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08 November 2018
In the recent BVI Court of Appeal decisions of Wembley Limited and Sutton Limited, disabled bearer shareholders were found to have a constitutional right not to be deprived of their property without compensation.
The passage of the BVI Business Companies Act in 2004 produced a seismic shift in the treatment of bearer shares in the British Virgin Islands. The bearer shareholders were given a deadline of 31 December 2009 (the transition date) to deposit their shares with a custodian or to redeem, convert or exchange them for registered shares. After the transition date any un-deposited, unredeemed or unconverted bearer shares would be immobilised, with the holder losing all of the entitlements which those shares conferred, including the right to vote.
The principals of Wembley Limited and Sutton Limited took no steps to regularise their bearer shares by the transition date; thus so when the last surviving director of both companies died, the companies were, in effect, paralysed – no new director could be appointed as the bearer shareholders were disabled from voting. Accordingly, the bearer shareholders applied for the appointment of a receiver to both companies to enable them to redeem their disabled bearer shares.
At first instance, it was held that redemption of the bearer shares was no longer possible because the companies were incapacitated by the parties' own inaction and delay. The trial judge described this as a "contumelious failure" because years had passed since the transition date and the director's death.
In allowing the appeal, the court found that:
It is now abundantly clear that even where BVI disabled bearer share companies are still without functionaries (ie, directors) to facilitate the traditional redemption of those shares, the court has flexible jurisdiction to appoint receivers to redeem those disabled shares, thereby ultimately restoring the companies to a functional state.
For further information on this topic please contact Andrew Thorp at Harney Westwood and Riegels' British Virgin Islands office by telephone (+1 284 494 2233) or email (firstname.lastname@example.org). Alternatively, contact Jeremy Child at Harney Westwood and Riegels' London office by telephone (+44 203 752 3600) or email (email@example.com). The Harneys website can be accessed at www.harneys.com.
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