there is evidence as to an intention to repeat or publish the defamatory material.^[21]

mitigation

pursuant to section 23 of the law, the court is required to take account of mitigation efforts and to reduce compensation that would otherwise be payable where: a) the defendant made or offered to apologise to the plaintiff before the action or as soon as the opportunity arose, b) the defamatory matter was contained in a newspaper and the plaintiff had already recovered from it c) the plaintiff had a bad reputation in connection with the matter of the defamation; or the defendant was provoked by the plaintiff.

privacy under the cyprus constitution

cyprus privacy law is principally founded on articles 7 and 15 of the cyprus constitution which protect the right to life and the right to private and family life respectively, and which are in turn based on articles 2 and 8 of the european convention of human rights.

it is noteworthy that, although actions based on articles 7 and 15 of the cyprus constitution are more commonly brought against public authorities, rights afforded under the cyprus constitution are also enforceable through civil actions against natural or legal persons which are not public authorities. ^[22] where a breach of article 7 and/or 15 is proved, general damages (ie non-pecuniary damages) may be awarded, regardless of whether a tort has been committed.^[23]

data protection in cyprus

the protection of data in cyprus is safeguarded at an eu level by the general data protection regulation^[24] (“gdpr”) which is directly applicable in cyprus. the gdpr regulates the processing of personal data by a controller or processor of personal data based in the eea as well as, in certain cases, by controllers and processors that are based outside of the eea.

the gdpr is supplemented by the protection of natural persons with regard to the processing of personal data and for the free movement of such data law^[25] (the “data protection law”).

the application of the gdpr in cyprus is supervised by the commissioner for the protection of personal data.

breaches of the gdpr and the data protection law may attract administrative fines as well as liability to compensate any affected data subjects for any material or non-material damage suffered. additionally, the data protection law provides for criminal liability in certain scenarios.

this article was originally published by carter-ruck.

^[1] fifth amendment to the constitution law, law 127(i)/2006

^[2] laws 87/1973, 54/178,156/1985,73(i)/1992. 101(i)/1992. 101(i)/1996, 49(i)/1997,29(i)/2000, 154(i)/2002, 129(i)/2006, 171(i)2006, 82(i)/2008 and 66(i)/2012

^[3] law 84(i)/2003 repealed sections 194 to 202 of the cyprus penal code, cap 154.

^[4] [1936] 2 all er 1237

^[5] michail michail v phileleftheros aa2357/2011

^[6] glafx v loizia (1984) 1 c.l.r. 729, arktinos ltd v zaharias papanikokolaou 2005 aad 683

^[7] tassos papadopoulos v kyrix publishing co ltd (1963) 3 aad 90

^[8] arktinos ltd v zaharias papanikolaou 2005 aad 683

^[9] alithia publishing ltd v leonida 1997 1 aad 550

^[10] rik v charalambos kapsos (2009) aad 1 (b) 1175 and michail michail v phileleftheros newspapers aa 2357/2011

^[11] michail michail v phileleftheros newspapers aa2357/2011

^[12] elias onoufriou et. al v kk sichrones kourses ltd (2006) 1 clr 742

^[13] eleutherios galiniotis v ekdoitkos oikos dias ltd et al (2011) 1 aad 474

^[14] synomospondia ergaton kyprou and others v cyprus asbestos mines ltd and another (1965) 1 clr 222; stephanou v hjiefthymiou and others (1976) 1 clr 255

^[15] the european court of human rights in alithia publishing v cyprus app 17550/03 ruled that this exception to fair comment was compatible with article 10 echr

^[16] section 4 defamation act 2013

^[17] michail michail v phileleptheros newspapers aa 2357/2011

^[18] reynolds v times newspapers ltd [2001] 2 ac 127

^[19] lordos v hadjinicolaou (1987) 1 jsc 924; erotocritou v theodorou (1998) 1 (c) clr 1800

^[20] see for example kemsley newspapers ltd of london v cyprus wines & spirits co ltd “keo” (v23) 1 clr 1; ilias onoufriou v sychrones kourses ltd (2006) 1 aad 742

^[21] ct tobacco ltd v arktinos publications ltd, et al (2003) 1 clr 853

^[22] takis yiallouros v evgeniou nicolaou (2001) 1 clr 558

^[23] ibid

^[24] regulation (eu) 2016/679

^[25] l. 125(i)/2018, as amended

in the cayman islands, as elsewhere in the common law world, there are transaction avoidance provisions enshrined in statute that are designed to preserve, so far as possible, an insolvent debtor’s available assets, in order that they may be distributed to creditors fairly on an equal footing.

those provisions are to be found in the cayman companies act. they concern voidable preferences (under section 145), dispositions at an undervalue (under section 146), and fraudulent trading (under section 147).

in volume 18 (2021) of this publication, the authors analysed the operation of section 145 and the consequences of its application: see transaction avoidance in the cayman islands insolvency context: voidable preferences under s145 of the companies act.

this article considers the avoidance of dispositions at an undervalue under section 146, with a particular focus on the origins of the provision and how the expression “intent to defraud” is likely to be construed.

origins of section 146 of the cayman islands companies act

section 146 was introduced in 2009 alongside a swathe of other changes intended to give effect to recommendations made by the law reform commission in its april 2006 review of cayman’s corporate insolvency law. that review had found that the law which existed at the time was unduly complex because it was derived from a combination of 19^th century legislation, inappropriate foreign rules and local case law.^[1]

in relation to dispositions at an undervalue specifically, the review also noted that whereas the fraudulent dispositions law^[2] provided a remedy for creditors of companies prejudiced by undervalue dispositions, the effectiveness of that remedy in the insolvency context was limited by the fact that a liquidator would not fall within that definition. that being the case, the intention behind the introduction of the section was therefore “to put the liquidator in the same position as the creditors.”^[3]

as a result, there is a great degree of overlap between, on the one hand, section 4 of the fraudulent dispositions act^[4], and on the other hand, section 146 of the companies act. the principal difference is that, under the former, a disposition is only set aside to the extent necessary to satisfy the obligations owed to the relevant creditor (plus costs), whereas there is no such limitation under section 146<ahref="#_ftn5">^[5].

section 146: an overview

section 146 provides that every disposition of property made at an undervalue by or on behalf of a company with intent to defraud its creditors shall be voidable at the instance of its official liquidator, whereby:

• a disposition is widely defined (by reference to the cayman islands trusts act^[6]) to mean every form of conveyance, transfer, assignment, lease, mortgage, pledge or other transaction by which any legal or equitable interest in property is created, transferred or extinguished;
• an undervalue is defined to mean, in relation to a disposition, either the provision of no consideration for the disposition or the provision of consideration for the disposition the value of which in money or money’s worth is “significantly less” than the value of the property subject to the disposition;
• an intent to defraud is defined to mean an intention to wilfully defeat an obligation (see the definition immediately below) owed to a creditor; and
• an obligation (which is referred to in the definition of intent to defraud) is defined to mean an obligation or liability (which includes a contingent liability) which existed on or prior to the date of the relevant disposition.

the applicable limitation period for actions brought under section 146 is six years from the date of the relevant disposition.

intention to defraud: a comparison with relevant provisions of the english insolvency act 1986

notably, section 146 imposes a burden on the liquidators to demonstrate an intention to defraud^[7].

practitioners in england and wales will immediately recognise that there is no requirement to demonstrate such an intention under section 238 of the insolvency act 1986 (being the english equivalent provision). there, the emphasis is different: office holders are entitled to seek an order from the court in respect of any transaction at an undervalue, but subject to a defence where the transaction is legitimate (i.e. where the company entered into the transaction in good faith and for the purposes of carrying on its business, and at a time when there were reasonable grounds for believing that the transaction would benefit the company).

