Using British Virgin Island Structures In Art-Secured Lending

Planning

Using British Virgin Island Structures In Art-Secured Lending

Did you know that you can you use your art collection to secure a loan from a financial firm? Here we discuss the advantages of doing this through a British Virgin Island structure.

Written by Harneys on 12 December 2017

Investing in art can be an interesting way for you to preserve or even grow your wealth. Apart from the usual buying and selling of art pieces – which is a common way to profit from it – art collectors can secure loans with their art pieces as collateral. In this way, lenders are able to place a lien on artwork while art collectors keep possession of the artwork for the duration of the loan.

According to recent estimates, the art-secured lending sector is doing in excess of US$15 billion of business per year. The sector is at its finest and most developed in the US – particularly New York, which is not surprising – given the city’s position as both an art and financial capital.

Framing It Up: Typical Art-Secured Lending Structures

British Virgin Islands, Art-Secured Lending, Harneys

The growth of the art-secured lending market has been accompanied by a parallel growth in the types of financial products and services specifically crafted for art collectors. While the US sphere is dominated by private banks, auction houses such as Christie’s and Sotheby’s have also established finance arms.

Loan facilities range in size and complexity – from thousands to millions of dollars and from acquisition, personal loan, working capital, bridging, trade finance facilities to factoring and minimum price guarantee arrangements – often secured solely against portfolios of art.

BVI: Painting A Pretty Picture

British Virgin Islands, Art-Secured Lending, Harneys

Companies incorporated in the BVI are – by most measures – the most popular offshore holding structures in the world and it is therefore not uncommon for art to be owned through BVI structures. For both borrowers and lenders there are many advantages in doing so, including:

  • Taxation – BVI has no income tax, corporation tax, capital gains tax, wealth tax or similar fiscal laws.
  • Speed – Subject to satisfying relevant KYC requirements, companies can usually be incorporated within 1-2 days.
  • Cost – BVI companies are still comparatively inexpensive compared to other popular offshore and mid-shore jurisdictions.
  • Confidentiality – While safeguards exist to prevent money-laundering and international crime, the general public is not privy to the register of directors or the share register of a BVI company – which provides privacy and confidentiality. It is, however, required to file the register of directors for all BVI companies, which is not public.
  • Corporate flexibility – BVI company law is designed to provide the maximum flexibility consistent with common law legal systems. Companies are permitted to undertake any lawful act or activity and there are no strictures relating to corporate benefit.
  • Debt financing – BVI has a quick and simple system relating to secured creditor registration, which facilitates leveraging assets where a BVI company needs to do so in order to raise capital. The BVI also has the most developed insolvency system offshore, which – while not usually a great consideration for entrepreneurs – is normally a key factor for the lenders who are being asked to fund them.
  • Innovative trust structures – Trust law has become sophisticated in the British Virgin Islands. New and innovative products – such as VISTA trusts and private trust companies – have driven the popularity of trusts, combined with rules refining restrictions to applicable non-charitable purpose trusts and rules against remoteness of vesting.

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