British Virgin Islands: Star Trek And The BVI Shareholder

This article examines how British Virgin Islands (BVI) law has developed to account for technological developments and how companies can revise their corporate governance practices to take advantage of current legislation.

When the television series Star Trek debuted in 1966, it astounded audiences by presenting a never-before-seen world of wireless communication, video conferencing and physical teleportation. Now, almost fifty years later, elements of the series that elicited awe are modern day realities and, as the times and technologies have changed, so has BVI law.

Long recognised globally for its flexibility in relation to corporate governance requirements, BVI legislation has adapted and evolved to allow companies to make full use of many of the advances in modern communication techniques. As a result of the forward thinking nature of the law, companies can avail themselves of a wide range of options to reduce both costs and time spent when liaising with shareholders.

"To boldly go....." - The Electronic Transactions Act 2001 (the ETA)

The ETA is the primary legislative tool intended to keep the BVI apace with the electronics age. Though the ETA is now some 14 years old, many BVI companies seem unaware of its provisions to: (i) facilitate general communication with shareholders, (ii) simplify the process for circulating notices and proxies in relation to shareholder meetings and (iii) simplify the process for the exercise of shareholder votes, whether at meetings or by written consent.

This is not the fault of technology shy boards or shareholders. The problem really begins with the content of the typical BVI memorandum and articles of associations (M&AA). Though modernised frequently to take account of amendments to the BVI Business Companies Act 2004 (as amended) (the BCA), M&AA revisions are rarely used as an opportunity to modernise the provisions on the basis of the ETA.

Unless the M&AA says otherwise, directors have the power to manage the affairs of the company (barring matters specifically reserved for shareholders). The board whilst recognising the importance of ensuring that shareholders exercise their rights, will often wish to avoid the cost of holding physical meetings (including costs of printing and physically circulating meeting materials, booking a location etc). Apart from the costs involved, most directors and shareholders will also understandably fail to understand why notices of meetings must be sent and proxies returned via snail mail, to say nothing of the grey areas involved in calculating notice periods when documents are sent by post.

It is important therefore to highlight the provisions of the current ETA that are applicable to shareholder participation in BVI companies and which can be easily reflected in modern BVI company M&AA.

"Beam me up Scotty" - Shareholder meetings

Meetings are convened by sending a notice to shareholders. Typically this is done by preparing meeting materials including the agenda, draft proxies and any relevant circulars, balance sheets or other items relevant to the purpose for which the meeting is being called. There are rarely any meeting materials to be circulated to the shareholders which absolutely must be presented in original hard copy. There should therefore be no conceivable reason that they should not be sent to shareholders by email.

Certainly to avoid fraud, measures will have to be put in place to ensure the identity of the sender and the addressees and it must also be clear from a contractual perspective and in the interests of fairness and practicality that both parties agree to transmit those records electronically.

Pursuant to the ETA, no information shall be denied legal effect, validity or enforceability solely on the ground that it is in the form of an electronic record (ie information generated, sent, received or stored by electronic means including electronic data interchange, electronic mail, telegram, telex or telecopy) or that it is merely referred to in that electronic record.¹ It would be reasonable to interpret all this to mean notices of shareholder meetings may be sent by email and that a notice may contain references to other electronic information (eg a link to a website where other pertinent information such a balance sheet, may be reviewed).

Similarly, most BVI M&AA require the proxy holders to deliver the proxy instrument at a place stipulated by the company prior to the meeting. Where companies have shareholders resident in various locations across the globe, the prospect of returning original signed proxy instruments to the company or to the person who will act as proxy can also have prohibitive cost ramifications, to say nothing of the risks of missing the proxy instrument delivery deadlines. Bear in mind the typical notice period for shareholders' meetings is seven days. The provisions of the ETA validating documents sent electronically would also apply to proxies returned to the company direct or by the proxy holder. For companies who wish to avoid any uncertainty as to whether an electronic copy will suffice, there would be no harm in requiring shareholders to also send the original proxy to the company after the meeting is concluded. It is not the case however that any votes cast pursuant to the electronically delivered proxy would be invalid until the company received the original.

