BVI court ruling highlights potential risk in some standard form M&As

On 19 March 2014 the Commercial Court handed down its ruling in C v W Inc (BVIHC (Com) 2013/149). In that case a shareholder holding more than 30 per cent of the company’s shares tried to exercise its power to requisition a shareholder meeting under section 82(2) of the BVI Business Companies Act 2004 (the Act). But the court held that in order to give effect to the requisition a resolution of the board was required. Because directors who were aligned with the holder of the remaining shares were able to block the passing of a board resolution to convene the meeting, and the requisitioning shareholder was essentially barred from exercising its statutory rights under section 82(2). In doing so the court followed existing English case law, and noted that the Act appeared to be deficient in failing to provide a default remedy where the board was unwilling or unable to pass a resolution convening the meeting.

Risks inherent in standard M&As?

The relevant company in the case was a former IBC with an older form of memorandum and articles of association. The precise fact pattern would be unlikely to occur with a more modern company formed under the Act, as modern articles now typically enable any one director to call a meeting of the members.

However if the board of directors of a company acted in concert they could still attempt to frustrate shareholders seeking to exercise their statutory rights under section 82(2) on the basis of the ruling in C v W Inc. Registered agents may wish to consider amending their standard form articles to include protection along the lines noted by Bannister J in relation to legal protections available in other jurisdictions.

Model provision

Harneys has prepared a model form of provision for clients or registered agents wishing to consider a change to their articles of association. To obtain a free copy please click here.

Topics:  Business Companies Act, BVI Business Companies, Shareholder Litigation, Shareholders

Published In: Business Organization Updates, General Business Updates, Mergers & Acquisitions Updates, Securities Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Harney Westwood & Riegels | Attorney Advertising

Don't miss a thing! Build a custom news brief:

Read fresh new writing on compliance, cybersecurity, Dodd-Frank, whistleblowers, social media, hiring & firing, patent reform, the NLRB, Obamacare, the SEC…

…or whatever matters the most to you. Follow authors, firms, and topics on JD Supra.

Create your news brief now - it's free and easy »