British Virgin Islands

We are so excited to share that @LoebSmith has been shortlisted in three categories at the ALB Hong Kong Law Awards 2025, namely:

Fintech Law Firm of the Year
Investment Funds Law Firm of the Year
Offshore Law Firm of the Year

The winners will be announced at the ceremony on 12 September 2025 in #HongKong.

Thank you all who contributed to this achievement!

Introduction

The rapid development of the digital assets space and Web 3.0 ecosystem over the last 10 years has meant that courts around the world have been faced with an ever-increasing number of disputes in this space. This includes the courts in the British Virgin Islands (“BVI”). The cases before the BVI courts have varied in terms of the parties and stakeholders involved and the nature of the dispute (such as breach of fiduciary duties or fraud), as well as the remedy sought. This Legal Insight provides an overview of the legal status of crypto assets and some of the remedies which are available in BVI disputes concerning them.

Definition of crypto assets as property

Historically, the BVI courts (adopting well-established English common law principles) recognised two classes of property:

1. A chose in possession (i.e. something tangible which can be physically possessed by the owner, such as a valuable painting); and
2. A chose in action (i.e. an intangible right or claim which is legally enforceable, such as a right to enforce and receive payment for a debt owed).

All digital assets are neither tangible property (which can be possessed) nor are they an asset that can give rise to a right that is enforceable. Notwithstanding this, the English High Court in AA v Persons Unknown and Others^[1] (“AA Case”) provided much needed clarity on the legal status of Bitcoin (and indeed other cryptocurrencies). In the AA Case, there had been a hack where the hacker (first defendant) demanded a ransom (in the form of Bitcoins) in exchange for decrypting software needed to re-access the hacked data and systems. US$950,000 in Bitcoins was paid to the hacker. A tracing investigation was undertaken which revealed that a substantial proportion of the Bitcoins had been transferred to a specific wallet or address linked to an exchange known as Bitfinex (operated by the third and fourth defendants). The claimant sought a proprietary injunction. The dilemma before the court was that the claimant would only be entitled to a proprietary injunction if Bitcoin was in fact a property. Justice Bryan held (at paragraph 61): “I am satisfied for the purpose of granting an interim injunction in the form of an interim proprietary injunction that crypto currencies are a form of property capable of being the subject of a proprietary injunction.” This finding is significant because it includes cryptocurrencies as a whole (and not just Bitcoin). The judgment also endorsed the view of the UK Jurisdictional Taskforce’s Statement which stated that crypto assets are to be treated, in principle, as property under English law.

English law is highly persuasive authority in the BVI. The AA Case was cited in the BVI case of Philip Smith and Jason Kardachi in their capacity as joint liquidators of Torque Group Holdings Limited (in liquidation) v Torque Group Holdings Limited (in liquidation)^[2] (“Torque Case”). Wallbank J. in the Torque Case stated (at paragraph 25) that “…it is a reasonable conclusion that crypto assets are to be considered as assets for the purposes of liquidation.”

Remedies

In light of the above, the AA Case and Torque Case demonstrate that both the English courts and the BVI courts are flexible and have taken a more liberal view when defining crypto assets as property. Defining crypto assets is not simply a matter of academic discussion. It is of practical importance for at least two reasons:

1. Traditional asset tracing tools which are applied in accordance with established legal principles will, in principle, be available to the victims of any crypto wrongdoing or misappropriation (similar to wrongdoing concerning traditional asset classes); and
2. If crypto assets are seen as property in the eyes of the court (which they are), then the remedies which are available to claimants will be based on established proprietary rights.

Worldwide freezing order

Justice Jack in the BVI case of ChainSwap Limited v Persons Unknown^[3] (“ChainSwap”) re-affirmed that cryptocurrencies are a form of property. In ChainSwap, the claimant was a BVI company which provided a service that allowed cryptocurrency tokens to be transferred between different blockchains (known as a cross-chain bridge). Vulnerabilities in the claimant’s computer programmes were exploited by unknown hackers on two occasions (approximately a week apart). As a result of the two hacks against the claimant’s cross-chain bridge, the hackers were able to misappropriate assets from:

1. private users that had authorised their wallets to interact with the bridge; and
2. projects issuing digital tokens that had used the bridge to offer cross-chain operability on their tokens.

Some of the misappropriated assets were exchanged for stablecoins. The hackers had sought to obfuscate the origin of the stolen tokens by using Tornado Cash, a decentralised cryptocurrency tumbler. The tokens that were misappropriated following the hacking incidents were not owned by the claimant. The claimant did not seek a proprietary injunction in this matter since it was not asserting any proprietary right in the digital assets. The claimant sought, among other things, a worldwide freezing order against persons unknown (being those allegedly responsible for cybercrime consisting of the theft of the digital assets). Justice Jack (at paragraph 16) had no difficulty in granting a freezing order as there was “an obvious risk of dissipation if no freezing order is granted.”

