The British Virgin Islands (BVI), in the Caribbean east of Puerto Rico, are known mostly for being a tourist destination and offshore tax haven. Fun fact about BVI – despite being a British Overseas Territory (and its citizens having full British citizenship) the official currency is the U.S. Dollar. Since the Construction Payment Blog never takes a vacation, when we think of beautiful and exotic locations we can’t help but wonder if they have something similar to a mechanics lien to provide security on construction projects. Recently, we wrote about pledges in Saudi Arabia, and how those pledges (or contracts of ar-rahn) compare to liens and other security interests. This post will discuss whether any equivalent protection to that provided by a mechanics lien or other security interest exists in the British Virgin Islands.
Mortgages, Charges, & Other Encumbrances
Under the BVI Business Companies Act of 2004 (as amended), allows a BVI company to encumber its assets by mortgage, charge, or other encumbrance, provided that certain requirements are met. The security granted in the company’s assets can be under the law of any jurisdiction of the company’s choosing, can extend to assets of the company located in any part of the world, and is binding in accordance with and to the extent allowed by the chosen law. Presumably, an individual may also encumber his own property, be it real or personal, by following the same or similar requirements.
Any security granted by a BVI company pursuant to the Act must be filed privately at the company headquarters, and contain the following information:
- The date the charge was created (or if existing on property acquired by the company the date on which the property was acquired)
- A description of the liability created by the charge
- A description of the charged property
- The name and address of either the security trustee or chargee
- The name and address of the holder of the charge (unless the security is to a bearer)
- Any applicable prohibitions or restrictions on the company from creating future charges that take priority over or are equal with the charge in question
While, as noted above, any encumbrance must be recorded in the company’s register of charges – it is not mandatory that the encumbrance be registered publicly. It is worth noting, however, that these registration requirements do not apply to security taken in real property (real estate) located in the BVI. Different requirements apply to a charge over real property situated in the BVI. A security interest in real property in the BVI requires a legal charge of statutory form, executed and attested as required by the Registered Land Ordinance, and must be registered in the Land Registry.
These encumbrances, similar to the Saudi Arabian pledge, work in a similar manner to a UCC security interest (regarding movable property). An encumbrance of real property is generally a mortgage, and works in that manner. As we saw with the contract of ar-rahn, the security interests granted in BVI law do not arise automatically by virtue of statute – they must be expressly agreed to by the debtor.
One other important point to consider is that no interest in land in the BVI, including a charge, may be acquired by any party who does not belong to the BVI unless that party holds a Non-Belonger Land Holding License pursuant to the Non-Belonger Land Holding Regulation Act.
How Is A Charge Enforced in the Event of Default?
If a debtor defaults, the remedies available to the creditor depend on a many of factors, some of the most important being the chosen law, and the property charged. For the purposes of this post, we will only briefly look at the options for enforcement of a charge on real property in the BVI.
When the charge is over real property, a variety of remedies are available. When the charge is over real property, a variety of remedies are available. Options include:
- Sale of the property
- Judicial foreclosure of the property
- Taking possession of the property (including requiring a tenant to pay rents to the creditor)
The options for enforcement are varied, and powerful, but since charges over real estate in the BVI are limited to parties belonging the BVI (or licensed non-belongers) and are almost exclusively mortgages, there is very little in common with the rights of a mechanics lien holder.
Are Charges Anything Like Liens?
Short Answer: Not like mechanics liens.
Longer Answer: While the charges are not like mechanics liens, in that they must be explicitly agreed to by the debtor, they are similar to liens under the UCC as a security interest.