there was, however, a requirement to show an intention to defraud in the predecessor to section 423 of the english insolvency act 1986^[8], which addresses transactions defrauding creditors (and which is very similar to section 4 of the cayman islands fraudulent dispositions act). what was meant by an intention to defraud was, however, uncertain^[9] and the requirement was criticised by the cork committee in its 1982 review of english insolvency law and practice^[10]. for example, in lloyds bank ltd v marcan^[11] the defendant, having become aware that the bank had applied for possession of his property, granted a 20-year lease to his wife in order to enable his family to remain in the home. the english court of appeal held that the defendant’s intention was to deprive the bank of the ability to obtain vacant possession and to diminish the bank’s position as creditor. to take such action was less than honest: it was sharp practice and it followed, therefore, that he had acted with an intent to defraud. russell lj stated that where a person disposes of an asset which would have been otherwise available to creditors, with the intention of prejudicing them, he will not be acting honestly and the intention can be inferred.^[12] cairns lj, however, held the section required something further, noting that fraud must be established before a transaction can be avoided.^[13]

there is no longer any reference to an intention to defraud in the operative wording of section 423^[14]: what is required is that the transaction must have been entered into for the purpose of putting assets beyond the reach of a creditor (or contingent creditor), or otherwise prejudicing that creditor’s interests in relation to the claim. however, although the "intention to defraud" language is now obsolete in england and wales, it endures in the cayman islands (and in some other parts of the caribbean^[15]), where the companies act provides helpful guidance, in the form of a definition, as to what is meant by the term. although that definition has not been addressed in the context of section 146 specifically, its meaning has been addressed recently in the context of section 4 of the fraudulent dispositions act, which shares the same definition. so:

• in johnson v cook-bodden,^[16] kellock ag. j considered a scenario in which a father, who owed debts to creditors and was otherwise in “desperate” financial straits, transferred property to his sons. it was held that the only conclusion possible on the evidence was that the transfer was made in an attempt to put the property beyond the reach of creditors, with the intent wilfully to defeat the debt owing to them.
• in raiffeisen international bank ag v scully & ors^[17] the grand court has recently held, following english authority^[18], that there is a requirement: “to show that it was a purpose of the transferor to defeat its creditors. it need not [be] show[n] that this was the dominant purpose or the sole it follows that the court may be presented with a number of purposes which motivated transfers and that this in itself would not preclude the conclusion that a transfer was made wilfully to achieve the purpose of defeating creditors. the court should look closely at each of the transfers to see if the test was satisfied in each case assuming there is evidence to show that the transfer would have been made in any event or was made for a different and legitimate purpose.<ahref="#_ftn19">^[19]”

treatment of good faith transferees

a transferee is defined to mean the person to whom a relevant disposition is made, including any successor in title (which would include subsequent transferees). in the event that any disposition is set aside under section 146 then, if the court is satisfied that the transferee has not acted in bad faith:

• the transferee shall have a first and paramount charge over the property, the subject of the disposition, of an amount equal to the entire costs properly incurred by the transferee in the defence of the action or proceedings; and
• the relevant disposition shall be set aside subject to the proper fees, costs, pre-existing rights, claims and interests of the transferee (and of any predecessor transferee who has not acted in bad faith).

in this respect, the cayman islands legislation offers a protection to transferees that is not present in section 238 of the english insolvency act 1986 (which provides a defence where the company has acted in good faith, but which is otherwise completely silent as to the issue of good faith on the part of transferees).

the disposition will be unwound, but the transferee will have the benefit of a form of indemnification in respect of its “properly incurred” costs. the question of what is meant by “properly incurred” costs has not been tested before the courts within the context of section 146. however, it is suggested that the statute envisages that the transferee’s costs may (to the extent they are not capable of agreement) be subject to a quasi-taxation exercise or alternatively, to the approval of the court.

the unwinding of the disposition shall also be subject to any other pre-existing rights and interests of the transferee which have accrued following the disposition itself.

concluding remarks

while the inclusion of a definition of intent to defraud in the legislation is helpful and makes clear that a defendant must wilfully intend to defeat a creditor, it is suggested that the precise meaning of that phrase may yet give rise to further judicial commentary in the cayman islands, as its equivalent provisions have done in england and wales. in particular, the cayman islands court may need to clarify whether dishonesty is a necessary ingredient for a claim under section 146 to succeed, as russell lj in lloyds bank v marcan seems to have implied and the cayman court in johnson appears to have followed.

there are strikingly few decisions regarding the operation of section 146, and little by way of academic, professional or extra-judicial commentary either. it remains to be seen whether section 146 (or indeed cayman’s fraudulent trading provision, section 147) will come out of the shadows over the next few years if, as is widely expected in certain circles, the global economic outlook continues to take a downward turn. a study of the relationship between economic decline and the unearthing of fraud is beyond the scope of this article. however, many commentators consider that they are directly correlative (see, for example, a recent press release from association of fraud examiners, which refers to “an explosion of fraud in the coming years”^[20]). if that is right, these sections may soon be moving into the spotlight.

this article first appeared in volume 19, issue 3 of international corporate rescue, and is reprinted with the permission of chase cambria publishing.

^[1] report of the law reform commission: review of the corporate insolvency law and recommendations for the amendment of part v of the companies law, 26 april 2006, at [2].

^[2] now entitled the fraudulent dispositions act. effective 3 december 2020, the cayman islands citation of acts of parliament law 2020 came into force, which provides that any enactment that has been a “law” or contains a reference to the title of a law, should be amended by omitting the word “law” and substituting it with the word “act”.

^[3] ibid at [11.1].

^[4] effective 3 december 2020 (see footnote 2 above).

^[5] as explained in transaction avoidance in insolvencies, third edition (parry, ayliffe qc, shivji) at [22.76].

^[6] there is reference in section 146 to “part vi of the trusts law”. this is likely to be an erroneous reference to part vii of the trusts act.

^[7] section 146(3) of the companies act.

^[8] section 172 of the law of property act 1925.

^[9] the law of insolvency (5th ed, 2017, fletcher q.c.), [8-119].

^[10] insolvency law and practice, report of the review committee, cmnd 8558, para 1212.

^[11] [1973] 1 wlr 1387.

^[12] lloyds bank ltd v marcan [1973] 1 wlr 1387 at 1390-1391 per russell lj.

^[13] lloyds bank ltd v marcan [1973] 1 wlr 1387 at 1392 per cairns lj.

^[14] although the section itself is entitled transactions defrauding creditors, there is no further reference to ‘fraud’ at all.

^[15] for example, the bahamas and anguilla.

^[16] [1999 cilr 399].

^[17] unreported, 7 july 2020 at [114].

^[18] jsc bta v ablyazov [2019] b.c.c. 96 and irc v hashmi [2002] b.c.c. 943.

^[19] emphasis in the original.