Proprietary injunction

The English case of Fetch.AI v Persons Unknown^[4]saw the court order, among other things, a proprietary injunction and a worldwide freezing order. Hackers had obtained access to accounts which were maintained by the first claimant (first applicant) with Binance, within which were held various cryptocurrencies (including Tether and Bitcoin). The assets were then fraudulently transferred into third-party accounts at a massive undervalue, which had incurred losses of over US$2.6 million. Judge Pelling QC (at paragraph 9), in granting the orders sought, stated that “I am satisfied that the assets credited to the first applicant’s accounts on the Binance Exchange are to be regarded as property…They are…a chose in action, and a chose in action, as a matter of English law, is generally regarded as property.” This demonstrates that crypto assets are a chose in action and that the English courts will grant proprietary remedies to victims of crypto asset fraud.

Norwich Pharmacal order

In recent cases which have involved cryptocurrency fraud, the courts have been willing to grant the claimant’s application for disclosure orders, including Norwich Pharmacal orders (“NPO”) and Bankers Trust orders.

An NPO is a court order which seeks disclosure of documents or information against a third party which has been innocently mixed up in wrongdoing in order to assist in bringing legal proceedings against the wrongdoers or seek redress for the wrong. The BVI court’s jurisdiction to grant a NPO is well-established – they “are an every-day feature of the legal and corporate service landscape in the BVI.”^[5] The requirements for granting an NPO are:

1. a wrong must have been carried out (or arguably carried out) by an ultimate wrongdoer;
2. there must be the need for an order to enable action / legitimate redress to be brought against the ultimate wrongdoer; and
3. the person against whom the order is sought must:
  1. 1. be mixed up in so as to have enabled the wrongdoing; and
    2. be able (or likely to be able) to provide the information necessary to enable the ultimate wrongdoer to be sued.

Bankers Trust order

A Bankers Trust order is a court order against a bank (or another financial institution) which holds misappropriated funds (or through which such funds have been passed through). They compel the entity subject to the order to disclose information which concerns third party bank accounts and are therefore a useful tool to assist the claimant to trace misappropriated assets and protect them from dissipation. This is notwithstanding the fact that the order may be contrary to what would otherwise be confidential customer information.

Certain requirements need to be satisfied in order for a Bankers Trust order to be granted. This includes there being a real prospect that the information which is sought will lead to the location or preservation of the assets as well as the applicant’s interests in obtaining the order being balanced against the possible detriment to the respondent in complying with the order.

It should be noted that there is some overlap between an NPO and a Bankers Trust order (although the two remain distinct from each other). The former assists in identifying wrongdoers (or evidence of the wrongdoing) whilst the latter is used to protect the claimant’s proprietary interest. Many recent cases which involve digital assets have seen both NPOs and Bankers Trust orders being sought. The court has been ready to find that the respondent crypto exchange is required to give disclosure to the claimant. For example, in the English case of Mr Dollar Bill Ltd v Persons Unknown And Others^[6], the claimant had been the victim of an alleged cryptocurrency fraud. To assist in tracing the missing Bitcoins, an NPO and a Bankers Trust order against two cryptocurrency exchanges were granted. The claimant was also granted a proprietary injunction to prevent further dissipation of the Bitcoins.

Third party debt order

A third-party debt order (“TPDO”) is a method of enforcement which enables a judgment creditor to recover sums a party owes them directly from third parties who hold monies on the party’s behalf, including, for example, a bank.

The English High Court in the case of Ion Science Ltd v Persons Unknown^[7] (“Ion Science”) granted what is thought to be the first TPDO in proceedings arising from cryptocurrency fraud relating to a cryptocurrency initial coin offering. The claimants claimed that they had been induced by unknown persons to invest significant sums in what they understood to be real cryptocurrency products. The claimants sought to recover the misappropriated sums, which had been transferred to certain accounts held by the two cryptocurrency exchanges, Binance and Kraken (“Crypto Exchanges”). The claimants successfully applied for, among other things:

1. a worldwide freezing order against the persons unknown who had committed the fraud; and
2. disclosure orders pursuant to the Bankers Trust jurisdiction and/or English Civil Procedure Rules r 25.1(g)^[8] against the Crypto Exchanges (the “Disclosure Orders”).

Following a tracing investigation which used the information which arose from the Disclosure Orders, it emerged that an entity named Mirriam Corp LP (“Mirriam Corp”) was the owner of the now-frozen account which had been used to execute the fraud. Information which was obtained indicated that Mirriam Corp’s account retained both cryptocurrency and cash. The claimants subsequently claimed against Mirriam Corp, seeking the recovery of the misappropriated sums. Mirriam Corp failed to respond to the claim. The claimants successfully sought a TPDO to enforce their judgment debt.

Ion Science means that, similar to other more traditional classes of assets, crypto assets are now capable of being traced and enforced against.

Conclusion

The cases and remedies set out above have demonstrated the pragmatic and flexible approach which the common law courts have taken. Existing legal principles have been applied to the digital asset space in order to tackle the increasingly frequent cybercrime involving digital assets and to grant the appropriate (combination of) remedies. The courts have generally permitted the claimant(s) to commence action against the unidentified fraudsters/hackers (as “persons unknown”) and grant freezing and disclosure orders in their favour to assist in securing and recovering (to the extent possible) the proceeds of the fraud.

