Companies Act, 1884 Reprieved
At the 11th hour, the British Virgin Islands Financial Services Commission announced that the Companies Act, 1884 would not be repealed on 31 December 2007 as previously indicated. Since 2004 the proposal had been to repeal that Act and re-register all the existing companies regulated by it under the BVI Business Companies Act, 2004.
However, the FSC took the view that the transitional provisions were not sufficiently robust, and deferred the exercise for a further year (the repeal had been deferred once already, from 31 December 2006). Almost all companies formed under the 1884 Act are local trading companies, which makes the transitional issues a matter of local sensitivity, particularly where the higher cost of compliance is involved. The relatively few remaining companies under the 1884 Act that are used in offshore structures have for the most part already voluntarily re-registered under the 2004 Act to take advantage of its greater flexibility.
Insurance Act, 2008 Enacted
In January 2008 the new Insurance Act was passed into law in the British Virgin Islands. Once brought into force, the new legislation will adopt a more careful definition of "insurance business". The previous legislation talked about indemnifying 'against loss or liability' which had caused some concern about whether British Virgin Islands companies entering into derivatives contracts (particularly credit derivatives) might technically require an insurance license.
The new definition focuses on undertaking liability under "a contract of insurance", which hopefully puts those concerns to rest. In practice the regulatory authority has never expressed any interest in or inclination towards requiring companies entering into CDOs and credit default swaps to obtain licenses, but the change in the law will enable more robust opinions to be issued in support of such transactions.
Receiverships
In Cheyne Finance plc [2007] EWHC 2402(CH) Mr. Justice Briggs decided that what he called the "commercial insolvency" test in Section 123(1)(e) of the English Insolvency Act 1986 (the "English Act") included "an element of futurity" despite the existence of a balance sheet test in Section 123(2). Section 8 of the BVI insolvency Act 2003 (the "BVI Act") borrows both limbs of the definition of insolvency from the English Act. The "cash flow" or "commercial" insolvency test being contained in Section 8(1)(c) (ii) and the "balance sheet" insolvency test in 8(1)(c) (i). The natural assumption would therefore be that a BVI court would decide the issue in the same way.
However, while Cheyne was essentially a decision on contractual interpretation (a definition of "Insolvency Event" in a trust deed which cross referred to section 123(1) of the English Act but not to Section 123(2)) in the BVI Act the different limbs of the definition of insolvency are used for different purposes in the legislation itself; not a feature of the English Act.
In the BVI Act there are two places where insolvency is defined by reference to Section 8(1)(c)ii and the limb of the definition from section 8(1)(c)(i) is explicitly excluded i.e. where it is defined on a cash flow only basis. The first relates to voidable transactions and the second to set-off. Each of these is significant and the legislative intent to distinguish between two manifestations of insolvency is clearly discernable. Moreover that intent is to attribute a potentially narrower and, critically, more readily ascertainable meaning to cash flow or commercial insolvency.
The BVI Act has protection of secured creditors and preservation of rights of set-off as an underlying theme and there is no doubt that the intention behind the uses of the definitions of insolvency given above was part of that approach; the thinking being that cash flow insolvency was a state evident to third parties in a way balance sheet insolvency was not and that therefore in circumstances where protections to third parties dealing with the insolvent company were being eroded the cash flow test was a more appropriate one.
Despite this the decision in Cheyne has to be seen as making less certain the view that a cash flow test as utilised under Sections 150 and 244 of the Insolvency Act does not require an analysis of future debts. Good reasons for expecting a BVI court to reject the Cheyne approach exist but until the matter comes before such a court more circumspection is required from both practitioners and creditors.
Proceeds Of Criminal Conduct (Amendment) Act, 2007 Enacted
A series of amendments to the Proceeds of Criminal Conduct Act, 1997 were brought into affect by amending legislation. Amongst the changes were (i) extending confiscation orders to drugs offences, (ii) refining procedures in relation to confiscation orders, (iii) including collateral changes arising from the introduction of the Financial Investigation Agency Act, 2003 ("FIA"), (iv) updating the disclosure requirements to reflect the new reporting authorities constituted under FIA (as opposed to the general police force, as was previously the case), (v) confirming the power of the FIA authorities to share information relating to indictable offences with foreign authorities, (vi) creating a joint anti-money laundering and terrorist financing steering committee, (vii) giving power to issues codes of practice to the committee (which had been done previously, but will now have statutory backing), (viii) widening further the definition of money laundering offences, and (ix) widening further the definition of offences relating to failure to report suspicious activity.
The amendments came as part of a continual review of the Territory's anti-money laundering legislation and followed on from recent budget increases in relation to this area of law enforcement within the British Virgin Islands.
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