The other issue to consider is the consent of the sender and addressee. The ETA provides that no person is required to provide or accept an electronic record without their consent. This is fair and recognises that although the entire world will eventually be modernised there are areas where the infrastructure is insufficiently reliable and there are persons who would prefer to receive paper documents. While it is best to request express consent for communication to be put into effect electronically, this may not always occur and it should be noted that both the company and the shareholder are entitled to infer consent from each other's actions.²

If the company and shareholders expressly consent to the use of electronic records, they may do so subject to conditions regarding the form of the electronic record or the means by which the electronic record is generated, sent, received, stored or displayed.³

In addition to consent, the sender and addressee should agree to a procedure for determining by whom the information is to be sent.⁴ This will entitle the addressee to assume that the information was sent by the correct person and to act on the basis of that assumption. The ETA also makes provision for senders and addressees of electronic information to provide for acknowledgement of receipt of electronic records.

It is obviously important to be able to accurately calculate shareholder meeting notice periods and proxy instrument delivery dates. In relation to this the ETA again makes adequate provision. Unless otherwise agreed between the sender and the addressee an electronic record is sent when it enters an information system (ie a system for generating, sending, receiving, storing or otherwise processing electronic records) outside the control of the sender.⁵ Unless otherwise agreed between the sender and the addressee, the time of receipt of the information is the time when the information enters an information system designated by the addressee and if sent to a non-designated system, at the time retrieved by the addressee. If the recipient has not designated an information system, receipt occurs when the electronic record enters an information system of the addressee.

All of this will require small changes in procedure on the part of boards and registered agents. In our view it should now be standard practice that persons who subscribe for shares should be asked to provide an email address and should be advised that notices may be sent to that email address unless they indicate they would prefer to receive only paper documents.

"Resistance is futile" - Written consent

A flexible alternative to shareholder meetings is the approval of resolutions by written consent. More frequently, shareholders are asking to be given the opportunity to consent to resolutions by email rather than signing and returning counterpart copies of the written resolution.

The ETA provides that any legal requirement (ie any law which requires or permits something to be done or provides consequences for failing to do something) for information to be in writing is satisfied by an electronic record, if the information contained therein is accessible so as to be useable for subsequent reference.⁶ This, together with the provisions of the ETA which give validity to electronic records, is sufficient to demonstrate that shareholders are entitled to consent to resolutions by email.

For practical reasons, it will be important for the email consent and form and content of consent to be approved as between the parties. There should be a clear reference to the draft resolutions which were circulated and where there are several resolutions which are to be passed, the e-mailed response should make clear that all or only some of the resolutions are approved. Often resolutions contain declarations which are if not strictly required by law are required to demonstrate compliance with aspects of the BCA or to avoid future shareholder disgruntlement (eg confirmation that the proposal for sale of more than 50 per cent in value of company assets has been reviewed by shareholders and confirmation that a particular transaction is not considered

"The Next Generation"

Notwithstanding the provisions currently available under the ETA, technology is continuing to develop and despite the legislature's success in enacting the ETA and the BCA there is always room for improvement.

Other jurisdictions have embraced the concept of non-standard face to face meetings by introducing legislation which expressly contemplates:

(i) hybrid meetings - where shareholders can choose to attend an actual location or to attend using a variety of audio or non-audio video or teleconferencing facilities; and

(ii) virtual shareholder meetings – where no physical location is identified and instead all participants must utilise or employ audio or non-audio video or teleconferencing facilities.

Taking the next step in this regard would require small changes to the BCA including the deletion of the requirement for all shareholders to be able to hear each other at a meeting and instead expanding the language to facilitate non-audio communication options.

Shareholders could be allowed to participate and exercise their votes at meetings by logging on to a website where they could view "tabled documents", hear or view the chairman's remarks and make any responses by typing in comments.

While we wait for science to catch up to Star Trek and successfully effect physical teleportation, these options may be the best the real world can offer to the modern shareholder.

Footnotes

1 Section 6

2 Section 4

3 Section 4

4 Section 14

5 Section 16

6 Section 7

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.