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[1] [2019] EWHC 3556 (Comm)
[2] BVIHC (COM) 0031 OF 2021
[3] BVIHC (COM) 2022/0031
[4] [2021] EWHC 2254 (Comm)
[5] CIF v DLG and GIY BVIHCM2023/0050 at [21]
[6] [2021] EWHC 2718 (Ch)
[7] [2020] EWHC 3688 (Comm)
[8] English Civil Procedure Rules r 25.1(g) states that interim remedies include “an order directing a party to provide information about relevant property or assets, including their location, which are or may be the subject of an application for a freezing injunction.”

Further Assistance

This publication is not intended to be a substitute for specific legal advice or a legal opinion. If you require further advice relating to the matters discussed in this Legal Insight, please contact us. We would be delighted to assist.

Author

Gary Smith

Robert Farrell

Edmond Fung

We have also been shortlisted for the first time for the Asia Legal Awards 2025 recognising the region’s most outstanding legal achievements. Now in its 12th year, this prestigious ceremony honours the most significant transactions, cases, and legal work that have shaped the industry across Asia.

Well done Hong Kong team!

Law firms’ teams rarely are lost for words, but here we are, short and straightforward: after many years of consistent wins in the “Law Firm of the Year: Fund Domicile” category and usual shortlistings in two or three categories, this year we have been shortlisted in no less than six (6) categories at the Hedgeweek® US Awards, namely:

- - Law Firm of the Year: Client Service
  - Law Firm of the Year: Digital Assets
  - Law Firm of the Year: Fund Domicile
  - Law Firm of the Year: Overall
  - Law Firm of the Year: Start-up & Emerging Funds
  - Regulatory & Compliance Firm of the Year: Offshore

Please take a moment and support us by voting on this link: https://hw-awards.evalato.com/public-evaluation/19122/login Thank you. It’s a big year!

The deadline for voting is Friday 8th August 2025. Winners will be announced on 9th October 2025 at the Hedgeweek® US Awards.

Introduction

Default judgments and summary judgments are judgments made by a court without the need for a claim to go to full trial. Judgment can therefore be obtained more swiftly and cost-effectively compared to if the claim proceeded through to trial. It should be noted that a key difference between default judgment and summary judgment is that the former brings the proceedings to an end (unless it is set aside or varied) whereas the latter may not necessarily do so (as summary judgment can be made merely on a single issue of fact or law).

This Legal Insight will provide an overview of these two types of judgments available to parties in the British Virgin Islands (“BVI”) and the threshold required for being granted either by the BVI court.

Default judgment

What is default judgment?

Default judgment is judgment in favour of a claimant (without the claim proceeding to trial) where the defendant has failed to respond to the claim within the prescribed timeframe set out in the Eastern Caribbean Supreme Court Civil Procedure Rules (revised edition) 2023. Default judgment may determine liability only (or liability and remedy) on the basis of the information that has been provided already in the proceedings.

It should be noted that a defendant can also obtain default judgment where the claimant has not filed a defence to the counterclaim or any part of it (see below).

When is default judgment available?

A claimant may obtain default judgment where the defendant has failed to file:

1. a defence; or
2. an acknowledgement of service giving notice of intention to defend to the claim.

The general rule is that the period for a defendant to file:

1. a defence is the period of 28 days after the date of service of the claim form. If a claim form is issued in one Member State[1], Territory[2] or Circuit[3] and served in another, the period for filing is 42 days after the date of service of the claim form; and
2. an acknowledgment of service is the period of 14 days after the date of service of the claim form. If a claim form is issued in one Member State, Territory or Circuit and served in another, the period is 28 days after the date of service of the claim form.

It should be noted that a claimant in the BVI may not obtain default judgment in certain types of claims, such as a claim in probate proceedings.

Conditions to be satisfied – judgment for failure to file acknowledgment of service

The court office (at the request of the claimant) must enter judgment for failure to file an acknowledgment of service if:

1. the claimant proves service of the claim form and statement of claim;
2. the defendant has not filed:
  1. an acknowledgment of service; or
  2. a defence to the claim or any part of it;
3. the defendant has not satisfied in full the claim;
4. (if the only claim is for a specified sum of money, apart from costs and interest), the defendant has not filed an admission of liability to pay all of the money claimed together with a request for time to pay it;
5. the period for filing an acknowledgment of service has expired;
6. the claimant has the permission of the court to enter judgment (if necessary); and
7. the claim is not a claim in which default judgment may not be obtained.

Conditions to be satisfied – judgment for failure to defend

The court office (at the request of the claimant) must enter judgment for failure to defend if:

1. the claimant proves service of the claim form and statement of claim or proves that service is dispensed with or an acknowledgment of service has been filed by the defendant;
2. the period for filing a defence and any extension agreed by the parties or ordered by the court has expired;
3. the defendant has not:
  1. (if the only claim is for a specified sum of money) filed or served on the claimant an admission of liability to pay all of the money claimed, together with a request for time to pay it; or
  2. satisfied the claim on which the claimant seeks judgment;
  3. filed a defence to the claim or any part of it (or the defence has been struck out or is deemed to have been struck out); or
4. (where necessary) the claimant has the permission of the court to enter judgment; and
5. the claim is not a claim in which default judgment may not be obtained.

