Cross-border financing involving Barbados

15 September 2016

INTRODUCTION

The purpose of this article is to identify and briefly outline some of the considerations to be taken into account where a bank outside of Barbados is granting a secured loan to a Barbados company. In any cross-border transaction, it is important to be aware of such points.

TAKING SECURITY IN BARBADOS

Particularly in Barbados, land is a common form of security that banks look to take to secure their loans to companies, as it if often a company’s most valuable asset.

The Companies Act of the laws of Barbados states an external company shall not carry on an undertaking in Barbados until it is registered under the Companies Act. An external company is a company incorporated outside of Barbados, and “undertaking” includes holding title to land or having any interest of land in Barbados.

What does this mean for banks that are incorporated outside of Barbados? As a result of the increased amount of cross-border business, some banks have registered external companies in Barbados and can take land as security without doing anything further. Other banks have not registered external companies, but have subsidiaries in Barbados. In such a case, the parent and the subsidiary company can enter into an internal arrangement whereby the subsidiary holds the land as security trustee or collateral agent for the parent which is making the loan. The parent and the subsidiary would need to decide the extent of the power that the subsidiary would have and, because they are two separate legal entities, should enter into an agreement outlining the same. Entering into a Security Trustee or Collateral Agency Agreement is generally not difficult. It would not necessarily involve the borrower and tends not to hold up the closing of a transaction.

EXCHANGE CONTROL

Barbados is subject to an exchange control regime, which is dealt with by the Exchange Control Authority of the Central Bank of Barbados (“CBB”). This article briefly identifies some circumstances in which CBB permission would be required.

They include transactions in which a non-resident is involved and/or foreign currency is involved. For example, approval is needed: -

  • if a local company is taking a loan from a bank that is not incorporated or registered in Barbados;
  • if a loan is made to a local company that is owned and / or controlled by non-residents of Barbados;
  • if a local company is providing a guarantee to a bank that is not incorporated or registered in Barbados;
  • where a local company is borrowing in foreign currency from a local bank or from a bank that is not incorporated or registered in Barbados;
  • where a local company is providing land as security for facilities being granted to it by a company that is not incorporated or registered in Barbados.

When an application is being made to the Central Bank for facilities to be granted to a local company, the security being taken should be identified and permission sought for the security to be taken.

The exchange control regime can be involved, and it would depend on the particular circumstance when CBB approval is required for the transaction.

CBB’s authority is discretionary. Some of the considerations that it will take into account include whether the loan proceeds will be brought into Barbados, and from where the funds to repay the loan will come.

STAMP DUTY

Stamp Duty is payable on any security created by a company incorporated in Barbados or by an external company registered in Barbados. In addition, a company that is not incorporated or registered in Barbados but is charging assets in Barbados must pay Stamp Duty on the security document being used to create the security. For example, if a company incorporated is in Trinidad and has a subsidiary company in Barbados, the shares of which it is charging to a bank as security, the Share Charge will attract Stamp Duty.

Security documents, like a Mortgage, a Debenture, a Mortgage Debenture, Share Charge or Assignment of revenue, rental income or receivables, attract Stamp Duty at the rate of $6.00 for every $1,000.00 for which they are stamped to secure. If more than one set of security is being taken, it may be possible to stamp the main security document as principal security at the rate of $6.00 for every $1,000.00, and the rest as collateral security at the rate of $2.00 for every $1,000.00.

Stamp Duty is also payable on guarantees. Guarantees that are unlimited attract Stamp Duty at the rate of BDS$50.00; guarantees that are limited attract Stamp Duty at $2.00 for every $1,000.00 being guaranteed.

TIMING

Under Barbados law, a security document together with a corresponding Statement of Charge, must be filed within twenty-eight days of its creation, which is usually the date stated on the security document. If land is being charged, the security document must also be lodged at the Land Registry within the same twenty-eight day period. In order to be accepted for filing, Stamp Duty must have been paid on the security instrument.

If the security document is not filed on time, it is void insofar as any security interest it purports to create. It is interesting to note that, unlike in other jurisdictions, the security interest is void against everyone and not against just other creditors, for example. However, the borrower’s obligation to repay the bank does not become void because of the security document not being filed on time.

The stamping and filing process tends to be quick and straightforward.

INTERNATIONAL BUSINESS COMPANIES

International Business Companies (“IBC’s”) are companies that are incorporated in Barbados and hold an IBC license. They do not do domestic business in Barbados.

IBC’s are not subject to ad valorem Stamp Duty. They pay Stamp Duty at a fixed rate of BDS$10.00 per document. IBC’s are generally not subject to the exchange control regime. It is usual, however, for an application to be made to the Central Bank where the shares of the IBC are being pledged or transferred.

IBC’s are not permitted to own land in Barbados. They would be able to provide security over their other assets.

CONCLUSION

Within the region, Barbados is a sophisticated jurisdiction that sees many cross-border transactions. The purpose of this article was to provide an introduction to some of the laws and procedures relevant to financing transactions involving Barbados.

In doing any cross-border transaction, it is important for a bank to Cross its T’s, that is, to take into account the laws of all of the relevant jurisdictions, in order to ensure that its interests are properly protected and that the business considerations have been taken into account.