^[20] coronavirus pandemic is a perfect storm for fraud (31 march 2020). see also think pandemic-related fraud is going away? think again. acfe press releases (9 september 2021).

the bvi is a popular jurisdiction for companies providing services relating to cryptocurrencies and digital assets. it is home to various exchanges, token issuers, blockchain projects and crypto funds. inevitably, there are an increasing number of related disputes with a bvi nexus.

while the nature of these disputes can be wide-ranging, a common theme is beginning to emerge: smart contracts are being exploited by hackers and used to misappropriate tokens; stolen tokens are transferred through numerous wallets, in a series of transactions, to disguise their origin. the use of decentralised ‘mixer’ protocols often play an important role in this process.

the recent case of chainswap v persons unknown is a prime example of how blockchain analysis can be combined with well-established asset tracing and recovery tools and court remedies to meet the challenges thrown up in this relatively new arena. harneys and kalo acted for chainswap, the successful claimant.

an increasingly familiar tale

the facts in the chainswap case demonstrate how tokens can be stolen pursuant to the hacking or exploitation of smart contracts that are used to provide blockchain services.

in this case, a smart contract allowed chainswap’s users to transfer tokens across blockchains (known as a cross-chain bridge). the smart contract would receive the tokens to be ‘transferred’ and would send them to a ‘vault wallet’ where they would be locked away or ‘burned’, following which an equivalent token would be minted on the ‘receiving’ blockchain and deposited into the user’s designated wallet. as is typical for smart contracts, the code underpinning it was open-source and could be viewed publicly.

the smart contract was exploited on two separate occasions, roughly a week apart, in july 2021.

following the first hack, tokens received by the smart contract were sent to a wallet designated by the hacker(s) rather than the vault wallet. tokens were then drawn into the smart contract from user wallets that had been pre-authorised to interact with the bridge, without the users’ authorisation. the result was that the hacker(s) diverted tokens from user wallets into his/her own wallet.

as part of the second hack, the smart contract’s requirement for tokens received into the vault wallet to tally with those being minted was removed. this allowed the hacker(s) to mint substantial numbers of tokens and direct them into their own wallet (the initial transfers were sent to the same wallet that had been used as part of the first hack, but the majority were sent to a second wallet owned by the hacker(s)).

affected users and projects were compensated, leaving chainswap seeking to recover the loss from an unknown wrongdoer or wrongdoers.

the starting point

as is the case for the most widely used blockchains, the transactions pursuant to which tokens had been stolen by the hackers were recorded permanently and could be viewed publicly.

with the use of blockchain explorers, such as etherscan, it was possible to identify that the hacker(s)had exchanged many of the stolen tokens for stablecoins (a digital token designed to be pegged at a fixed rate to fiat currency), which had then been transferred to other wallets and exchanges.

this preliminary analysis informed what further steps could be taken to trace and recover the tokens or their equivalent value.

token functionality

one type of stablecoin that the hacker(s) acquired with the stolen tokens, and which therefore became the proceeds of the wrongdoing, could be ‘burned’ (i.e. permanently locked or disabled) by the token issuer, wherever held. this meant that the token issuer could reissue the same number of tokens to another wallet.

this function was used effectively in this case:chainswap satisfied the token issuer that the hacker(s) was not the rightful owner of the tokens in question (because they could be traced back to the hacks) and provided appropriate assurances to allow the token issuer to burn the tokens in the hands of the hacker(s) and re-issue tokens to chainswap. it provided an effective and efficient method of remedying (in part) the loss caused by the hacking.

tracing through a mixer

further blockchain analysis revealed that a significant portion of the remaining proceeds from the hacks had been routed through tornado cash, which provides a mixing service (also known simply as a ‘mixer’ or ‘tumbler’).

tornado cash describes itself as a fully decentralised protocol for private transactions. users transfer tokens to the tornado cash smart contract by sending them to a receiving wallet, which mixes the tokens with those belonging to other users. upon transferring tokens, users receive a code. when the user elects to withdraw the tokens they provide the code and nominate a different wallet into which a new token can be sent. the paying or outgoing tornado cash wallet will then pay out the tokens, less a small proportion of the tokens which are sent to different wallet as a ‘relay fee’. the intended effect is to break the link in transactions of tokens and obfuscate the origin of the tokens exiting tornado cash.

while not inherently improper, mixers provide hackers and fraudsters with a useful tool for laundering the proceeds of their wrongdoing. their decentralised nature (they run purely on algorithms) and the ease with which they can be accessed means that they are a common hurdle to overcome when tracing the proceeds of hacks.

one would be forgiven for losing hope of tracing and recovering digital assets that pass through mixers. the common perception is that they are impenetrable. however, the permanent ledger of all transactions in and out of tornado cash is an important counter-balance and one that can be used highly effectively with the right forensic tools.

chainswap’s legal advisors, harneys, teamed up with kalo, who boast a deep knowledge of digital assets and blockchain data analytics, with a view to proving that it was possible to trace assets through a mixer.

using bespoke software and forensic analysis, kalo identified transfers out of tornado cash that very closely matched the numerous transfers that the hacker(s) had made in (via numerous wallets).

kalo set out their findings in a comprehensive forensic investigative report detailing the web of transactions, transaction hashes and wallet addresses used. it concluded that, given the number and size of payments in and out of tornado cash and the time between them, it was more likely than not that the transfers out to a separate wallet were related to the payments in from the wallets that were known to be associated with the hacker(s).

identifying the gateway

the ability to identify the new wallet, which received the tokens from tornado cash, as likely belonging to the hacker(s) meant that subsequent transactions could be analysed. these included transactions with a centralised exchange based in croatia. whilst the exchange was unable to provide material information voluntarily, it was clear that it would be required to hold information that would reveal the identity of those using its services, as well as details of any bank accounts into which payments had been received from a sale of digital tokens..

it is unsurprising that the hacker(s) sought to use a centralised exchange at some point during the chain of transactions. exchanges continue to be the primary avenue for the exchange of fiat currency and digital assets – whether purchasing crypto (on-ramping) or selling crypto in exchange for fiat currency (off-ramping). they provide the necessary gateways for entering and exiting the self-contained blockchain universe.

these gateways, and the information they hold, will often provide the key to unlocking crypto recovery cases.

familiar tools in a brave new world

having identified that a wallet belonging to the hacker(s) had interacted with the croatian exchange, chainswap commenced legal proceedings against the unknown hacker(s)in the bvi seeking compensation for tortious wrongs and/or restitution of unlawful gains.

in addition to the main underlying claim, chainswap applied to freeze the assets of the unknown hacker(s), particularly anything held in the hacker’swallets.

chainswap also sought disclosure of information from the croatian exchange via a letter of request from the bvi court, which would reveal the identity of the hacker and any bank accounts used to receive fiat currency. whilst other courts have recently been willing to grant third party disclosure orders directly against entities out of the jurisdiction, there was doubt as to whether the exchange would comply with such an order in this instance.

chainswap also commenced other investigations and proceedings, including in other jurisdictions, to obtain further information and with a view to speeding up the recovery process.

pursuing “persons unknown”

legal proceedings can be commenced, and interim relief sought, against unknown persons. however, to do so a claimant must define the defendant(s) in a way that:

• makes it possible to determine those that fall within the class of persons and those that fall outside of it; and
• allows the defendant(s) to be served with the claim or application.

in this case the categories of persons being pursued were: (i) those responsible the initial hacking or exploits of the smart contract; (ii) those that had received the tokens diverted pursuant to the hacking; and (iii) those that had received, dissipated and attempted to launder the proceeds of the hacks. in reality, the same person or people were likely to make up all three categories.

chainswap had been able to obtain an email address that was believed to be associated with category (i). those in categories (ii) and (iii) could be identified by reference to digital wallet addresses and their interaction with the croatian exchange. accordingly, the defendants in this case were sufficiently identifiable.

interim relief

the bvi commercial court was persuaded that this was an appropriate case in which to grant a freezing order and to issue a letter of request to the croatian authorities seeking information from the croatian exchange. it granted the relief ex parte and on an urgent basis (within a day of the application having been filed).

importantly, the bvi court also permitted the claim and other documents to be served on the hacker(s) via: (i) the email address; and (ii) the croatian exchange, on the basis that the exchange was believed to hold contact information for the hacker(s).

despite the hacker(s) acknowledging that they had received the served documents, they did not appear at the return date for the continuation of the freezing order. the court’s judgment in respect of the return date hearing is available here.