Conditions to be satisfied – judgment for failure to defend counterclaim

The court office (at the request of the defendant) must enter judgment for failure to defend the counterclaim if:

1. the defendant proves service of the counterclaim;
2. the period for filing a defence to counterclaim and any extension agreed by the parties or ordered by the court has expired;
3. the claimant has not filed a defence to the counterclaim or any part of it (or the defence to counterclaim has been struck out or is deemed to have been struck out);
4. where necessary) the defendant has the permission of the court to enter judgment; and
5. the claim is not a claim in which default judgment may not be obtained.

Claim against more than one defendant

A claimant may apply for default judgment on a claim for money against one of two or more defendants and proceed with the claim against the other defendants.

If a claimant applies for a default judgment against one of two or more defendants, then if the claim can be dealt with separately from the claim against the other defendants, the court may enter judgment against that defendant and the claimant may continue the proceedings against the other defendants. If the claim cannot be dealt with separately from the claim against the other defendants, the court may not enter judgment against that defendant and must deal with the application at the same time as it disposes of the claim against the other defendants.

Procedure for obtaining default judgment

A claimant applies for default judgment by filing the prescribed form supported by evidence on affidavit.

Setting aside or varying default judgment – Cases where court must set aside default judgment

The court must set aside a default judgment if judgment was wrongly entered, i.e. if any of the conditions to be satisfied were not.

Setting aside or varying default judgment – Cases where court may set aside or vary default judgment

The court may set aside a default judgment only if the defendant has a real prospect of successfully defending the claim. In determining this, the court may consider if the defendant:

1. applied to the court as soon as reasonably practicable after finding out that judgment has been entered; and
2. gives a good explanation for the failure to file an acknowledgement of service or a defence, as the case may be.

In any event, the court may set aside a default judgment if the defendant satisfies the court that there are exceptional circumstances. Where the court has power to set aside a judgment, the court may instead vary it.

Application to vary or set aside default judgment – procedure

An application may be made by any person who is directly affected by the entry of judgment. The application must be supported by evidence on affidavit. The affidavit must exhibit a draft of the proposed defence.

Summary judgment

What is summary judgment?

Summary judgment is a judgment given in favour of a party without a full trial of the issues and hearing of evidence on the basis that the claim, defence or a particular issue (whichever is applicable) has no real prospect of success and there is no other compelling reason why the matter should be disposed of at trial. Summary judgment may dispose of the case as a whole or can be confined to a particular issue in the matter.

Grounds for summary judgment

The court may give summary judgment on the claim or on a particular issue if it considers that the:

1. claimant has no real prospect of succeeding on the claim or the issue; or
2. defendant has no real prospect of successfully defending the claim or the issue.

It should be noted that a party in the BVI may not obtain summary judgment in certain types of claims, such as a claim in probate proceedings.

Procedure for obtaining summary judgment

Notice of an application for summary judgment must be served not less than 14 days before the date fixed for hearing the application. Such notice must identify the issues which it is proposed that the court should deal with at the hearing.

An applicant seeking summary judgment must:

1. file an application in the prescribed form;
2. file evidence on affidavit in support of the application; and
3. serve copies of the application and the affidavit evidence on each party against whom summary judgment is sought, not less than 14 days before the date fixed for hearing the application.

The application must identify the issues which it is proposed that the court should deal with at the hearing.

A respondent who wishes to oppose an application for summary judgment may:

1. file evidence on affidavit; and
2. serve copies of the affidavit evidence on the applicant and any other respondent to the application not less than 7 days before the date fixed for the hearing.

Powers of court on application for summary judgment

The court may give summary judgment on any issue of fact or law whether or not the judgment will bring the proceedings to an end. If the proceedings are not brought to an end, the court must also treat the hearing as a case management conference.

This publication is not intended to be a substitute for specific legal advice or a legal opinion. For specific advice on default judgments or summary judgments in the BVI, please contact your usual Loeb Smith attorney or:

E: edmond.fung@loebsmith.com

[1] Member State means one of the six states which are members of the Eastern Caribbean Supreme Court, i.e. Antigua and Barbuda, Commonwealth of Dominica, Grenada, Saint Christopher and Nevis, Saint Lucia and Saint Vincent and the Grenadines.
[2] Territory means one of the three British Overseas Territories which are members of the Eastern Caribbean Supreme Court, i.e. Anguilla, Montserrat and the BVI.
[3] Circuit means the Saint Christopher circuit and the Nevis circuit in the State of Saint Christopher and Nevis.

The British Virgin Islands (“BVI”) has long been a favoured jurisdiction for establishing trusts, particularly due to its flexible legal framework and favourable tax regime. Among various trust structures, Reserved Power Trusts (“RPTs”) have gained prominence as high net worth individuals and others seek to retain a level of control over the administration of assets they have placed into trusts. This article delves into what Reserved Power Trusts are, how they function in the BVI, and their advantages and certain issues to consider.

What is a Reserved Power Trust?

A Reserved Power Trust is a type of trust wherein the settlor retains certain powers (e.g. the power to: (a) determine the law of which jurisdiction shall be the proper law of the trust; (b) change the forum of administration of the trust; (c) remove trustees; (d) appoint new or additional trustees; (e) exclude any beneficiary as a beneficiary of the trust; (f) include any person as a beneficiary of the trust in substitution for or in addition to any existing beneficiary of the trust) that are typically relinquished in traditional trust arrangements. This flexibility allows the settlor to maintain a degree of control over the trust assets and their distribution.

