Bermuda: Corporate Governance During Covid-19

In this featured article, we look specifically at the appointment of alternate directors as a strategy to help to manage some of the practical issues arising from COVID-19 measures. An alternate director is empowered to undertake the director's duties in the event that the director is unavailable and is subject to all of the duties and obligations of a director when acting in the role. Having an alternate on stand-by can help to ensure that the business of the company can continue efficiently in the face of logistical challenges.

On a related note, we also look at the use of delegation tools to ensure the smooth conduct of business. Subject to a company's constitutional documents, directors may be permitted to delegate any of their powers or functions to another. Unlike the appointment of an alternate director, in a delegation of power the director is not relieved of his or her fiduciary duty of skill and care. The director remains under an ongoing duty to supervise the performance of the delegated power and must ensure that there is an adequate system in place for supervision, and that the person to whom the power is delegated has an adequate knowledge of the affairs of the company so as to be cognisant of any warnings that the process may generate.

One form of delegation that is commonly used is the power of attorney. We look specifically at the execution formalities for a power of attorney in each of our jurisdictions, and offer practical advice on how to meet the requirements in light of the COVID-19 restrictions.

Bermuda

Alternate Directors

The power to appoint an alternate director is governed by section 91 of the Companies Act 1981 (Companies Act) and the procedure is set out in a company's bye-laws.

Normally, the appointment of an alternate director is effected by way of a notice sent by the appointing director to the company at its registered office and signed by the appointing director with a "wet ink" signature. The Electronic Transactions Law 1999 (ET Law) provides that the legal requirement for a valid signature will have been met by an electronic record if a reliable method is used to identify the signatory and indicate that he or she intended to sign or otherwise adopt the information in that electronic record. Also, where information is required by law to be in writing, that requirement is met by an electronic record if the information contained in the electronic record is accessible and is capable of retention for subsequent reference. A scanned PDF copy of the notice bearing the "wet ink" signature that is delivered by email would be as valid as the original. If, however, the appointing director signs the notice not in "wet ink", but with an "electronic signature" (defined as a signature in electronic form in, attached to, or logically associated with, information that is used by a signatory to indicate his adoption of the content of that information) the "electronic signature" must meet the requirements set out in the ET Act.

It should be noted that the resident representative requirement under the Companies Act cannot be fulfilled by an alternate director.

Delegation and Powers of Attorney

Under Bermuda law, to exercise a valid power of attorney, the instrument creating the power must be executed as a deed and signed in the presence of an attesting witness. Section 23(1) of the Companies Act provides that "a company may, in writing, authorise any person, either generally or in respect of any specified matter, as its agent, to sign or execute deeds, instruments or other documents on its behalf and in any place inside or outside of Bermuda." Section 23(2) states that "a deed, instrument or document signed or executed by an agent on behalf of the company binds the company."

Typically in Bermuda, powers of attorney will be granted by companies for specific purposes or projects, rather than generally (although this can occur). Where there is no express authorisation in the company's constitutional documents for the Board to grant a power of attorney to a donee, the Board may nonetheless authorise any person to act as its agent, pursuant to Section 23 of the Companies Act. The Board, as a matter of good corporate governance, should authorise its agent to act on behalf of the company by resolution, and record it in the board's minutes. If this is not done, it is open to the Board to later ratify the agent's appointment either by written resolution or at a board meeting.

Section 6(A) of the Conveyancing Act 1983 provides the formalities for the valid execution of deeds under Bermuda law. These formalities differ depending on whether the signing party is an individual or a company. For companies, assuming the person signing is duly authorised to do so on behalf of the company under section 23 of the Companies Act, the only requirements are that the deed must be 'clear on the face of it' that it is a deed and that it is to be executed as a deed, meaning that the document must specify it is a deed and the signing of the document must be referred to therein as execution of the deed. There is no requirement for the deed to be witnessed. Virtual signings of deeds are therefore possible for companies and Appleby has a procedure in place to assist our clients with this process.

British Virgin Islands

Alternate Directors

The power to appoint an alternate director is governed by section 130 of the BVI Business Companies Act, 2004 (BVIBCA), subject to a BVI business company's memorandum of association (memorandum) and articles of association (articles), which would set out the procedure for the appointment. Normally, the appointment of an alternate director is effected by way of a notice sent by the appointing director to the company at its registered office and signed by the appointing director with a "wet ink" signature. Under the Electronic Transactions Act, 2001 (ET Act), a scanned PDF copy of the notice bearing the "wet ink" signature that is delivered by email would be as valid as the original. If, however, the appointing director signs the notice not in "wet ink", but with an "electronic signature" (a phrase used but not defined in the ET Law) the "electronic signature" must meet the requirements set out in the ET Act.