the importance of identifying pseudonymous actors

through its various legal actions, chainswap was closing in on uncovering the identity of the hacker(s).

the pseudonymous nature of crypto ownership means that whilst bad actors can hide behind obscurity, if and when their real identity is revealed, all transactions associated with them will be laid bare. this should be of particular concern to those that have carried out numerous hacking attacks that appear to be unconnected: once exchange accounts and digital wallets are revealed to belong to a hacker, blockchain records can be analysed to determine where else tokens have come from. obscurity can be a hacker’s greatest asset; revealing their identity their greatest weakness. there is also a question as to who else might be exposed in what might be a wider network of wrongdoing.

it is unsurprising then that with the walls closing in the hacker(s) made contact and sought to settle the claim on condition of remaining anonymous, demonstrating the leverage to be gained by obtaining (or even just seeking) information.

conclusion

as the use of digital assets continue to increase worldwide, the bvi’s nexus to multiple exchanges, token issuers and projects suggests it will be a key jurisdiction for disputes in the sector.

the chainswap matter, which is a landmark case in the bvi, is a welcome decision which demonstrates that the bvi, including its courts, are on top of the issues posed by digital asset fraud and offers a variety of tools to overcome them.

there are of course key variables in any crypto recovery case and every case is likely to differ in terms of complexity of the tracing exercise and the practical and legal steps that should be taken to achieve recovery, the methods used by wrongdoers to obfuscate transfers of digital assets and obstruct tracing exercises are becoming far more sophisticated. legal advisors and forensic experts need to adapt their tracing and recovery tools and techniques to keep pace.

christopher pease of harneys, and james drury of kalo, have also recorded a short podcast series that takes a closer look at some of the key issues arising on crypto recovery cases. the first episode will launch w/c 23 may. watch this space!

in part two of this special edition episode, global head of our investment funds and regulatory group phil graham is joined again by adriana krawcewicz and maria popova to discuss the emerging world of nfts. adriana and maria discuss what attracted them to the world of digital assets, the uniqueness of the nft community, and their predictions for what is next to come in this space.

adriana is a freelance senior art director, fashion digital nft artist and consultant, based in london. maria is a producer, digital entrepreneur, and co-founder of shiny, a boutique nft ecosystem with a focus on empowering women in the digital space. you can learn more about adrianna's work at adrianaillustration.com and maria's at shiny nft.

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this article, originally published in bloomberg tax, discusses the changes to the advantageous tax regime previously available to spanish retail open-ended investment companies, considers the options available going forward, and explains the potential benefits of a relocation to luxembourg from a tax perspective.

the advantageous tax regime enjoyed by spanish retail open-ended investment companies with variable capital (sociedades de inversión de capital variable, sicavs) was amended on jan. 1, 2022, by the entry into force of the spanish law 11/2021 on measures to prevent and combat tax fraud (the new anti-fraud law), which transposes council directive (eu) 2016/1164 (atad) into spanish law.

previously, spanish sicavs meeting the minimum shareholder threshold (ie, 100 shareholders) benefited from a 1 per cent corporate income tax rate (cit) rather than the full rate of 25 per cent cit.

to continue benefiting from the reduced rate, the following additional requirements have been introduced alongside the existing 100-shareholder threshold:

• each shareholder is required to subscribe for shares with a net asset value equal to or greater than €2,500 (us$2,700) per share, or €12,500 per share in the case of compartment sicavs
• the shareholder number and subscription value must be met for at least three quarters of the tax period (usually one calendar year)

failure to comply with the above requirements will subject the affected sicav to a 25 per cent cit rate.

additionally, the spanish tax authorities (dirección general de los tributos, dgt) are given the power to verify compliance with the new rules under the new anti-fraud law; a power that until the date of entry into force of the law was held by the spanish supervisory authority (comisión nacional del mercado de valores, cnmv).

these new requirements only apply to sicavs regulated under law 35/2003 on collective investment schemes (iic law) and do not apply to hedge fund companies or exchange traded funds.

this article aims to provide an overview of the alternatives that sicavs may wish to explore in light of the entry into force of the new anti-fraud law, including highlighting the advantages of luxembourg’s straightforward approach to taxing investment funds, which is based on the net asset value of assets under management and is not linked to shareholder numbers or subscription amounts.

alternatives under the spanish new anti-fraud law

several options are available to affected sicavs, with the optimal solution often driven by the following factors:

• asset size of the sicav and number of investors
• restructure costs and additional administrative burden (new service providers, refreshing know-your-customer)
• ongoing additional tax burden versus long-term saving
• tax implications of the restructure for investors (possibility of tax neutrality for the investor arising on the restructure)
• jurisdictions where the promoter has other funds
• profile and risk appetite of the shareholders

bearing the above in mind, the first alternative would simply consist of winding up and liquidation of the sicav and taking advantage of the transitory regime. in summary, sicavs may continue to apply the reduced rate of 1% without complying with the new requirements until the date of the cancellation of the registration.

to clarify the applicable deadlines for the dissolution/liquidation benefiting from the transitory advantageous tax regime, the dgt has issued recent formal guidance that can be consulted here. in summary, the company must be liquidated before dec. 31, 2022 and all acts and legal transactions necessary to liquidate the company until its registry cancellation must be carried out before june 30, 2023.

when assessing this option, spanish shareholders should be mindful that proceeds of liquidation will be taxed in accordance with the applicable tax regime—personal income tax if the shareholder is a physical person or cit if the shareholder is a company—unless the funds or assets received in the subscription are reinvested in other spanish collective investment undertakings, ie financial investment funds or sicavs.

a second option to consider is complying with the additional obligations imposed by the new anti-fraud law. the prospectus would include a minimum subscription/redemption amount linked back to the new requirements. for large, widely held funds, compliance should not be an issue. for others, a remedial plan would be required to inject the additional capital.

a third option would lead to a consolidation of sicavs—domestic merger/absorption into other domestic sicavs. such alternative would facilitate applying the favorable tax regime contemplated in the new anti-fraud law. however, depending on the structure of the transaction, it might entail some transfer tax cost (transmisiones patrimoniales y actos jurídicos documentados) and additional registry, notary and legal counsel costs.

an interesting fourth option could be (i) consolidating the smaller fund into a third-party platform based in luxembourg—a cross-border merger/absorption into a foreign ucits (undertaking for collective investment in transferable securities), or (ii) migrating the sicav to luxembourg, where the tax regime applicable to ucits has remained largely unchanged and straightforward for years, and atad has been implemented.

in the following section, we will look at this last option from a tax perspective, offering an overview of the most relevant corporate and tax considerations for those sicavs aiming at integrating another sicav or migrating to luxembourg.

migrating to luxembourg

it should be noted that sicavs are regulated by the iic law, which transposes directive 2009/65/ec on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (ucits directive).

the ucits directive (chapter vi) expressly contemplates the possibility of performing mergers between ucits: in this regard, spanish sicavs could be merged with luxembourg ucits.

similarly, following the spirit of the ucits directive, sicavs could be redomiciled as luxembourg ucits.

luxembourg ucits tax regime

luxembourg ucits are exempt from direct taxes—cit, municipal business tax and unemployment fund contribution, and from net wealth tax.

the tax liability of ucits is limited to a subscription tax. the subscription tax is computed on the net asset of the ucits at a rate of 0.05% on the aggregate net assets of the ucits as valued on the last day of each quarter, and is payable on a quarterly basis.

certain assets can benefit from a reduced subscription tax rate (sustainable investments) or exemption (investments in other funds already subject to subscription tax).

further, certain double tax treaties also apply to ucits, allowing for reduction or exemption of withholding tax on income received from underlying investments. distributions paid by ucits to investors are not subject to withholding tax in luxembourg.