Legal Framework in the BVI

The BVI’s Trustee Act of 1961 (the “Act”) provides the legal framework for trusts in the jurisdiction. It establishes the framework for creating and managing trusts, including the roles of settlors, trustees, and beneficiaries. The Act has been amended over time, with significant updates introduced by the Trustee (Amendment) Act of 2021, which enhanced the legislation regarding the variation of BVI trusts and other aspects of trust management. The Act sets the framework for the creation of various trust types, including Reserved Power Trusts. Amendments to the Act, particularly with the introduction of the BVI Business Companies Act, have further enhanced the attractiveness of the trust regime.

Key Features of Reserved Power Trusts

Control Retention: The settlor can retain powers such as appointing or removing trustees, amending the trust deed, or even revoking the trust altogether. This control contrasts with irrevocable trusts, where the settlor has no such powers post-establishment.
Flexible Asset Management: Settlor can influence investment decisions, adjust the management of assets, or change the beneficiaries under specific circumstances.
Protection from Creditors: Assets placed in a Reserved Power Trust may enjoy protection from the settlor’s creditors, providing an additional layer of security for beneficiaries.
Tax Benefits: The BVI has no capital gains tax, inheritance tax, or estate tax, making it a tax-efficient jurisdiction for holding trusts.

Advantages of Reserved Power Trusts

Tailored Control: Settlors can create a trust structure that aligns closely with their unique financial objectives and family dynamics.
Beneficiary Assurance: While maintaining control, settlors can ensure that beneficiaries are provided for, which can help in long-term wealth preservation.
Estate Planning Flexibility: RPTs allow for adjustable arrangements in the face of changing family circumstances, like divorce or the birth of children.
Confidentiality: The BVI trust structure offers a high level of confidentiality, as trust details do not need to be publicly disclosed.

Considerations and Challenges

While RPTs present numerous benefits, they also come with certain considerations, including the following.

Regulatory and Compliance Requirements: The settlor should always have specialist BVI advice on dealing with BVI compliance and regulatory matters with respect to the trust once established. The settlor should also have tax advice in respect of the potential tax impact which may be triggered by the transfer of assets into the trust.
Impact on Administration of the Trust: As the Settlor has reserved powers in the trust to, among other things, veto distributions, this can mean that it is possible for the settlor to be pressured to have direct impact on the trust administration itself. If, for example, the trustees of the Reserved Power Trust suspect that the settlor may have capacity issues such that he/she cannot exercise his/her powers, the trustees may have fundamental doubt about how the settlement should be administered.
How much power should the settlor retain?: Section 86 of the Act as amended by the Trustee (Amendment) Act of 2021 makes it clear that (i) the reservation of any or all of the powers specified in section 86 (2) of the Act shall not (a) invalidate the trust; (b) prevent the trust taking effect according to its terms; or (c) cause any of the trust property to be part of the estate of the settlor for the purposes of succession on death, whether testate or intestate. This is important because there has been a debate about how much power should a settlor reserve. For example, if a settlor reserves too many powers, is there a risk that the trust will fail (or, at least, be more open to challenge) because the trust may not have the “irreducible core of trustee obligations”[1] that are required in order for the trust to be valid. It is advisable that the settlor only reserve those powers stated in the Act (as amended) that he/she needs in order to feel comfortable with the level of control he/she retains over the trust. This will minimize the risk of arguments about legal validity of the trust – especially in jurisdictions where RPTs are not recognized and the validity of a trust with extensive reserved powers may more likely be challenged.

[1] The Irreducible Cores of Trustee Obligations by Adam S. Hofri-Winogradow Peter A. Allard School of Law, the University of British Columbia – 139 Law Quarterly Review 311-336, 2023

Conclusion

BVI Reserved Power Trusts offer an attractive solution for settlors seeking to achieve a balance between tax efficient asset protection and retaining a level of control. Consulting with specialist legal and financial professionals can help ensure these trusts are established and managed effectively, maximizing their benefits while minimizing risks.

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Further Assistance

This publication is not intended to be a substitute for specific legal advice or a legal opinion. If you require further advice relating to the matters discussed in this Briefing, please contact us. We would be delighted to assist.

E: gary.smith@loebsmith.com
E: robert.farrell@loebsmith.com
E: elizabeth.kenny@loebsmith.com
E: vanisha.harjani@loebsmith.com
E: faye.huang@loebsmith.com
E: vivian.huang@loebsmith.com
E: yun.sheng@loebsmith.com

Exciting news! We’ve made it on the shortlist for the HFM US Services Awards 2025 in two categories:

Best law firm: private markets

Best offshore governance firm.

We thank our clients who took the time to provide feedback/testimonials about our legal services delivered to the evolving needs of hedge funds managers.

Winners will be announced on September 16, 2025 in NYC. Stay tuned😁!

2025 shortlist | HFM US Services Awards

Certificate of Good Standing

With effect from 2 January 2025, amendments to the BVI Business Companies Act and Limited Partnership Act introduced stricter requirements for obtaining a Certificate of Good Standing (COGS).

