In a recent decision, Sempacher Foundation v Lark Service
Inc. & Others (BVIHC (Com) 2018/0027)
("Sempacher"), the BVI Commercial Court
has ruled that BVI companies continue to have power to convert
bearer shares to registered shares following the transition date of
31 December 2009 (the "Transition Date")
and that there is no statutory time limit on the exercise by a BVI
company of such a power.
The company whose shares were the subject of the decision was
incorporated under the International Business Companies Act, 1984
(the "IBC Act"), with the power to issue
either bearer shares or registered shares, as was then permissible
under the IBC Act. The facts, so far as material were these: the
company had issued two bearer share certificates, one (Certificate
number 2 (the "Certificate"))
representing 60% of the shares in the company being the principal
focus of the case. This Certificate had not been deposited with or
held by an authorised or recognised custodian prior to the
Transition Date as required by paragraph 35 of Schedule 2 of the
Business Companies Act 2004 (the "BCA")
but had been held by a third party until February 2015. The company
had not given notice to disapply Part IV of Schedule 2 of the BCA.
In February 2015, the Certificate was delivered to BVI lawyers
expressly for the purpose of their delivering it to the registered
agent of the company with a request to exchange the bearer shares
for registered shares.
Article 23 of the articles of association of the company concerned
provided that the directors "shall" upon receiving a
request to exchange a bearer share for a registered share, comply
with such request by cancelling the bearer share certificate and
issuing a certificate for the corresponding registered
shares.
The question for the BVI Court was whether, as a matter of BVI law,
the conversion or exchange of bearer shares for registered shares
was permissible in February 2015, when the Certificate was
delivered with the request for conversion. It was accepted that a
BVI company has a continuing power to redeem bearer shares, as
recognised and confirmed by the Eastern Caribbean Court of Appeal
(on appeal from the BVI Commercial Court) in Bank of Nova
Scotia Trust Company (Bahamas) Limited v Registrar of Corporate
Affairs (BVICAP 2016/0009 0010). The Court had in
Sempacher had to decide whether redemption was the only
permissible option post the Transition Date or whether the
statutory regime imposed in relation to bearer shares, continued to
provide two avenues, that of conversion or exchange, and that of
redemption, both exercisable by the company, through which existing
bearer shares may be eradicated or eliminated.
In a lengthy and closely reasoned judgment, the Court conducted a
detailed analysis of the provisions of the BCA which impose the
legislative regime for dealing with bearer shares held in BVI
incorporated companies. It concluded that, as a matter of statutory
interpretation, the legislature intended to have the power in a
company to convert bearer shares to registered shares running in
parallel with the power to redeem existing bearer shares and that
no time limit was placed by the legislature on the exercise of the
companies' power of redemption or of conversion or exchange so
that the power survived the Transition Date.
The Court determined that the intention of the relevant provisions
of the BCA dealing with bearer shares, and how they are to be
treated in relation to grandfathered bearer share companies after
the Transition Date, is first, to impose upon such shares and such
companies, a statutory regime and process directed at immobilising
or disabling bearer shares not deposited with an authorised or
recognised custodian by a certain date. And second, allowing for
the ultimate removal of all bearer shares issued by BVI companies
under the former IBC Act, by permitting the conversion or exchange
of bearer shares for registered shares, or the redemption of bearer
shares for cash or, exceptionally, for the company to be wound up
on the application of the Financial Services Commission.
The effect of the judgment is to resolve any doubt as to whether it
continued to be possible for a BVI company to convert or exchange
existing bearer shares. It is now clear that, whilst outstanding
bearer shares continue to be disabled unless deposited with an
authorised or recognised custodian, their holders may deliver the
bearer share certificate to the company for exchange or conversion
to registered shares and, if they do so, the company may exercise
its power to exchange or convert with the confidence that such a
power survives and will continue to be exercisable without a cut
off date.
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.