The BVIBCA requires that written notice of the appointment of an alternate director be given to the company within such period as may be specified in the company's memorandum or articles and, if no period is so specified, as soon as reasonably practicable. Under the BVIBCA, it is a condition of an alternate director's appointment that he or she consent in writing to such appointment. The consent would typically be filed in the company's minute book.

Delegation and Powers of Attorney

Under section 110(1) of the BVIBCA directors of a company may, subject to the company's memorandum and articles, delegate one or more of their powers to board committees (consisting of one or more directors). While most of the day-to-day powers of directors can be delegated in this way, certain powers specified in section 110(2) cannot be delegated (notwithstanding anything to the contrary in the company's memorandum and articles), including amending the memorandum and articles; appointing or removing directors and agents; approving a plan of merger, consolidation or arrangement; delegating power to committees (except for the power to appoint, and delegate to, sub-committees), and the power to make a declaration of solvency or approve a liquidation plan.

The directors as a whole will continue to remain responsible for the exercise of power by a committee unless they believed on reasonable grounds that the committee would exercise the power on conformity with the statutory duties imposed on the directors.

Under section 131 of the BVIBCA, directors may appoint agents for the company (including another director). An agent has the powers and authority of the directors (including the power and authority to affix the company's common seal) as set out in the company's articles or in the directors' resolution appointing the agent. However, an agent does not have the power or authority in relation to matters which directors cannot delegate to committees or to do certain other things set out in section 131(2) (e.g. to change the company's registered agent or office of the company; to authorise the company to continue into a jurisdiction outside the BVI; or to fix the emoluments of directors).

Where the directors appoint a person to be an agent of the company, they may also authorise that agent to appoint one or more delegates or substitutes to exercise some or all of the powers conferred on the agent.

While a power of attorney may be granted by an individual, it is more common to see powers of attorney granted by companies, typically for a specific purpose, such as the negotiation and entry into a transaction or the execution of certain documents.

It should be noted that, pursuant to the Conveyancing and Law of Property Ordinance, an irrevocable power of attorney must either (a) be given for valuable consideration (section 56) or (b) have a sunset date no more than one year from the date of the power of attorney (section 57).

BVI business companies are permitted to grant powers of attorney under section 106 of the BVIBCA:

1. "Subject to its memorandum and articles, a company may, by an instrument in writing, appoint a person as its attorney either generally or in relation to a specific matter.
2. An act of an attorney appointed under subsection (1) in accordance with the instrument under which he was appointed binds the company.
3. An instrument appointing an attorney under subsection (1) may either be (a) executed as a deed; or (b) signed by a person acting under the express or implied authority of the company."

Under section 103 of the BVIBCA, "an instrument is validly executed by a company as a deed or an instrument under seal if it is either

• sealed with the common seal of the company and witnessed by a director of the company or such other person who is authorised by the memorandum and articles to witness the application of the company's seal; or
• it is expressed to be, or is expressed to be executed as, or otherwise makes clear on its face that it is intended to be, a deed and it is signed by a director or by a person acting under the express or implied authority of the company".

As a matter of good corporate governance, the Board should authorise the grant of a power of attorney by a resolution consented to in writing or incorporated in the minutes of a board meeting. If this is not feasible at the time, the Board could pass a resolution ratifying the grant of the power of attorney at a later date.

Cayman Islands

Alternate Directors

The power to appoint an alternate director is governed by a company's articles of association (articles). Section 55(2) of the Companies Law (2020 Revision), as amended (Companies Law) stipulates that for the purposes of a company's register of directors (which must include alternate directors, if any) a person is an alternate director if that person is (a) appointed by a director of the company to exercise all the powers and perform all the responsibilities of that director; (b) entitled to receive notice of meetings of the board of directors of the company; (c) entitled to sign or execute written resolutions of the board of directors of the company; and (d) considered in all respects to be a director of the company.

Normally, the appointment of an alternate director is effected by way of a notice sent by the appointing director to the company at its registered office and signed by the appointing director with a "wet ink" signature. Under the Electronic Transactions Law (2003 Revision) (ET Law), a scanned PDF copy of the notice bearing the "wet ink" signature that is delivered by email would be as valid as the original. If, however, the appointing director signs the notice not in "wet ink", but with an "electronic signature" (defined as an electronic sound, symbol or process attached to or logically associated with an electronic record and executed or adopted by a person with the intent to sign the electronic record) the "electronic signature" must meet the requirements set out in the ET Law.

It should be noted that a list of a company's directors (including alternate directors, if any) will be made available for public inspection at a kiosk at the office of the Registrar of Companies.

Delegation and Powers of Attorney

Generally, directors are permitted to delegate their powers, but the company's articles should be checked to determine if the latter place any restrictions on the right to delegate.