Key Changes:

Additional Filings: Entities must now ensure timely submission of the register of members/register of directors (for companies), register of general/register of limited partners (for LPs), beneficial ownership details, and annual returns (if due).
Validity Period: All COGS will now carry a three-month expiration date. Where filings are not due, COGS will be valid only until the next applicable filing

Each COGS will confirm compliance status, fee payments, and whether the entity is subject to liquidation, dissolution, or pending transactions such as mergers.

Compliance Inspections for 2025-2026

The BVI FSC’s Compliance Inspection Unit (“CIU“) is rolling out a major round of onsite inspections starting in 2025 and running through the first quarter of 2026. These inspections will focus on higher-risk sectors like Trust and Corporate Service Providers (“TCSPs“), Investment Businesses, and Virtual Asset Service Providers (“VASPs“). The aim is to assess how well firms are managing internal controls, complying with AML/CFT/CPF rules, conducting internal audits, and training their staff.

Regulatory Impact:

At least 45 entities are scheduled for inspection, highlighting the BVI FSC’s continued focus on a risk-based supervisory framework.
Key inspection priorities will include verifying beneficial ownership, managing third-party relationships, conducting sanctions screening, and reporting suspicious activities.
Firms will be given three weeks’ advance notice and must be prepared to provide all necessary compliance-related documentation.
Following the inspections, the BVI FSC will issue detailed reports and broader industry guidance, which could shape upcoming regulatory standards and enforcement priorities.

Trustee Sector Shows Strong Compliance

The BVI FSC has completed a desk-based review of TSPs, representing nearly half of all trusts in the jurisdiction. The review assessed compliance in key areas including customer due diligence (“CDD“), sanctions screening, suspicious activity reporting (“SARs“), and institutional risk assessments (“IRAs“).

The results were largely positive. All TCSPs demonstrated full compliance with COD requirements, successfully verifying all relevant trust parties. High adherence was also noted in sanctions screening and SARs, with only minor issues such as the need for more frequent screenings or enhanced internal reporting procedures.

Legislative Amendments

The BVI has rolled out a series of important legal updates to bring its financial regulatory framework in line with modern standards. Two key pieces of legislation, namely the Financial Services Commission (Amendment) Act, 2024 and the Financial Services (Exceptional Circumstances) (Amendment) Act, 2024, introduce stronger oversight tools and clearer regulatory expectations.

Key Changes:

Consumer Duty Introduced – Replaces “consumer protection” with a higher standard of care in financial services.
Mandatory Cooperation – Licensees must provide documents and support the BVI FSC when requested.
Enhanced International Cooperation – BVI FSC can now share information with a broader range of foreign authorities.
Risk-Based Supervision Codified – Officially adopts a risk-based approach for overseeing licensees.
Emergency Powers Streamlined – BVI FSC can now act swiftly in exceptional situations without prior Ministerial approval.

There are also targeted changes to sector-specific laws-covering banks, insurance, and investments-that further tighten compliance standards and support better risk management across the board.

Next Steps for Regulated Entities

To remain compliant and prepared for regulatory reviews, licensees should:

Review and update internal policies and procedures
Conduct thorough risk assessments
Ensure staff are trained on new compliance obligations
Engage with the BVI FSC and industry forums like VASPAC for guidance and updates

Formation of the Virtual Asset Service Providers Advisory Committee

In March 2025, the BVI officially launched the Virtual Asset Service Providers Advisory Committee (“VASPAC“), a collaborative public-private initiative designed to enhance the regulation and supervision of the BVl’s growing virtual asset sector. This follows the introduction of the Virtual Assets Service Providers Act, 2022 (“VASPA“), which took effect on 1 February 2023 and brought the BVI in line with global regulatory standards.

VASPAC was established after a series of informal discussions with industry stakeholders and is now set to provide structured, ongoing input to help guide regulatory strategy. The VASPAC held its first meeting on 27 March 2025, marking a key milestone in the evolution of virtual asset regulation in the BVI.

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This publication is not intended to be a substitute for specific legal advice or a legal opinion. For specific advice on any of the matters covered above, please contact your usual Loeb Smith attorney or any of the following:

E: gary.smith@loebsmith.com
E: robert.farrell@loebsmith.com
E: elizabeth.kenny@loebsmith.com
E: vanisha.harjani@loebsmith.com
E: edmond.fung@loebsmith.com
E: faye.huang@loebsmith.com
E: vivian.huang@loebsmith.com
E: yun.sheng@loebsmith.com

Hong Kong 2 June 2025 Loeb Smith Attorneys, one of the leading offshore corporate law firms, acted as BVI legal counsel to Pitanium Limited on its successful initial public offering of 1,750,000 Class A ordinary shares. The shares began trading on the Nasdaq Capital Market on 30 May 2025, under the ticker symbol “PTNM”.

Pitanium Limited is a retailer in Hong Kong focusing on the sale of its proprietary brand products in the field of beauty and personal care, namely PITANIUM and BIG PI online. It also generates revenue from the offline sale at six retail stores situated in Hong Kong’s premier shopping destinations.

The Loeb Smith team was led by Partner Gary Smith, and included team members Counsel Kate Sun, Associate Frost Wu and Associate Max Lee in Hong Kong. Loeb & Loeb LLP, TC & CO., and Tian Yuan Law Firm acted as U.S. legal counsel, Hong Kong legal counsel, and PRC legal counsel to Pitanium Limited, respectively, and VCL Law LLP as acted U.S. securities counsel for Cathay Securities, Inc., the underwriter in connection with the offering.