conclusion

the entry into force of the new anti-fraud law has proved to be challenging for smaller and less widely held sicavs. several options are available to sicavs and their promoters, from winding up to migrating to another jurisdiction.

ultimately, each sicav’s particular commercial circumstances will drive the restructuring decision, with consideration given to merging into a luxembourg ucits, or a possible continuation into luxembourg, as part of the options considered.

luxembourg is known for its longstanding traditions in the fund industry, its investment know-how and its reliable and flexible legal framework. the method of taxing luxembourg funds is a long-established practice, which provides certainty in challenging times. luxembourg therefore offers an opportunity to explore suitable opportunities outside the spanish legal framework.

the cryptocurrency sector tends to follow trends. once a high-profile project announces something or takes an approach, many others seek a similar model, including new entrants. some might see this as mania.

the current trend is corporate decentralised autonomous organisation (dao) structuring. if you’re reading this, you’re already familiar with the concept of a dao.

corporate dao structuring involves establishing corporate vehicles which can perform functions on behalf of or provide services to a dao. these can include engaging with third party service providers, being the legal entity by which the dao contracts with the world, disbursing dao treasury funds or acting as an enforcer vehicle. project requirements vary - some want to wrap the dao entirely in a corporate structure and operate through it, others want the corporate structure to be a vehicle entirely separate from the dao yet capable of acting on instruction from the dao an ad hoc basis.

few jurisdictions are equipped to facilitate efficient dao structuring and those that do offer various solutions. the cayman islands is particularly popular as it is one of the few jurisdictions which has the foundation company model, a corporate vehicle which is not required to have members and is therefore “ownerless”, can have non-charitable purposes such as supporting a protocol or dao, and its constitutional documents can be drafted so that it can take instructions from the dao through the relevant government mechanism. this makes the foundation company a popular vehicle for corporate dao structuring as this moves somewhat closer to the philosophical ideal of decentralisation.

this is a novel and fast-developing area in a sector that is currently the focus of heavy regulatory scrutiny amidst an evolving legal and regulatory landscape. there is currently no consensus (ironically given the nature of blockchain) on how to approach or optimise corporate dao structuring, and little legal, regulatory or judicial consideration or treatment in any jurisdiction. some of the risks, liabilities and exposure with any corporate dao structure are known, some are unknown. therefore there is no guarantee that any structure proposed will survive regulatory or judicial challenge and changes in law and regulation may adversely affect the viability of any structure.

a few important points to consider before engaging service providers to assist in dao structuring in any jurisdiction:

• why do you want a dao structure?: be very clear as a project as to why you want a dao structure. not all dao operations require a corporate structure, and as noted below a dao structure (corporate or otherwise) may not fully protect the project or certain stakeholders from liability or legal and regulatory obligations;
• plan and be realistic on sequencing and timelines: a dao corporate structure underpins the entire project. founders, teams and projects leaders have parallel workstreams and competing demands for their time, with understandable investor and market pressure to move quickly. however, we strongly suggest that corporate structuring is prioritised as one of the first elements of any project inception. service providers, particularly law firms, need to commit the time, thought and appropriately experienced lawyers to analysing and advising on a project’s dao structure, which is always bespoke. we and numerous other law firms are already at maximum capacity advising existing clients on dao structuring. engaging the right service providers early and being realistic on timing expectations ensures the project meets launch deliverables and timelines and helps manage investor relations;
• be very careful copying other projects: we always caution against assuming a consensus just because other participants in the market do or don’t follow a certain approach – their legal structure, advice, risk appetite and roadmap are not always clear. even if these are known, another project’s approach may not align with your objectives. a high-flying project’s structure may be seen as the example but may also be the subject of regulatory action in future, and if you’ve simply copied their approach without further thought or detailed legal advice and analysis, that potentially makes you a target too;
• defi projects need to be particularly cautious, especially around sanctions: defi protocols can (but don’t necessarily) include activities which would ordinarily be subject to registration or licensing under financial services regulation if they were run through a company in the relevant jurisdiction. subject to the intended structure and functions of corporate dao structuring, there is a risk that the corporate dao structure may be challenged as seeking to evade regulatory obligations or be deemed to be the entity subject to some form of registration or licensing even if the entity itself is not directly undertaking those activities.

further, defi projects are strongly recommended to screen wallets and users against sanctions, pep and other relevant databases. breaching sanctions laws can carry criminal and civil penalties, the latter on a “strict liability” basis in some jurisdictions (ie if it happens, a fine is levied and there is no defence). should this occur, we would not be surprised if authorities look straight to the identifiable humans behind all layers of a corporate dao structure (whether directors or trustees) for enforcement action. there will always be at least one identifiable human. there are free tools available for sanctions screening for defi projects and the arguments that “it’s non-custodial/decentralised” or “our competitors don’t do it” won’t absolve you. in practice, many defi protocols are permissioned in some way, such as through requiring kyc or ip blocking and the ability to manually block wallets/users – that’s just the reality of the world we’re in right now pure decentralised finance is technically possible but practically extremely high risk for certain stakeholders.

sanctions regimes don’t just apply to defi projects, they also apply to daos engaging or disbursing funds or grants to sanctioned individuals or entities. protections should be a key consideration for any dao project.

there’s no excuse not to screen other than philosophical reasons that won’t protect the structure or certain stakeholders if enforcement action occurs. competing projects which do not may expose themselves to risk that may be unacceptable for your project and unsustainable in the medium to long term. further, you may also find some service providers are unwilling to engage with or provide certain services to clients who refuse to undertake even basic sanctions checks on wallets and users for purely philosophical or commercial advantage reasons – the risk to their reputation and regulatory obligations may be too great;

• know your exposure: regardless of the jurisdiction and preferred structure, ensure you fully understand the liability exposure your team, dao participants and those appointed to roles within the structure may face. for example, the directors of a cayman islands foundation company are subject to the duties of directors under cayman islands law. further, the financial action task force states in paragraph 68 of its updated guidance on a risk-based approach to virtual assets and virtual asset service providers: “in cases where a person can purchase governance tokens of a vasp, the vasp should retain the responsibility for satisfying aml/cft obligations. an individual token holder in such a scenario does not have such responsibility if the holder does not exercise control or sufficient influence over the vasp activities undertaken as a business on behalf of others.” conversely, if an individual token holder does exercise control or sufficient influence over the activities of the dao, and that dao would be a virtual asset service provider if it a legal or natural person, that individual token holder may be deemed responsible by authorities for satisfying aml/cft obligations that would otherwise be placed on the dao. personal exposure is very good at concentrating minds and ensuring considered rather than rushed structuring. ensure that your legal counsel provide you with a detailed advice note on potential exposure of stakeholders in the corporate dao structure;
• take local advice: do take local advice on the tax implications of a corporate dao in particular. the most relevant jurisdictions will be those where any existing company that instructs service providers to form the structure is based and where the key principals are located. it’s also important that dao participants take tax advice on the implications of their participation in a dao;
• the dao structure may be subject to local regulation: if a cayman foundation company is undertaking activities which make it a “virtual asset service provider” under the virtual asset (service providers) act (as revised), it will need to register or be licensed as such with the cayman islands monetary authority before it can commence those activities and will be subject to obligations under that law. our note on this topic provides an overview of the virtual asset service provider regime. the same may apply in respect of other financial services regulations, and the position may apply for other structures in other jurisdictions, either now or in the future when virtual asset service provider and other relevant laws and regulations are introduced (and they will be in time);
• engage experienced and knowledgeable service providers: daos as a concept and their operations are complex enough, and optimal structuring requires careful consideration on a case-by-case basis. evaluate your proposed service providers to ascertain their depth of knowledge of the sector and experience. carefully review any proposal or engagement to ensure they understand what you need and are offering services that meet your requirements. ensure all fees are fully set out for both the initial engagement and on an ongoing basis so that you have a degree of cost certainty. also communicate realistic expectations around timing so that you and your service providers are aligned.

