Beginning our short focus on Commercial Law, through the eyes of a Thought Leader, is Rosalind Nicholson on the topic of Commercial Law, and heard about her work in the British Virgin Islands, with a particular focus on shareholder disputes.
There are more than 450,000 active business companies in the BVI. What is it that attracts companies to establish business operations in the BVI?
There are a number of factors which combine to make the British Virgin Islands (BVI) the leading offshore incorporation domicile.
First, as a British Overseas Territory, the BVI offers a stable political environment, with a democratically elected House of Assembly. The official language is English and it is on the Organisation for Economic Cooperation and Development's (OECD) 'White List'.
Second, the Business Companies Act, which governs international business companies is tailor-made for the BVI and draws on legislative precedents from England and Wales, Canada, Delaware and elsewhere, selecting from the strengths of each with innovations unique to the BVI. The result is user-friendly, flexible and efficient statutory framework designed to facilitate the carrying on of corporate business world-wide.
Third, the BVI provides a neutral tax jurisdiction for business companies: there is no corporation tax, capital gains tax, wealth tax, income tax or any other tax applicable to a business company. A BVI business company is exempt from the payment of stamp duty on any instruments or deeds relating to the business of the business company, including the transfer of all property to or by it and transactions in respect of its securities. This means that businesses which choose to structure their operations through the BVI do not thereby include an additional layer of tax at that level. Instead, tax is payable on the business operations where they are carried on, profits at holding company level do not attract additional tax.
Fourth, the BVI is a common law jurisdiction whose laws are, broadly speaking, drawn from English law. It therefore draws on English law to a large extent for precedent, whilst continuing to develop a local jurisprudence of its own. The BVI has an internationally renowned modern, specialist commercial court, which deals exclusively with corporate and commercial matters. The Commercial Court is staffed by specialist Judges experienced in dealing with the sorts of matters which the Court sees, many of whom are senior QCs drawn from the London Chancery and Commercial Bar. The ultimate court of appeal is to the Privy Council in London.
These four factors make the BVI attractive to a variety of businesses, from those wishing to structure their affairs under a tax-neutral holding company to joint ventures, often between parties from different jurisdictions from one another, wanting to ensure that their mutual participation is governed by a system of law neutral as between them but nevertheless robust, commercial, tried and tested and to be relied upon.
As a professional whose primary focus is on corporate litigation, what are the most common disputes that you see?
Although our practice covers all areas in which issues of company law arise, we do see a lot of disputes which arise out of tensions in the relationship between shareholders in a BVI company. These disputes can take a variety of forms, from disputes about the entitlement of an individual to have his name entered in the company's register of members as the holder of a particular percentage of the company's shares, to challenges to Board Appointments or to the exercise by directors of their powers. Frequently, the dispute has been triggered because of the displacement of one of the investors in a joint venture facing the de facto takeover of the company's business by his fellow investor or investors, sometimes achieved through the exercise of rights attached to investments structured in the form of company debt. There has also been a recent, interesting, line of work arising in connection with the exercise of their statutory rights of dissent by shareholders to mergers, redemptions and plans of arrangement.
Having said that, much of my work involves advising companies and their boards as to how to avoid disputes developing: in other words, alerting them to the potential consequences of a particular course or courses of action and in particular any litigation risk associated with it so as to assist them in avoiding, mitigating or managing that risk.
Which are the most common triggers for disputes that might arise between shareholders?
Experience suggests that, whilst there is no apparent limit to the reasons why shareholders fall out, there are two regular sets of circumstances which appear again and again as the backdrop to disputes between shareholders.
One is the point of generational changeover in a family business: for example, where the time comes for a child or children working in a family business to takeover from their parents who founded and built the business. Sometimes the dispute is between the two generations but often between members of the succeeding generation: between one child or family group and another.
Another typical situation in which disputes of this type are triggered is where the founder of a business has engaged with external investors in order to develop the business: this relationship carries with it an inherent tension which often results in disputes. However, whatever the particular trigger or the particular context in which the dispute arises, of its nature, the association between the shareholders in the company the subject of the dispute is often one which has evolved out of a relationship of partnership, or familial connection. As a consequence, these sorts of disputes tend to bring with them rather more than a commercially driven wish to maximise a return on an investment in a business.
What is the best way to resolve shareholder disputes when they do arise?
In terms of resolving shareholder disputes, litigation is of course a blunt tool and one to be used with care. However, sometimes a negotiated settlement, even through a formal mediation, is just not possible outside the framework of an issued claim, particularly where the dispute at its core involves a struggle for power between people who have at one time been close associates, friends or family members.
So far as litigation is concerned, the BVI Business Companies Act supplies a suite of remedies to an aggrieved shareholder. These include a remedy for oppression or unfair prejudice or discrimination, similar to the provisions in the English Companies Act and a derivative action also similar to the English equivalent. However, the BVI statute goes further providing for a Compliance Order similar to that found in the Canada Business Corporations Act. This remedy allows a Member to invoke the jurisdiction of the Court to enforce compliance with the Business Companies Act or the Memorandum or Articles. For example, if a company refused to recognise a proxy validly appointed by a shareholder to attend a meeting on his behalf, the aggrieved shareholder could ask the Court to require that the Directors recognise the appointment. The Business Companies Act also allows the Court to order a meeting of members to be held and conducted in such manners as the Court thinks fit if it is impracticable to call or conduct a meeting in the manner specified by the Act or the company's Memorandum and Articles of Association.
If none of the Business Companies Act remedies quite fits the bill, then the BVI Insolvency Act 2003 allows the Court to appoint a liquidator of a company on just and equitable grounds. The approach of the BVI Court to just and equitable winding up is broadly similar to the approach which the UK Courts have adopted since the decision of the House of Lords in Ebrahimi v Westbourne Galleries Ltd  AC 360.
So, in a case where a negotiated settlement is not possible or where ADR has failed, a shareholder in a BVI company will find he has a number of options to assist him in achieving a resolution to his claims.
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