Corporate Partner, Gary Smith stated: “We are delighted to have advised Pitanium Limited on this significant milestone in its growth journey. Our firm is excited to see the resurgence of activity in capital market listings, and remains committed to delivering the team’s deep expertise, strategic advice and robust legal support in cross-border transactions and capital markets to clients as they navigate their path to success”.

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Overview

The rapid advancement of artificial intelligence (AI) continues to raise complex questions about the applicability of intellectual property (IP) laws to AI and AI-generated works.

IP remains one of the leading and most contentious issues in respect of AI governance. AI adoption continues to grow, and this year is already showcasing a wider range of commercial applications across all sectors. In light of the IP related challenges, businesses leveraging AI technologies must strategize to navigate the evolving intellectual property landscape. As the legal framework around AI continues to develop, businesses need to ensure that they avoid copyright infringement while also effectively safeguarding their own IP assets. Developing a clear understanding of how existing laws apply to AI technology and staying updated on legal developments will be crucial for companies seeking to innovate responsibly and protect their intellectual property in an AI-driven economy.

How is Intellectual Property protected in the Cayman Islands and the BVI?

Copyright protection in the BVI (for “qualified persons”) and in the Cayman Islands (for “qualifying persons”) is automatic when such person creates an original work (once the work is recorded, in writing or otherwise) such as sound and music recordings; films; when you write a book or poem; or when you develop new software. By virtue of the Copyright (Cayman Islands) Order 2015 and Order 2016 (as amended), Part 1 of the U.K.’s Copyright, Designs and Patents Act 1988, subject to certain exclusions and modifications, was extended to the Cayman Islands. The BVI has implemented its own legislation in the form of the Copyright Act (Revised 2020) which is very similar.

Patent protection in the two jurisdictions is quite similar. As it is in other jurisdictions, in order to get patent protection, the invention must be: (i) new – i.e. the first in the world, (ii) useful – i.e. the invention must serve a purpose or provide a solution, and (iii) inventive – i.e. the invention must not be obvious to persons in the industry in which the invention is intended to be used.

Both the BVI and the Cayman Islands allow for the indirect registration of patents. Once a U.K. patent is granted, an application can be made in either of the Cayman Islands or the BVI to extend the scope of protection. In the Cayman Islands, there is no deadline for the filing of the application to extend rights, whereas in the BVI, rights must be extended within three years from the date of issue of the UK patent.

AI-generated works, AI-inventions and other AI-outputs and infringement

IP laws are designed to protect human creations. Generative AI (AI which generates text, images, speech, video or technical inventions based on user-inputted instructions) continues to increase in capability and grow in adoption. However, most copyright and patent laws, for example, do not yet explicitly address AI’s role in authorship or inventorship, leaving a legal void requiring attention. Traditionally, the author or inventor is the person or organisation that creates the works. If now AI is responsible for content creation autonomously without any human input, the question is who owns the copyright protecting such content.

For countries, such as the UK, this may be answered by the fact that computer-generated works will be owned by the person who made the necessary arrangements for the creation of the work.
An overwhelming view in the E.U. is that AI cannot be a legitimate author. However, specific ways of using AI may result in a work that is protected for the user.

How does Artificial Intelligence affect Intellectual Property Protection?

We expect to see governments across the world grappling with balancing strategies aimed at encouraging the development of AI and innovation while, at the same time, attempting to modernize IP and AI legal frameworks to account for AI.

Training generative AI involves using large bodies of IP-protected works/ data in ways that may be infringing under current laws. Governments seeking to “unlock” the potential of generative AI are now more often looking to legislate to permit text and data mining (TDM) of IP-protected data in order to train AI. The intellectual property in the data used to train AI models is growing as a subject of legislative discourse and is now a key issue in matters that have flooded courts across the world, whether use of copyright-protected materials to train AI models infringes copyright.

Training AI using personal data or protected IP also provides challenges to legislators worldwide. Over the next 2-3 years we expect to see increased regulatory scrutiny of companies that create or use AI technologies which have been trained using (i) personal data and/or (ii) information/data protected by IP rights. Regulators worldwide are now paying greater attention to balancing the benefits of AI against concerns about personal data and the protection of IP, and we expect that this will continue in the next few years.

Copyright

AI programs usually qualify as IP with software or computer programs being literary works. In some countries however, copyright protection will not apply for functional aspects of AI such as algorithms or system designs. AI systems function however by processing human-provided instructions to generate problem-solving outcomes. This capability makes AI-based programs highly valuable from an IP perspective, as their innovative nature and diverse utility underline their significance of IP protection.

Who owns the copyright?

Copyright laws often require that there must be a natural person to whom copyright can be attributed and many jurisdictions including the Cayman Islands and the BVI, do not provide for “computer generated” works where no human author is involved. This creates a gap in the protection of AI-generated works, which are typically produced autonomously with little or no human intervention. Many copyright laws also require that “sufficient effort” must be expended to make any literary, musical, or artistic work original in character – which involves time, human labour, and skill. What constitutes sufficient effort for AI-generated content remains largely untested, raising debates about whether crafting prompts or editing AI output meets the thresholds. Additionally, if non-human entities are recognized as “authors” then copyright duration may become complex. Generally, copyright protection is granted for an author’s lifetime plus a period of time following, potentially leading to indefinite protection for AI-generated works.

