Locality Of A Debt

• Published date: 20 September 2023
• Subject Matter: Finance and Banking, Corporate/Commercial Law, Debt Capital Markets, Financial Services, Corporate and Company Law
• Law Firm: Conyers
• Author: Mr Robert Lindley, Anna Lin and Ernest Bickley

Introduction

For businesses that are family-owned and run in jurisdictions such as Hong Kong, Mainland China and Taiwan, it is common for beneficial ownership and control of the business enterprise to be vested in the shareholders of a company incorporated in the British Virgin Islands ("the BVI"). Due to the benefits associated with the BVI's corporate privacy laws and their particular attractiveness for high-net worth individuals and families, the beneficial ownership of the entire business may even be denominated in the shares issued by the BVI company at the top of the international business structure ("the BVI Holding Company").

From an estate-planning perspective, to ensure the business remains within the control of a family or high-net worth individual, financing for the business is often injected by way of loans made by the shareholders or several key shareholders into the business. Where a business is financed by lending to the BVI Holding Company over the course of many years, the sum of debts owed by the BVI Company are potentially of very significant value. In the event the loans are registered as being owed to an individual that has passed away, a number of questions are raised over the recoverability of debts owed to a deceased by a BVI company and the correct forum for an application for their recovery.

This article clarifies some of those questions and shares some of Conyers' guidance on the recovery of debts by a deceased's personal representatives in the BVI.

Are Debts Considered Property in the BVI?

As in other common law jurisdictions, items of property that are "in action" include debts in the BVI. The definition of "property" in the BVI Conveyancing and Law of Property Act 1961 includes "anything in action, and any interest in real or personal property".¹

Are Debts Transmissible to a Deceased's Estate in the BVI?

A separate question arises as to the effect of a creditor's death on the underlying debt that is owed to the deceased. In the BVI, Section 2 of the Wills Act defines "personal estate" to include choses in action. In addition, Section 2 of the Intestates Act defines a residuary estate as every beneficial interest in real and personal estate a testator could, if of full age and capacity, have disposed of by will. Thus, choses in action form part of a deceased's personal estate under BVI law. A debt that is owed to a deceased individual will vest by operation of law to his personal estate and is recoverable by the personal...