if you are looking to issue platform or dao tokens in the us or provide the platform’s services in the us, you absolutely must engage experienced us legal counsel to advise you on the treatment of the token and the obligations of the dao structure under us law. the sec is currently particularly active in monitoring and taking enforcement actions in this sector, and you may find some service providers unwilling to be engaged or act unless you have or will instruct us counsel if there is a us nexus to the project.

considered structuring is essential to the success and longevity of any project. the digital assets sector is very competitive and projects move quickly, but in our view it is important to take the time and allocate the resources to get the structuring right at the outset, as the time, cost and adverse effects on the in project trying to reverse engineer a structure after it is launched could well exceed any cost and time savings rushing this crucial element of the project.

on 7 february 2022, the tax court of first instance of pescara (italy), ruled that a sicav (investment company with variable capital) falling within the scope of luxembourg’s domestic ucits law (undertaking for collective investment in transferable securities) was entitled to a refund of the italian withholding tax paid on the dividends received from italian companies during the years 2014, 2015 and 2016.

the court of pescara confirmed that luxembourg sicav ucits, subject to the supervision of the cssf (the luxembourg regulator of the financial sector), are comparable to italian investment funds and, as such, should benefit from the same exemption regime.

according to the tax court, the italian legislation was discriminatory and restrictive on the free movement of capital. ucits set-up in italy were exempt from withholding on income (including dividends), subject to the condition that they were subject to regulatory supervision, whereas luxembourg sicav ucits, although subject to the supervision of the cssf, were subject to italian taxation in the form of withholding tax. as a result, the same investment funds were being subject to a different withholding tax treatment based only on their tax residence.

this decision follows the changes adopted by the italian legislator in 2020 in the annual budget law for 2021, further to the infringement procedure initiated by the european commission against italy. the italian legislator, in december 2020, extended the scope of withholding tax exemption for dividends from italian sources to foreign investment funds as of 1 january 2021. however, the court of pescara applied this tax exemption also on dividends paid to luxembourg sicav ucits from italian companies before 1 january 2021.

furthermore, this decision relies on previous decisions of the cjeu involving discriminatory treatment based on tax residence not compatible with the freedom of establishment and movement of capital (see, in particular, santander, c- 338/11).

finally, almost at the same time, the italian supreme court, with decisions n. 5145 and 5152 dated 16 february 2022 involving spanish investments funds, ruled that any non-italian entity that is liable to tax in an eu or eea state, irrespective of its legal form (regulated or not), and that receives italian-source income, is entitled to a 1.2 per cent reduced withholding tax.

the important takeaway from the recent decisions of the italian courts referred to above is that there are two different legal grounds for luxembourg entities to claim a refund of the italian withholding tax paid on dividends received from italian companies for past years not yet subject to the statute of limitations either by claiming the entitlement to the 1.2 per cent reduced withholding tax in line with the decisions of the italian supreme court or by claiming the full exemption based on the decision of the court of pescara.

in response to the recent events in russia and ukraine, the uk government is currently fast-tracking the economic crime (transparency and enforcement) bill (first introduced in 2018) (the bill) in order to introduce the register of overseas entities in short order (the register).

what is happening?

in response to the recent events in russia and ukraine, the uk government is currently fast-tracking the economic crime (transparency and enforcement) bill (first introduced in 2018) (the bill) in order to introduce the register of overseas entities in short order (the register).

according to the bill, the purpose of the register is to require overseas entities that hold land in the uk to identify their beneficial owner(s) and provide information about them and their managing officer(s) to companies house and to update/maintain that information on an annual basis.

the introduction of the register is part of the uk government’s stated strategy "to combat economic crime while ensuring legitimate businesses continue to see the uk as a great place to invest”.

who does it affect?

if you are a beneficial owner (an individual, legal entity, government or public authority who or which has significant influence or control over an entity) of an overseas entity (a company, partnership or other legal person governed by the law of a country or territory outside the uk) which (a) owns land; (b) is intending to purchase land; or has or proposes to take a lease over land for longer than seven years in the uk, you will now be required to provide identifying information to companies house in the uk and to review/update that information by submitting an annual return.

those who are involved in real estate transactions with overseas entities, such as lenders and those with the benefit of security granted over or in connection with land will also be affected. they will need to conduct an additional layer of due diligence into the property owner to ensure compliance with the register.

when disclosure of information to the register becomes law, it will have a retrospective effect and will apply to property bought in england since january 1999 and to property bought in scotland since december 2014.

each registered entity will be given an "overseas entity id" and the register will be made public.

what will it mean for dealings in uk property held by overseas entities?

the impact for overseas property owning entities will be considerable. there will be restrictions on the ability to register dealings in land held by an overseas entity where disclosure of beneficial ownership has not been made. there will also be potential criminal and financial sanctions for managing officers of entities who do not comply.

how we can help you

we are closely monitoring the progress of the bill. once the legislation is in place we will be able to help with the logistics of collating the data required to be submitted to companies house and the more practical implications of any restrictions registered at the land registry.

please do reach out to discuss your options with us. it may make sense to de-envelope your property, pass it to another generation in line with succession planning objectives or to transfer ownership to a uk company. we have a deep bench of knowledge and experience in these areas across our offices and we would be delighted to assist.

look out for our practically speaking podcast episode on this topic coming soon.

on 9 february 2022, the luxembourg parliament legislated to modernise the law of 2 march 2004 for securitisations in a move designed to boost the sector.

the modernised securitisation law enhances the legal certainty and flexibility of the luxembourg securitisation regime, while ensuring and increasing effective protection for investors.

additional funding sources

the modernised securitisation law broadens the means of funding to (i) any financial instrument and (ii) any form of loan. it thus increases the flexibility on the financing side of a luxembourg securitisation transaction.

previously, in order to finance itself, a securitisation entity needed to issue ‘securities’, the value or return of which depended on the securitised assets. since there was no definition of the term ‘security’ in the old law, it was not clear whether certain types of instruments, especially those governed by foreign laws, qualified as such.

the modernised securitisation law replaces the notion of ‘securities’ with the wider concept of ‘financial instruments’, as defined in the luxembourg collateral law of august 5, 2005, the value or return of which depend on the securitised assets. this modification enables securitisation vehicles to issue a broader category of instruments.

furthermore, under the old regime, the use of loan financings was allowed only for specific purposes and on an ancillary basis. the new law removes such limitations and extends the means of funding for a securitisation vehicle to any form of loan, either on a partial or exclusive basis, the value or return of which depend on the underlying assets.

the financing via loans is a new and highly attractive structuring option of a securitisation transaction in luxembourg. in the future, certain investors, whose investments are restricted for internal reasons to specific loan products, will be able to participate in luxembourg securitisation structures.

new corporate forms

the modernised securitisation law offers greater structuring flexibility by introducing the possibility for securitisation entities to be set up in tax-transparent corporate forms. these could be common limited partnership, special limited partnership, simplified limited company and unlimited company. a luxembourg partnership subject to the new law will need to prepare and publish annual accounts on the luxembourg trade and companies register.

issuance to the public

the modernised securitisation law provides enhanced legal certainty as regards securitisation vehicles subject to the authorisation and supervision of the luxembourg financial regulatory authority. a luxembourg securitisation entity needs to be authorised and supervised under two specific criteria: “offer to the public” and “on a continuous basis”.