The duration of copyright protection in the Cayman Islands varies depending on the nature of the work at issue. For example:

For Literary, Dramatic, Musical or Artistic Works: copyright expires at the end of 70 years from the end of the calendar year in which the author dies. However, if the author is unknown, copyright expires at the end of 70 years from the end of the calendar year in which the work was made or first made public
For Computer Generated Literary, Dramatic, Musical or Artistic Works: copyright expires at the end of 50 years from the end of the calendar year in which the work was made.
For Sound Recordings: copyright expires at the end of 50 years from the end of the calendar year in which the sound recording was made or first made public.
For Films: copyright expires at the end of 70 years from the end of the calendar year in which the film/movie was made or first made public.
For Broadcasts: copyright expires at the end of 50 years from the end of the calendar year in which the broadcast was made.

Copyright Protection and Deepfakes

Most IP laws are ill-equipped to address the challenges posed by digital replicas or deepfake technology. Copyright law generally is not fit for purpose in respect of deepfakes as the source material for many deepfakes either falls outside the scope of copyright protection or the copyright owner is not the individual who is harmed by the infringement. Possible causes of action presented by deepfakes include (1) copyright infringement (if a deepfake involves unauthorized use of copyrighted material), (2) trademark infringement (if it uses a registered trademark without permission), (3) the tort of passing off (if it misrepresents a product or service as endorsed by a well-known individual), (4) personal data privacy violations or (5) defamation (if the content defames an individual). The issue of whether the outputs of AI models – particularly where they substantially reproduce source materials – may infringe copyright and who may be responsible for such infringement, is also unresolved.

Is the person who infringed: the user of the AI generated work without the rights holder’s consent or the AI developer or AI system owner? This ambiguity poses risks for businesses. If there is no clear proprietary right in AI-generated works, businesses may be exposed to unnecessary risk.

Fair dealing exceptions

With respect copyright infringement, some jurisdictions such as the Cayman Islands, BVI, U.S., U.K., Australia, Hong Kong and Singapore provide fair dealing exceptions for particular activities, despite the fact that many other jurisdictions do not.

Under Cayman Islands law and BVI law, some of the fair dealing exceptions permitted are:

Personal copying for private use
Non-commercial research and private study
Text and data mining for non-commercial research
Criticising, reviewing and reporting current events
Use for parody, caricature and pastiche
Making backup copies, de-compilation, observing, testing and studying, and correcting computer programme errors.

Patents

Who is the inventor? Will the requirement for “novelty” remain?

Many patent laws require the inventor to be a natural person. This requirement could exclude AI from being independently recognized as an inventor. AI-driven innovations, such as those involving algorithms and machine learning processes, face challenges in meeting the criteria for protection as an invention. Under US patent law, for example, absent at least one human inventor, an invention is not patentable. Also, the criteria for patentability in many jurisdictions (including the Cayman Islands and the BVI) usually involves requirements for novelty, an inventive step and industrial applicability. These criteria raise questions about whether AI-generated inventions can ever meet the inventive step requirement, traditionally linked to human ingenuity. AI relies on algorithms and datasets to mimic human cognitive functions, enabling it to generate patentable inventions.

We expect to see a continuing updating of guidance as to the level and type of human contributions that are necessary to support patentability as new cases make their way through courts in various jurisdictions. A vital question that arises is whether AI can be regarded as a legitimate author of content that it generates or an inventor in case of patents, given the want of legal personality of the AI itself.

AI-Driven Entity – Cayman Islands Foundation Company

A particularly effective legal structure for an AI-driven entity is the Cayman Islands foundation company. Such foundation companies do not require shareholders, allowing them to function with a governance model that can be tailored to an AI’s decision-making models. Key advantages of using such foundation companies include the following.

Legal recognition: foundation companies can provide a defined legal entity that can interact with traditional financial institutions, sign contracts and meet compliance obligations.
Decentralised governance: the ability to structure the foundation company without shareholders allows for governance mechanisms that can adopt smart contract-based decision-making or AI-driven decision-making.
Asset protection and Tax mitigation: foundation company can be tax resident in the Cayman Islands, hold and manage assets and ensure legal clarity in asset ownership.
Regulatory compliance: foundation companies can be designed to comply with regulations, including AML and CFT requirements, making them suitable for global transactions.
Economic substance rules: foundation companies limited by guarantee are specifically exempted from the economic substance rules and can therefore hold and even make profits from intellectual property without coming under the relevant economic substance compliance regime.

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This publication is not intended to be a substitute for specific legal advice or a legal opinion. For specific advice on the matters covered above, please contact your usual Loeb Smith attorney or any of the following:

E: gary.smith@loebsmith.com
E: robert.farrell@loebsmith.com
E: elizabeth.kenny@loebsmith.com
E: kate.sun@loebsmith.com
E: vanisha.harjani@loebsmith.com
E: edmond.fung@loebsmith.com
E: vivian.huang@loebsmith.com
E: faye.huang@loebsmith.com
E: yun.sheng@loebsmith.com