This week the BVI Court issued important guidance to accountancy professionals, BVI companies and their shareholders as to how shares should be valued following a squeeze-out, merger or dissent from other restructuring provisions.
The BVI Business Companies Act, 2004 (the Act) is designed to be flexible and commercially attractive to the international financial community. With that in mind, the Act gives protection for investing shareholders to obtain fair value for their shares if they dissent from particular transactions:
- Merger;
- Consolidation;
- A court permitted arrangement;
- The sale, transfer, lease exchange or other disposition of more than 50 per cent of the value of the company's assets or business, if not made in the ordinary course of business (subject to other limited exceptions); or
- In a compulsory buy-out by a majority shareholder.
In circumstances of such dissent and where the Company's written offer is not accepted by the dissenting member, the Act provides for a statutory appraisal process to fix fair value: Two appraisers are appointed by the parties, a third appraiser is thereafter designated by those appraisers and it is for them to fix fair value of the shares.
In the recent case, where Vernon Flynn QC acted together with Harneys Partner Andrew Thorp and Senior Associate Vicky Lord, the BVI Commercial Court gave guidance on that process. Bannister J declared that the statutory appraisal process provided that absent unanimity the appraisers may fix fair value by majority decision.
This welcome guidance not only means that the process of fixing fair value is more likely to be efficient and conclusive, but it also aims to reduce the risk of an impasse, were unanimity alone to apply. Accounting professionals will no doubt agree that a valuation process may well become muddied in circumstances where the parameters for fixing fair value are not determined at the outset. The risk of valuation inaccuracy is reduced since inflated valuations are less likely where a majority determination will be determinative absent unanimity. The BVI Court's approach on interpretation of the Act is one that serves to make the appraisal process more efficient, less likely to result in deadlock, and will give valuation professionals the certainty and comfort of knowing the statutory parameters to facilitate their engagement in the appraisal process.
The decision is consistent with the Commercial Court's proactive stance in assisting parties utilising restructuring mechanisms provided under the Act, having previously given guidance on minority discounts and contracting out of the statutory process.
For background information on appraising the fair value of shares, read Harneys' guide.
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.