under the new law, for an issuance to be considered public and on a continuous basis, it must occur more than three times per financial year. furthermore, it should not be addressed to professional investors, it should not be distributed by private placements, and it should have a denomination of less than €100,000 per unit.

more certainty

under the old regime, a securitisation vehicle was not explicitly authorised to actively manage the assets in its securitised portfolio. in the future, however, the active management of a debt portfolio made up of debt securities, claims or debt financial instruments will be possible unless the relevant securitisation is offered to the public.

this major innovation will enable luxembourg to attract collateralised loan obligations and collateralised debt obligations structures and to propose its jurisdiction as an efficient legal framework to the european market of collateralised loan obligations and collateralised debt obligations.

holding securitised assets

in addition to easing the limitations of active management, the modernised securitisation law specifically clarifies that a securitisation entity can assume the risks to securitise by acquiring the underlying assets. it can also choose to take on risks directly or indirectly and, in this latter case, either through a wholly- or partly-owned subsidiary or via the acquisition of an entity holding these assets or risks.

security interests

the modernised securitisation law widens the scope of collateral arrangements granted by a securitisation vehicle.

previously, security interests could be granted only for the benefit of direct investors or direct creditors of the securitisation vehicle. the new law allows securitisation entities to grant security interests to secure obligations relating to the security transaction they are involved in. these could be in favour of any party involved in the securitisation transaction.

better investor protection

from now on, the following accounting segregation will enhance protection of an equity-financed compartment’s investors from other compartments, if provided for in the constitutional documents:

• only the shareholders of a compartment shall approve the financial accounts relating to such compartment
• limitations to the distribution of profits and reserves may be determined on a compartment-by-compartment basis

ranking

the modernised securitisation law introduces ranking of various financial instruments issued by a securitisation vehicle. it sets out subordination rules that apply unless otherwise agreed. so any form of debt that ranks senior to shares, unit or beneficiary units and fixed-income debt ranks senior to profit-participating debt, unless otherwise agreed.

registration

the modernised securitisation law requires existing (with a grace period of six months) and future securitisation funds (and their liquidation) to enrol on the luxembourg trade and companies register.

this article was originally published by global risk regulator.

on 1 october 2021, the luxembourg business registers (lbr) released a public notice that replaced a previous notice published on 2 august 2021, informing the public about certain changes relating to formalities to be carried out at the luxembourg trade and companies register (rcs) commencing on 31 march 2022.

in anticipation of the imminent implementation of these changes, on 18 january 2022, the lbr published an explanatory note on the new formalities, particularly focusing on the registration of natural persons.

on 4 march 2022, the lbr notified the public that the implementation date of the new formalities had been postponed.

however, once a new date is set, the new formalities, as set out in the explanatory note of 18 january 2022, are expected to be implemented.

new formalities

all entities registered with the rcs will be subject to the below new formalities:

• the existing rcs requisition forms, in pdf format, will be replaced by forms to be completed directly online in html format
• all natural persons (no matter the capacity in which they act, eg manager, director, shareholder, auditor, etc) registered within the file of a registered entity with the rcs will have to communicate a luxembourg national identification number (lnin) to the rcs
• the lnin will not need to be communicated in the case of:
  • natural persons, who are judicial representatives, appointed in the context of a procedure registered in the rcs
  • natural persons who are agents of a company governed by foreign law, which has opened a branch in the grand duchy of luxembourg
• persons not having such a lnin will be given one when they register with the rcs
• luxembourg addresses communicated to the rcs will be checked against the information contained in the luxembourg national register of localities and streets (registre national des addresses - rna)

registration of the lnin for natural persons

where the natural person already has a lnin, (eg luxembourg residents) this number will be communicated in the field of the new html requisition form, to be specially provided for this purpose, in addition to the usual identification information (ie surname, first names, date and place of birth). no supporting document concerning the lnin will need to be attached.

if the natural person does not have a lnin, (eg the director or shareholder of a luxembourg company resident abroad) the creation of this number must be requested as part of the procedure to be carried out with the rcs.

in order to create the lnin, the following information must be entered in the requisition form:

• surname
• first names (as on supporting document)
• date, place and country of birth
• gender
• nationality
• private home address (number, street, postal code, locality, country)

the information relating to the gender, nationality and private address of the natural person is not registered in the rcs but in the national register of natural persons. the information is therefore communicated to the rcs only for the purposes of creating the lnin.

supporting documents must also be attached to the request as proof.

• to prove the identity of the person, for whom a lnin is to be created, one of the following valid documents must be transmitted for control purposes:
  • a national identity card
  • a passport
• to prove the private residential address (if this information does not appear on the identity document), one of the following documents will need to be sent for control purposes. the documents must not be older than six months:
  • a certificate of residence issued by the municipality (or an official document from the regional authority competent for confirming home addresses
  • a declaration of honour from the person concerned, stamped or countersigned by the regional authority responsible for confirming residential addresses, an embassy, a notary, a police statio
  • if none of these documents can be produced, a water, electricity, gas, telephone or internet access bill

in the context of the above, the following documents will not be accepted by the rcs: criminal record, application for registration on the electoral lists, lease contract, tax statement, bank statement, insurance contract, “amazon…” invoice, residence permit, etc.

for documents that are not drawn up in french, german, luxembourgish or english, a translation (simple, not sworn) will also need to be provided.

if a natural person already registered with the rcs before the implementation date (once communicated) does not have a lnin, an application for registration will have to be submitted to the rcs and the lbr will issue the lnin upon acceptance of the application.

the application for a lnin may be submitted either together with a filing request made with the rcs (new registration or filing to modify information relating to an existing person or entity), or, independently from a filing procedure, through a special service offered on the rcs portal which will become available.

this new service will be available free of charge during a certain transitional period (duration yet to be confirmed by lbr), in order to allow all persons and entities registered with the rcs to update their files.

it should be noted that the lnin registered with the rcs will not be communicated to any third parties, will not appear on documents issued by the rcs, will not appear on pre-filled requisition forms, and will not be publicly available.

once a lnin is created, only the natural person concerned will be notified by mail at the private residential address communicated when the relevant application was filed with the rcs; the applicant who acted on behalf of the natural person concerned may also receive the lnin, if the natural person concerned provides his express authorisation.

once the filing formalities become mandatory, if the lnin of a natural person registered in the file of an entity has not been communicated to the rcs, the entity wishing to make a filing with the rcs will have to obtain the missing lnin before being able to file.

control of luxembourg addresses

in addition to the above filing formalities, the rcs will start checking the luxembourg addresses communicated to it against the information contained in the rna.

all luxembourg addresses to be registered with the rcs will be affected by this control, ie the address of the registered office of a registered entity, as well as the address of the persons and entities registered in the rcs, residing in luxembourg.

therefore, when a filing request is created on the rcs portal, the luxembourg address/es indicated on the requisition form will automatically be checked for consistency with the information in the rna and must match such information.

once the applicant completes the postal code, the name of the street corresponding to that postcode registered with the rna will be automatically completed. if the street numbers are also listed there, the applicant will have to complete the relevant field.

in the event of inconsistency, an error message will be displayed on the form so that the applicant can check the information provided and correct it.

should the address to be registered not appear in the rna, the applicant will have to manually complete all the information relating to the address, and the rcs will check this information directly with the rna.

in view of the fact that the registration of the lnin for natural persons will eventually become mandatory and to avoid delays with rcs filings that may be time-sensitive, affected parties should consider collating the necessary information and supporting documents, so that they are in a position to obtain the lnin wherever necessary, once the relevant electronic tools and forms are made available by the lbr. harneys luxembourg would be happy to advise you on the process and to assist you in any of the steps involved.

in this special edition episode, global head of our investment funds and regulatory group phil graham is joined by adriana krawcewicz and maria popova to discuss the emerging world of nfts.