Under the Powers of Attorney Law (1996 Revision) of the Cayman Islands (PoA Law), a document creating a power of attorney must be executed by the donor as a deed or as an instrument under seal. An exception to this general rule is made under the Exempted Limited Partnership Law (2018 Revision): a partnership agreement that creates or grants a power of attorney will be deemed to satisfy the above formalities of execution as long as it has been executed in the manner contemplated by the parties. A donor who is an individual will have properly executed a document as a deed or as an instrument under seal if the donor signed the document in the presence of a witness. Under the PoA Law, companies are exempted from the witnessing requirement.

Section 83(1) of the Companies Law (2020 Revision), as amended, (Companies Law) provides that "A company may appoint and empower a person either generally or in respect of a specified matter to execute deeds or instruments under seal on its behalf" (section 83(2) states that while such appointment need not be made by deed or instrument under seal, any person so appointed otherwise than by deed or instrument under seal shall not constitute a donee of a power under the PoA Law). Section 83(3) states that "A deed or instrument under seal signed by a person on behalf of a company pursuant to the authority conferred pursuant to subsection (1) shall bind the company and have effect as if it were executed as such by the company". Section 81 of the Companies Law provides that any person duly authorised by the company may execute a document as a deed by having the document express on its face that it is intended to be a deed and signing it by hand. In the alternative, the company can execute the power of attorney under seal. The formalities for the affixing of the corporate seal (if the company has one) are found in the company's articles, which should be consulted in any event in case they contain any specific requirements for execution on behalf of the company.

As a matter of good corporate governance, the Board should authorise the grant of a power of attorney by a resolution consented to in writing or incorporated in the minutes of a board meeting. If this is not feasible at the time, the Board could pass a resolution ratifying the grant of the power of attorney at a later date.

Guernsey

Alternate Directors

Under Guernsey law, there is no restriction on where a meeting of the board may be held. Many meetings can be dealt with via video conference or telephone calls. There may however be restrictions set out in a company's articles or memorandum of incorporation (articles) or requirements that any meeting must be held on island for tax, economic substance or other reasons. So whilst a video conference or telephone meeting might be helpful, it is still important to ensure that you comply with any quorum and/or location of meeting restrictions set out in the articles. Where such restrictions are in place, it may be useful to appoint alternate directors on the island (or simply appoint additional directors to the board who are also locally resident) to ensure that even where face to face meetings are prohibited, the quorum of directors on island is correct.

The power to appoint an alternate director is governed by the articles. Section 131 of the Companies (Guernsey) Law, 2008 (as amended) (Guernsey Companies Law) stipulates that for the purposes of the law any alternate director is treated as a director. Just because they have been appointed as an alternate does not mean that they have any lesser duties to the company than any other director.

Normally, the appointment of an alternate director is effected by way of a notice sent by the appointing director to the company at its registered office and signed by the appointing director with a "wet ink" signature. It is imperative that you check the respective articles. Under the Electronic Transactions (Guernsey) Law, 2000 (as amended) (Guernsey ET Law), a scanned PDF copy of the notice bearing the "wet ink" signature that is delivered by email would be as valid as the original. If, however, the appointing director signs the notice not in "wet ink", but with an "electronic signature" (defined as an electronic sound, symbol or process attached to or logically associated with an electronic record and executed or adopted by a person with the intent to sign the electronic record) the "electronic signature" must meet the requirements set out in the Guernsey ET Law.

It should be noted that all company directors must also be registered with the Guernsey Companies Registry. A list of a company's directors (including alternate directors, if any) will be made available for public inspection at the Registrar of Companies using their online company search facility.

Delegation and Powers of Attorney

Generally, directors are permitted to delegate their powers, but the articles should be checked to determine if the latter place any restrictions on the right to delegate. This briefing does not deal with powers of attorney granted by individuals, it only looks at powers of attorney granted by companies.

Section 118 of the Guernsey Companies Law provides that a power of attorney granted by a company is not valid unless "signed by a director or in such other manner as may be provided for in the articles". It also states that any power of attorney executed in this way is capable of use in any place and is without prejudice to s34 of the Trusts (Guernsey) Law, 2007 (as amended) and has effect notwithstanding the provisions of the Powers of Attorney and Affidavits (Bailiwick of Guernsey) Law, 1995.

A power of attorney must be executed in accordance with section 118 of the Guernsey Companies Law, which requires that the power be signed by a director or as otherwise provided for in the articles. If it is to be signed with an electronic signature there must be the requisite power to do so in the minutes/resolutions authorising such action if the articles either allow electronic signatures or are silent on their use. As powers of attorney are excluded from the legislation providing for the validity of electronic signatures it is possible that some advisers will reject a power of attorney executed in this manner and it is advisable to agree the use of an electronic signature with anyone seeking to rely on the power of attorney in advance.

As a matter of good corporate governance, the Board should authorise the grant of a power of attorney by a resolution consented to in writing or incorporated in the minutes of a board meeting. However in this area, we strongly advise that you seek legal advice as there are many exceptions to the rules.

Isle of Man