The Government of Saint Christopher introduced the Alternative Investment Option under the Saint Christopher and Nevis Citizenship by Investment (Amendment) Regulations, 2021 which provides a new avenue for financing of private enterprises in Saint Christopher (Saint Kitts) and Nevis wishing to access funds from persons desirous of becoming economic citizens. 

The Alternative Investment Option for Private Enterprise Development allows a person who invests a minimum of US$200,000.00 in an approved infrastructural project or other approved development project to qualify for citizenship under the Citizenship by Investment Programme. 

This is certainly a welcome development, as the development of the private sector within the jurisdiction can only serve to strengthen economic growth. Greater access to equity finance reduces the chronic reliance by private enterprises on significant debt at interest rates which may hamper growth of the business. 

It appears that most developers have used the alternative investment options to sell shares in the development rather than the sale of condominium units and/or property. However, the alternative investment option can be used by other enterprises wishing to raise finance to carry out business development, i.e., the construction of a new manufacturing facility, the exporting of goods into new markets which require significant investment, the research and development into new business processes. 

When one looks at the options open to a prospective applicant however, the minimum investment is US$200,000.00. This is greater than a qualifying contribution to the Sustainable Growth Fund at US$150,000.00 or an investment under the Alternative Investment Option for a Public Enterprise Foundation at US$175,000.00. Therefore, in order to make such an investment attractive a private company has to be able to produce a return i.e. income to the investor over a period of time. It is likely that the investment into the Private Enterprise Development would likely be through the sale of shares in the company, convertible notes or corporate bonds with maturity dates exceeding 5 years. Shares, notes, bonds, debentures, agreements to purchase shares are all regarded as securities. 

However, the sale of securities is very different from the sale of land or condominiums, or the grant system previously operated by the Sustainable Growth Option or the Sugar Industry Diversification Foundation. There are two issues which come to mind: (1) Registration of the Securities with the Eastern Caribbean Securities Regulatory Commission and (2) Liability for Negligent and/or Fraudulent Misrepresentation. 

Any company wishing to sell securities within the Federation of Saint Christopher and Nevis to the public must register their securities with the Eastern Caribbean Securities Regulatory Commission (ECSRC). This is done largely by filing a RS-1 Form with the ECSRC. 

Entities are exempted from this requirement only if they have less than 50 shareholders or debenture holders and if the invitations to purchase shares or debentures are given to a restricted circle of no more than 50 persons. The invitation cannot be published at large to any interested persons. A private company would have therefore in practice identified their proposed investors in advance and prepare their invitation to purchase the securities on that footing. 

A citizenship by investment sponsored program fails to meet these requirements. Even if the private company has no desire to have more than a group of 50 investors, the very nature of the programme would involve the advertisement of the securities generally to the public at large. These securities are likely to be advertised widely on the company’s website or contained in marketing material given to international marketing agents, who go out and market the CBI programme. Therefore, a private company wishing to apply to have an approved development under the Alternative Investment Option is likely be regarded as selling shares to the public and therefore be obligated to register the securities under the Securities Act. 

The failure to register these securities has two main consequences. Firstly, the ESCRC has the power to restrict the advertisement and sale of these shares and may prosecute companies and in certain circumstances can prosecute the directors of the company. This may result in the company and the directors of the company being subject to fines having committed offences contrary to the Securities Act. Secondly and more concerning however, is that because the agreement would be properly regarded as an illegal contract, that company may find itself on the other end of a restitution claim for the investment amount made by the investor (a possible outcome if the investor later feels unsatisfied with the return received under the investment). 

Another more important point must be considered. Selling securities is very different from selling condominiums or land. In the usual course of business, the promoters of a private enterprise are largely going to be advertising securities on the basis of the expected return that an investor might receive from making the investment. While it is understood that it is not a guaranteed return, it is an expected return. This raises concerns about liability for negligent misrepresentation, where the promoter is found liable for representations made which induced the investor in making an investment, and fraudulent misrepresentation. This can largely arise where the promoter of the company is overly optimistic about the returns that the enterprise might bring in. To reduce this risk, the documentation involved in securities transactions tends to be detailed. Promoters must be clear that they have given the investor enough information to make an informed decision. 

While the Alternative Investment Option is a welcome development in Saint Kitts and Nevis and can help develop the private sector in Saint Kitts and Nevis by providing an alternative mode of financing companies, promoters of these alternative investments should approach this option with caution and ensure that appropriate documentation is prepared supporting the investment.