adriana is a freelance senior art director, fashion digital nft artist and consultant, based in london. maria is a producer, digital entrepreneur, and co-founder of shiny, a boutique nft ecosystem with a focus on empowering women in the digital space. tech and art industries have historically been dominated by men, and the nft space is following a similar trajectory - women still make up only about 15 per cent of crypto users, while female artists account for only 16 per cent of nft sales, according to maria's research.

in part one of this two-part series, phil, adriana, and maria define nfts, what this emerging technology means for artists, and the value of the #nftcommunity in supporting women in the digital asset space.

you can learn more about adrianna's work at adrianaillustration.com and maria's at shiny nft.

click here to subscribe to the funds download podcast. choose your preferred platform from the list presented and click subscribe or follow once logged in.

visit the funds download podcast page to catch up on all the funds download episodes.

in this video for hfm connect, partner philip graham offers some key insight into the increasingly relevant questions around launching a crypto fund and the most suitable domicile for this.

gain insight on the discussion points below:

• which fund managers are best placed to succeed in the crypto space?
• what kind of provisions do they need to have in place before launch? how expensive can this be?
• which jurisdictions are particularly attractive for crypto launches?
• what are the differences between british virgin islands and the cayman islands as domiciles?
• will the british virgin islands/cayman islands see competition emerging from european or asian domiciles?

on 15 february 2022, a bill of law n°7968 on the use of digital tools and processes in company law, transposing directive (eu) 2019/1151 of the european parliament and of the council of 20 june 2019 amending directive (eu) 2017/1132 (the bill), was deposited with the luxembourg parliament with the intention to facilitate notarial processes and tools in the national company law by allowing the use of digital tools to enact notarial deeds in electronic form.

the aim of the bill is to amend and modernise the civil code, the law of 9 december 1976 on the organisation of the profession of notary, the law of 19 december 2002 on the trade and companies register as well as accounting and annual accounts of companies and, consequently, the law of 10 august 1915 on commercial companies, as amended.

therefore, the bill will provide for the possibility:

• to incorporate luxembourg public limited liability companies (s.a.), private limited liability companies (s.à r.l.) and corporate partnerships limited by shares (s.c.a.) via authentic deeds signed in electronic form.
• that all authentic instruments can be drawn up in electronic format under certain conditions. these amendments concern notarial deeds, civil state deeds as well as bailiffs deeds.
• for the shareholder’s or their representatives to sign authentic instruments through electronic, signature(s) without being physically present, by the use of a qualified electronic signature.
• to create an electronic exchange platform where the authentic deeds can be downloaded.
• to pay the share capital at incorporation or capital increase in cash and online through accounts established in a proper credit institution within an eu member state, which means that the traditional blocking certificate issued by the company’s bank as evidence that the share capital has been paid will no longer be needed.

these new provisions will only concern the share capital that is paid in cash, whereas the notary will have the possibility to refuse to enact electronic deeds where the share capital is paid by contribution in kind.

furthermore, all foreign branches of luxembourg s.a., s.à r.l. and s.c.a. companies will have to be registered with the luxembourg trade and companies register according to the provisions of the bill.

the bill also aims at improving the exchange of information flow between the member states respective business registers. the idea behind this is to apply the once-only principle. for example, where a company is formed in one member state but has a branch in another member state, it should be possible for the company to submit certain changes only to the register where the mother-company is registered, without the need to submit the same information to the register where the branch is registered.

on 9 february 2022, the luxembourg legislature published the latest draft of a new bill of law on the creation of a procedure for administrative dissolution without liquidation.

the new bill of law no. 6539b (the bill of law), which establishes a new procedure for administrative dissolution without liquidation under certain circumstances (the administrative dissolution procedure), originates from the split of the original bill of law no. 6539 on the preservation of businesses and modernisation of bankruptcy law in luxembourg, currently under discussion at the chamber of deputies.

as pointed out by the council of state (conseil d’état) in its first opinion, dated 1 december 2015, on the original bill of law no. 6539, the administrative dissolution procedure is a blend of judicial and administrative proceedings, where both the public prosecutor and the luxembourg administration (ie, the luxembourg trade and companies register (the rcs)), play equally important roles, aimed at introducing an efficient procedure to strike off empty shell companies.

the administrative dissolution procedure will apply to any commercial company that falls in scope of the provisions of article 1200-1 (1) of the luxembourg law of 10 august 1915 on commercial companies, as amended (the company law). these provisions provide that the public prosecutor may request the district court to launch the dissolution and liquidation (the judicial liquidation procedure) of any luxembourg-law governed company, which: (i) either pursues activities that are contrary to the provisions of the criminal law, or (ii) has committed serious breaches of the provisions of the luxembourg commercial code or the legislation governing commercial companies, including legislation relating to business licences.

currently, if the district court decides that the conditions to open a judicial liquidation procedure are met, it will proceed to appoint a supervisory judge and one or more liquidators, and determine the method of liquidation. if the liquidators find that there are no, or insufficient, realisable assets and this is confirmed by the supervisory judge, the expenses and fees of the liquidators, as ordered by the court, are borne by luxembourg state and paid as legal expenses.

the purpose of the proposed administrative dissolution procedure is to address the issue of the considerable costs incurred, when dealing with dormant companies, with no assets, as well as the administrative burden on the district court during the judicial liquidation procedure and the draft introduces an alternative procedure, which will make it possible to dissolve inactive and empty companies in a quick and cost-efficient way.

apart from the exceptions set out in the bill of law, the administrative dissolution procedure can be used for almost all luxembourg companies. the exceptions include credit institutions and investment firms, certain financial institutions, insurance and re-insurance companies, collective investment vehicles, specialised investment funds, venture capital investment companies, certain securitisation vehicles, payment and electronic money institutions, as well as reserved alternative investment funds.

the procedure

the bill of law, in its current draft, sets out the following steps for the administrative dissolution procedure:

• the public prosecutor identifies which companies may be subject to the administrative dissolution procedure, based on information and documents collected from various sources (eg, the rcs, the luxembourg national institute of statistics, luxembourg public administration, such as the tax authorities).
• the public prosecutor requests the rcs to place the company/ies concerned into administrative dissolution without liquidation: the procedure must be opened within three days from the date of the request.
• the opening of the procedure is notified to the company/ies by registered mail with acknowledgement of receipt, and extracts of the relevant decision are published within three days in two newspapers, published in luxembourg and on the recueil électronique des sociétés et associations (resa).
• the company/ies concerned may launch an appeal against the decision within one month of the date of publication in the resa.
• once the procedure is opened, the rcs is required to verify that the company concerned has no assets and/or employees and, for these purposes, the rcs may request information from, among others sources, banks, non-life insurance businesses, mortgage and land registries, and the social security administration.
• once the rcs has collected all necessary information, it informs the public prosecutor of the results of its audit and, if the conditions for the administrative dissolution procedure are met, the public prosecutor requests the rcs to continue and conclude the dissolution without liquidation.
• the rcs finalises the procedure no later than six months after it was opened and publishes the relevant closing decision on the resa: the company is considered dissolved.

the current draft bill of law also contains proposed provisions dealing with the situation where assets are found after the closing of the administrative dissolution procedure. in such circumstances, following a request from the public prosecutor, the district court may order the liquidation of the company concerned and postpones the closing of the dissolution procedure, but only under the condition that the estimated value of available assets exceeds the estimated liquidation costs. the company is considered to exist only for the purpose of its liquidation.

luxembourg has embraced distributed ledger technology (dlt) and its associated benefits for some time, with several pilot projects initiated as far back as 2016 to facilitate transfer agency services through dlt. the first fund subscription using blockchain was carried out in 2017.